Bank of Lithuania

1. The Board discussed the results of the inspection of AB parex bankas carried out from19 December 2002 to 22 January 2003.

It was established that during the inspection that the Bank complied with all prudential requirements.

2. The Board discussed the results of the inspection of Sampo Bank carried out from19 December 2002 to 22 January 2003.

It was established that during the inspection that the Bank complied with all prudential requirements.

3. The Board was presented the survey of the Government securities (GS) market in 2002.

The total of 45 GS auctions were held at the Bank of Lithuania in 2002 (51 in 2001). The nominal value of GS sold in these auctions equalled LTL 1,629.7 million. The overall demand for GS in the auctions stood at LTL 3.252,6 million or was twice as high as the nominal value of GS sold in the auctions (the nominal value of GS sold in 2001 totalled LTL 1,440.6 million and the overall demand amounted to LTL 2,787.7 million or was 1.9 times ahead of the supply).

The total amount of GS in circulation sold last year increased in the nominal value by LTL 740,858 million or 42.4 per cent (LTL 222,2 million or 14.6 per cent in 2001).

The average yield of T-bills sold in auctions was 3.69 per cent in 2002 (5.67 per cent in 2001), and of Government bonds 5.20 per cent (7.24 per cent in 2001). The overall yield of GS sold in auctions was 4.57 per cent. With the decline of interest on the anchor currency the yield of GS sold in auctions dropped as well.

The maturity of public domestic debt in terms of transferable GS sold at the auctions organised in the Bank of Lithuania increased by 260 days in 2002 to 890 days in late December 2002 (630 days late in 2001).

4. The Board was presented the report on international reserve investment in 2002.

Last year, international reserves went up by EUR 427.7 million or 22.6 per cent and stood at EUR 8,012.7 million at the end of December 2002 (EUR 2,320.6 million, USD 2,419.7 million).

After the repegging of the litas from the US dollar to the euro in February 2002, the biggest international reserve conversion operation in the history of the Bank of Lithuania was carried out. After the conversion, the currency and functional unit structure of international reserves changed. Due to external and international reserve management changes in the course of the year, the share of international reserves invested in liquid and highly rated financial instruments increased. The declining interest rates in global financial markets determined the investment performance of international reserves. The investment climate was more favourable for longer-term investment, the performance of which was the best for the past four years, and less favourable for short-term investment.

5. The Board reviewed the survey of the global economic development in 2002

The survey marked that a recovery of global economy anticipated in 2002 was not universal. Following the recession of 2001, the rate of growth of the US economy accelerated, yet the recovery was not as fast as had been expected. At the end of the year, the Federal Reserves, seeking to mitigate the negative effects of a decline in the equity markets on the economy, reduced the target overnight interest rate to the lowest level in over 40 years.

The breakthrough in the economy of the euro area predicted in 2002 did not occurr. The slowest economic development for nearly ten years resulted from the further decline in investment and a slow growth in household consumption. Slow progress in the implementation of structural reforms and inflexible fiscal policies determined by tightly limited budget deficits also hindered the economic development in the region. In view of poor macroeconomic performance and a downturn in share prices, the European Central Bank cut interest rates late in the year.

Depreciation of the US dollar was the dominant tendency in financial markets in 2002. The value of the dollar against the euro declined for the first time ever since the introduction of the euro. The widening US current account deficit and geopolitical tensions, coupled with a decline in the equity market were the main reasons behind the weakening US dollar. The mistrust in the equity market that arose from accounting-related scandals triggered the historically biggest decline in major world share indices. The decline in share prices for a third consecutive year and the depreciation of the US dollar increased the price of gold, fuelled also by the continually increasing geopolitical tensions. The latter was among the main reasons to determine also an increase of oil prices. Oil prices increased also as a consequence of reduced supply and accelerated accumulation of oil reserves.

6. The Board decided to grant permission to AB Vilniaus Bank to repay a subordinated loan of DEM 18 million (EUR 9.2 million, LTL 31.8 million) to the European Bank for Reconstruction and Development before maturity (1 September 2004). The loan agreement had been concluded between AB Bank HERMIS and the EBRD.

The permission to repay the subordinated loan before maturity was taken in view of the fact that the repayment of the loan before maturity would not have a negative impact on the financial condition of the Bank and its ability to comply with prudential requirements.