Credit Institutions (banks and credit unions)
What is a credit institution?
A credit institution is an undertaking that is licensed to receive deposits or other repayable funds from non-professional market participants and to grant credit or issue and administer electronic money. Credit institutions are commercial banks, foreign bank representative offices and branches, and credit unions.
Are enterprises providing fast credits also credit institutions? Does the Bank of Lithuania supervise them?
No, such enterprises are not credit institutions licensed by the Bank of Lithuania. The Bank of Lithuania performing its functions set by the Law on the Bank of Lithuania and other legal acts, is not authorised to perform supervision of the business of such enterprises.
Does the Bank of Lithuania supervise foreign bank branches operating in Lithuania?
The supervision of branches of foreign banks in Lithuania is performed by the bank supervisory authority of the foreign state within the jurisdiction of which the bank falls. The Bank of Lithuania is responsible for monitoring the compliance of branches with the liquidity ratio requirement, deposit concentration, it analyses financial indicators, changes in assets and liabilities, income and costs, applied internal control mechanisms, and performs inspections within the range of its competence.
Where is the list of credit institutions operating in Lithuania available?
The official list of credit institutions operating in Lithuania is posted on the Bank of Lithuania website.
What is supervision of credit institutions and who performs it?
Supervision of credit institutions includes accumulation and analysis of information, necessary for supervision, from credit institutions in the form of statements, assessment of the operations and financial standing of credit institutions on the basis of that information, taking into account the prudential and other requirements set in the legislation, and inspection of credit institution operations. The latter aims to verify the correctness of the statements presented to the Bank of Lithuania, assessment of the effectiveness of credit institution operations and financial standing (capital, asset quality, profitability), management of assets and liabilities and governance of credit institutions; application of economic and other enforcement measures provided in the legislation with regard to those credit institutions that fail to comply with statutory requirements in relation to safe and reliable operations.
The supervision of credit institutions is conducted by the Bank of Lithuania.
What is the difference between a bank’s representative office and a branch?
A representative office of a bank is a subdivision that does not perform banking operations or engage in other commercial and economic activities. A branch, on the other hand, is a subdivision that operates under the name of the bank and is authorised by the bank to perform at least one banking operation. The bank is liable for the transactions and operations of the branch.
What prudential requirements and ratios are applied to the banks?
The Law of the Republic of Lithuania on Banks establishes the prudential requirements to banks that are compulsory to all commercial banks in Lithuania. The size of ratios and their calculation methodologies are set by the Bank of Lithuania. The following prudential requirements have been set: capital adequacy, liquidity, maximum open position in foreign currency and precious metals, maximum exposure and large exposure. The Bank of Lithuania may adopt legal acts establishing other requirements that do not contradict the recommendations of the Basel Committee on Banking Supervision and European Union directives.
- Capital adequacy ratio specifies that the ratio of eligible bank capital and risk-weighted assets and off-balance sheet liabilities may not be lower than 8 per cent.
- Liquidity ratio specifies that the ratio of a bank’s liquid assets and current liabilities may not be lower than 30 per cent.
- Maximum open position in foreign currency and precious metals: the overall open position in foreign currency (excluding euro) may not exceed 25 per cent of bank capital, whereas the ratio of the open position in one currency (excluding euro) or precious metals may not exceed 15 per cent of bank capital.
- Maximum exposure ratio means that the amount of loans granted to a single borrower may not exceed 25 per cent of bank capital. The amount of loans granted by the bank to its parent company, other subsidiary companies of this parent company or its own subsidiary companies may not exceed 75 per cent of bank capital for each borrower, if the Bank of Lithuania conducts the supervision of the whole financial group on a consolidated basis. If the Bank of Lithuania does not conduct the supervision of the whole financial group on a consolidated basis, the amount of loans granted by the bank to its parent company, other subsidiary companies of this parent company or its own subsidiary companies may not exceed 20 per cent of bank capital for each borrower.
