Official translation

Official translation Official translation REPUBLIC OF LITHUANIA LAW ON COMMERCIAL BANKS 21 December 1994 No. I-720 Chapter

GENERAL PROVISIONS Article
The Purpose of the Law The purpose of the Law is to regulate the activities of commercial banks (hereinafter referred to as "banks") in order to assure a stable, reliable, efficient and safe system of banks. The Law shall establish the procedure and terms of establishing and licensing banks and their subdivisions as well as the peculiarities of their activities, reorganisation and liquidation. Banks and their subdivisions shall be registered in accordance with the procedure established by the Law on the Register of Enterprises of the Republic of Lithuania. In their activities banks shall comply with the Company Law of the Republic of Lithuania and other legal acts, unless this Law provides otherwise, as well as with their statutes (bylaws). This Law shall not apply to the banks whose activities are regulated by separate laws. Article
Definitions "Bank" - an enterprise functioning on the basis of share capital which accepts deposits and other repayable funds and/or makes loans, and assumes all the risks and responsibility related thereto, and engages in other activities specified by this Law. "Bank Subsidiary" - a bank in which some other bank directly and/or indirectly holds a portion of share capital equivalent to 5O% or more of its voting shares or a portion of share capital enabling to exercise control over the management of the subsidiary. "A bank branch" - a territorial subdivision of a bank registered in the Republic of Lithuania which does not possess the rights of a legal person and which operates in the name of the bank and performs all or some of banking operations on behalf of the bank, and for the transactions and activities whereof the bank is liable to the extent of its assets. "A bank agency " - a territorial subdivision of a bank which represents the bank abroad or in the Republic of Lithuania but which, however, does not perform banking operations and does not engage in other commercial-business activities. "Banking license" - a written permission of the Bank of Lithuania to engage in the activities specified in Article 25 of this Law; "Block of shares" - 1/1O or larger amount of the share or voting capital of a bank acquired or managed directly and/or indirectly by legal or natural persons or a group of such persons.. "Controlling interest" - a block of shares acquired or managed directly and/or indirectly by legal or natural persons or a group of such persons which enables its owners or holders to control management and activities of the bank. "Shares acquired and/or managed directly" - a portion of share capital which a shareholder has acquired and/or manages in his or her own name or delegates the powers of management thereof to a third person "Shares acquired and/or managed indirectly" - a portion of share capital acquired and/or managed through property relations by a shareholder or a group of shareholders or a third person through a group of shareholders. "Bank capital" - the sum of fixed capital and additional capital. "Fixed capital" - the sum of the bank's share capital, reserve capital and the amount of retained earnings of the pervious year. "Share capital" - the nominal value of all registered shares. "Reserve capital" - the capital formed in the manner established by the Bank of Lithuania. "Additional capital" - other capital of the bank provided for the statute (bylaws) of the bank. Article
Prohibitions It shall be prohibited to engage in credit activities without a licence of the Bank of Lithuania. Only persons registered in the Republic of Lithuania which have been issued with a banking license according to the procedure established by this Law may use the words "bank", "commercial bank" or any other combinations or derivatives of these words in their name or for advertising or any other purposes. Words specified in Par. 2 hereof, as well as their combinations and derivatives may be used in the names of other economic entities only if the context in which they occur implies that such usage is not associated with credit activities. The word "state" or derivatives of the word may only be used in a bank's name if at least 51 per cent of the bank's share capital belongs to the State of Lithuania by the right of ownership. Article
N ame and Seal of a Bank The name of a bank or its subdivisions must include the words "bank" or "commercial bank". The name of a bank and its trademark must be registered according to the procedure established by the laws of the Republic of Lithuania. The seal must bear a full or abbreviated name of the bank. Article
Liability of Banks Banks shall be legal persons of limited liability. They shall not be liable for the obligations of their shareholders and/or founders, and the shareholders and/or founders shall be liable for the obligations of banks only to the extent of assets they have transferred to banks either as founders or by acquiring shares thereof. Banks shall not be liable for the obligations of the state, and the state shall not be liable for the obligations of banks, except in cases when the state undertakes such a liability. Article
Establishment of Foreign Banks in the Republic of Lithuania A foreign bank in the Republic of Lithuania may: 1) establish a subsidiary; 2) acquire shares in a functioning bank and, with the consent of the Bank of Lithuania, acquire controlling interest in a functioning bank; and 3) upon receiving permission of the Bank of Lithuania establish bank agencies. The Bank of Lithuania shall issue a banking license to a foreign bank subsidiary only provided: 1) the foreign bank establishes a subsidiary on its own or together with other bank or banks licensed in the Republic of Lithuania; 2) fixed capital is not less than the minimum fixed capital set by the Bank of Lithuania; 3) the laws of the foreign state within whose jurisdiction the foreign bank exists, permit its banks to establish bank subsidiaries abroad, or the bank has the permission of the bank supervisory body of that country; 4) the statute (bylaws) have been registered in accordance with the procedure established by the laws of the Republic of Lithuania; 5) the capital indicated in the statute (bylaws) is fully paid-in. CHAPTER
ESTABLISHMENT AND LICENSING OF BANKS Article
