Bank of Lithuania

New name, AB DNB bankas, to be written in the license

The Board of the Bank of Lithuania gave green light to AB DnB NORD bank to register amendments to the provisions of its Statute, related to the bank's name and competence of its Supervisory Council, which were approved on 19 September 2011 by Norwegian bank DnB NOR Bank ASA, the sole owner of the bank.

Also, the Board decided to change the banking license issued to AB DnB NORD on 13 September 1993 by the banking license which will contain the new name of the bank, AB DNB bankas. The said decision will come into force on the day the amendments to the Statute of AB DnB NORD bank are registered with the Register of Legal Entities.

In its notice to the Bank of Lithuania, AB DnB NORD bank said amendments to the provisions in its Statute, which are related with the bank’s name, had to be done because of the change of names within the entire DnB NOR ASA group. The bank said the decisions taken were planned to be implemented by 11 November 2011.

Other amendments to the bank’s Statute were made to harmonise the Statute’s provisions with the currently effective legal acts.

Bank allowed to repay subordinated loans

The Board of the Bank of Lithuania allowed AB DnB NORD bank to repay nine subordinated loans prior to their stated maturities, which were received in 1998 and in the period 2003 to 2008. The permission was issued in view of the fact that the bank’s reserve capital would be increased by the amount bigger than the amount of subordinated loans to be included into the bank’s capital and the increase would have no negative impact on the banks’ capitalisation.

All subordinated loans to the bank total LTL 402.3 million, but only LTL 269.2 million of the sum will be included into AB DnB NORD bank's Tier II capital according to the current procedures.  In future, the amount of subordinated loans to be included into the capital is expected to go down, as the loans will be approaching their maturity date. Terminating subordinated loan agreements would allow the bank to reduce its borrowing costs.

The Board noted the bank’s plans to boost its reserve capital by LTL 364.3 million before repaying the subordinated loans. The reserve capital increase and repayment of subordinated loans would lead to an increase of LTL 95.1 million in the bank’s capital and a rise of 1.14 percentage point in the capital adequacy ratio.  According to the bank calculations, the repayment of subordinated loans and increase of its reserve capital would help to increase the bank's capital adequacy ratio up to 13.5 per cent (15 per cent for the group) at the end of 2011 instead of 12.36 per cent (13.86 per cent for the group) in the event that subordinated loans were not repaid and reserve capital not increased.

UAB Bitė to be issued a license of a payment institution with restricted activities

The Board of the Bank of Lithuania decided to issue to UAB Bitė a license of a payment institution with restricted activities, which gives the right to provide the payment service specified in Article 5(7) of the Law on Payments of the Republic of Lithuania. These are payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods or services.

So far a total of 17 undertakings have been issued licenses for provision of payment services. 

Amendments were made to the General Regulations for the Calculation of Capital Adequacy and other related documents

The Board of the Bank of Lithuania amended the General Regulations for the Calculation of Capital Adequacy. The amendments were made with regard to the new European Union (EU) directives.  Another three documents were amended accordingly: The General Provisions for the Internal Capital Adequacy Assessment Process (ICAAP), The General Provisions for the Supervisory Review and Evaluation Process (SREP), and Minimum Requirements for Information Made Available to the Public. EU directives that regulate these issues are to be implemented by the end this year; so, the Board decided the new requirements, specified in its resolutions, must come into force on 31 December 2011.

Some requirements have been specified and tightened in the General Rules for the Calculation of Capital Adequacy, which are applied to securitization transactions and aimed at the transaction originator to secure funding in capital markets by transforming the assets he manages or receivable income into securities, and the monetary funds received from these operations may be used to finance new transactions.

By the time, securitisation exposure in the bank’s trade book was not taken into account when calculating capital need for hedging specific financial instruments-(interest rates) related risks. From now on, it will be calculated applying an 8 per cent risk coefficient. The calculation is to be done by taking into account the approach (standard or internal ratings-based approach) applied to the securitisation exposures in bank’s trade book, rather than grouping them according to their financial capability and with the help of an appropriate risk coefficient.

The requirement for capital needed to hedge specific risk related to the equity securities was tightened: an 8 per cent risk coefficient is to be applied instead of previous 4 per cent and 2 per cent in specified cases.

The recent changes had also an impact on internal models-based approaches towards exposures in bank’s trade book. From now on, banks that apply so called Value-at-Risk model will have to do this in stress conditions too in observance of strict qualitative and quantitative requirements.

The assessment of extra default risk and exchange risk are entirely new capital adequacy regulation field. This is a a credit risk assumed by a bank in its trade book, which shows correlation between default probability and the ratings set by the bank itself and (or) external ratings. The General Regulations for the Calculation of Capital Adequacy define in detail methods for assessment of internal models related to default and exchange risks, which are based on strict supervisory review standards.

The Board established that in carrying SREP, and referring to the results received during stress testing of internal models, the Bank of Lithuania would be allowed to identify extra capital charges for the bank’s correlation trading portfolio in case the bank used internal models to calculate its capital requirement needed to hedge specific financial instruments-related  risks. Based on the results of SREP and in strive to hedge the risk that arises due to improper variable pay policy, the Bank of Lithuania will be able to apply the following two additional requirements in relation to containing operational risks: to not exceed the set amount of net income when paying out variable pay, and request the bank to use its net profit for strengthening its capital base.

Banks which calculate the capital needed to hedge risks specified in the trade book by applying internal models will have to disclose the highest, lowest, and medium risk value in stress conditions during a reporting period or the end of the period. Banks were also instructed to disclose to the public the amount of capital needed for hedging specific interest rate risk related to securitisation exposure. Also, banks were instructed to provide for public disclosure mechanisms in documents that define their public disclosure policy.

Amendments to rules

The Board of the Bank of Lithuania made changes to the requirements for the supervision of foreign bank branches and cooperation with supervisory institutions of other EU Member States during the branch supervision. They were supplemented with provisions on cooperation with the European Banking Authority (EBA) in addressing a number of issues. 

Also, some changes were made to the Rules on Consolidation of Accounts of the Financial Group and on Joint (Consolidated) Supervision. They were also supplemented with new provisions on co-operation with the European Banking Authority (EBA).