Bank of Lithuania

1. On 1 November 2000 it was established that a Vilniaus Bank deposit in a foreign bank exceeded the 25 per cent large exposure to a single borrower requirement by more than 2 per cent. Enforcement measures were not applied as the above violation was promptly removed.

2. The Board resolved to announce the 500 litas denomination banknote of 2000 issue legal tender and to issue it into circulation as of 18 December 2000.

The decision was taken with the view of creating a more effective banknote structure. This will remove the emerging disproportion in banknote structure when a banknote of a certain denomination accounts for more than a half of banknote circulation.

It is expected that with the issue of the 500 litas banknote the use of 100 litas banknote, which is now creating a disproportion, will decline. The use of the 200 litas banknote will also be slightly reduced.

The new 500 litas banknotes were printed by the German company Giesecke & Devrient GmbH. The banknote features the most advanced security features protecting against colour copying, scanning and other ways of counterfeiting.

The front of the new 500 litas banknote bears the portrait of Vincas Kudirka (1858-1899), a Lithuanian writer and author of the Lithuanian national anthem. The back depicts the Lithuanian Bell of Freedom against the background of a view of nature.

The author of the banknote is Giedrius Jonaitis.

A public presentation of the banknote will be arranged before issuing the banknote into circulation.

3. The Board approved general provisions of Bank Internal Audit. It was recommended that Lithuanian commercial banks should adjust their internal auditing provisions accordingly.

The decision was taken in view of the fact that, as banks expand their operations and introduce new services, they face new types of risks that were not sufficiently reflected in the previous rules in terms of their control and management.

The resolution enters into force as of 1 March 2001.

4. The Board approved Form No. 0670 of the quarterly statistical report "Payment Instruments" that will have to be presented to the Bank of Lithuania as of 1 April 2001. The statistical report will include commercial bank information about non-cash payments, bankcards, ATMs and card readers.

The information in the report will help to estimate the situation in the payment system and will contribute to enhancing the efficiency and transparency in payment services. The above decision was also prompted by the increasing interest in payment instruments, especially payment cards.

The Bank of Lithuania intends to publish the collected data in its publications and on its internet site.

5. The Board was presented a review of the Government securities market in the third quarter of 2000.

Over the period, the Bank of Lithuania held 16 GS auctions (16 during the second quarter).

LTL 780.0 million GS at par value were offered during the quarter (LTL 625.0 million during the second quarter), with total demand of LTL 1,354.5 million, which exceeded the supply by 1.7 times (during the second quarter demand was LTL 967.8 million, 1.5 times more than the supply).

LTL 746.3 million of GS were sold in auctions during the quarter, i.e. 95.7 per cent of all bids were accepted (LTL 612.6 million, or 98.0 per cent during the second quarter). Only one-year maturity GSs were not fully sold as the bid rate exceeded the top yield determined by the Ministry of Finance. LTL 516.3 T-bills (LTL 530.0 million during the second quarter), or 2.6 per cent less than during the second quarter, and LTL 230.0 million of Government bonds (LTL 82.6 million in the second quarter), or 2.8 times more than in the second quarter, were sold during the third quarter.

During the same quarter the Government redeemed GSs of 14 issues in the total amount of LTL 618.9 million (16 issues of LTL 501.2 million during the second quarter). The debt to investors increased during the quarter by LTL 127.5 million, or 9 per cent, from LTL 1,412.9 million to LTL 1,540.4 million. Domestic debt in terms of circulating GSs increased by LTL 111.3 million (8.6 per cent) during the second quarter.

Similar to the previous quarter, issue of shortest ? three and six month ? maturity GSs was further reduced, while more GSs of one, two and three-year maturities were issued.

Average yield on T-bills during the third quarter was 8.14 per cent (8.45 per cent during the second quarter), and 11.31 per cent on Government bonds (12.40 per cent during the second quarter).

Average yield on three-month T-bills increased from 6.10 per cent (during the second quarter) to 6.25 per cent in the third quarter, six-month, from 7.14 per cent to 7.16 per cent, while average yield on one-year T-bills declined from 9.64 per cent to 9.30 per cent.

Average yield on two-year Government bonds sold in auction during the third quarter declined from 12.52 per cent (during the second quarter) to 10.60 per cent, and three-year bonds, from 11.93 per cent to 11.62 per cent.

The macroeconomic situation further improved during the third quarter and the Government continued tight fiscal policies. With surplus funds accumulated in commercial banks, a comparatively low borrowing in the domestic market and stable demand at GS auctions, the yield on GSs sold in auction started declining at the start of the quarter. All this served as a good basis for continuing the previous strategy of issuing longer maturity GSs, which makes it easier to service debt and reduces refinancing risk and management costs.

Secondary circulation of GSs on the National Stock Exchange amounted to LTL 190.9 million during the third quarter and was lower by 14.4 per cent than during the second quarter (LTL 222.9 million). The biggest volume consisted of trade in GSs with 181 to 365 days to maturity. The secondary circulation of such GSs made up 39.4 per cent of the total turnover in GSs on the National Stock Exchange.