Founders of a Bank Legal and natural persons of the Republic of Lithuania and enterprises which do not possess the rights of a legal person who have concluded a founding agreement in accordance with the procedure established by Article 3 of the Company Law of the Republic of Lithuania shall be considered to be the founders of a bank except the cases of the establishment of a foreign bank subsidiary. The agreement shall define the founders' rights and duties in founding the bank, as well as liability for failure to fulfil their obligations. The minimum number of founders shall be 7 persons. Each founder of a bank must also be its shareholder who has acquired at least 2 per cent of the bank's share capital. The Bank of Lithuania may refuse to issue a banking licence if one or several founders refuse to acquire the bank's shares or if they transfer them to other persons before the licence is issued. A foreign bank may be the founder of a subsidiary in the Republic of Lithuania if: 1) it has a banking license issued by the foreign state within whose jurisdiction the foreign bank exists; 2) the laws of the foreign state within whose jurisdiction the foreign bank exists permit its banks to establish bank subsidiaries abroad, or the bank has the permission of the bank supervisory body of that state. The founders of a bank must have an impeccable reputation and must submit to the Bank of Lithuania information on the origin of the funds used for the formation of the bank's fixed capital, as well as documents concerning their financial situation. Article
Establishment of a Bank A bank may be founded in a closed or open manner. Having registered the statute (bylaws) of the bank in accordance with the procedure established by the Law on Register of Enterprises of the Republic of Lithuania, issued shares and accumulated fixed capital, the bank founders shall submit an application to the Bank of Lithuania for a banking licence. After the Board of the Bank of Lithuania adopts a decision to issue a banking licence, a bank shall be registered according to the procedure established by the Register of Enterprises of the Republic of Lithuania and thus acquire the right to engage in credit activities. The shares of the bank issued during its founding may not be offered for sale publicly regardless of the manner in which the bank is founded until the bank is registered in accordance with the procedure established by law. Pars. 1, 6-10, and 12 of Article 10 of the Company Law of the Republic of Lithuania shall apply to a company which is a going concern and the shareholders' meeting whereof adopts a resolution to engage in banking activities; such company may apply to the Bank of Lithuania for a banking license. After the Board of the Bank of Lithuania adopts a decision to issue a banking licence, and after submission thereof to the manager of the Register, the enterprise and its bylaws shall be re-registered according to the procedure established by the Register of Enterprises of the Republic of Lithuania and the enterprise acquires the right to engage in credit activities. Upon being issued a license of the Bank of Lithuania and upon being registered in the manner prescribed by the Law on Enterprise Register of the Republic of Lithuania, the bank shall acquire the right to commence activities. Amendments to the statute (bylaws) of the bank shall be registered upon prior permission of the Bank of Lithuania in accordance with the procedure established by the Law on Enterprise Register of the Republic of Lithuania. Article
Establishment of Bank Branches Agencies Bank branches and bank agencies shall be established in the Republic of Lithuania and abroad upon receipt of the permission from the Bank of Lithuania and shall be registered according to the procedure established by the laws of the Republic of Lithuania. Other subdivisions of banks shall be established pursuant to the procedure provided for in the statute (bylaws) of the bank. They shall function within the limits of powers granted to them by the bank and in compliance with the regulations approved by the bank. Article
Banking Licence Application The banking licence application must contain the following: 1) draft plan of the bank's activities; 2) the address of the head office of the bank; 3) the founders' legal status; and 4) the names of the chairpersons of the bank's board and council and head of the bank administration. The following documents and information shall be submitted along with the application: 1) the statute (bylaws) of the bank; 2) the documents of the foundation of the bank (the founding agreement, minutes of the statutory meeting and resolution on the establishment of the bank); 3) a three-year plan of economic activities (business plan) worked out in accordance with a set form and contents prescribed by the Bank of Lithuania, including a description of projected structure of the bank and services provided by it; 4) information concerning the members of the bank's board and council, the chairman of the board and chief accountant (financier): their age, educational background, working carrier, profession, participation in the bodies of management of other enterprises, as well as participation in the activities of other enterprises with their own capital, their place of residence and information about previous conviction; 5) the permit to found a subsidiary in the Republic of Lithuania issued by the supervisory authority of the foreign state under whose jurisdiction the bank is functioning; 6) the list of the bank's shareholders compiled in accordance with a set form prescribed by the Bank of Lithuania; 7) documents which confirm that fixed capital has been accumulated and paid in; and 8) a description of the premises which will be used by the bank. for its operations. Upon adopting a decision to be reorganised into a bank, an operating company must terminate its previous activities prior to the issue of a banking license or within the period specified therein and submit in addition: 1) incorporation documents, the decision of the shareholders' meeting to be reorganised into a bank and the reorganisation plan; 2) description of former activities, financial statements of the previous year and last accounting period which are submitted together with the findings of independent auditors, information about the structure of the share capital, and the owners of blocks of shares; 3) documents confirming that the company holds a sufficient amount of capital necessary for banking activities; and 4) information concerning the payment of taxes and debts to creditors. The Bank of Lithuania shall have the right to require additional information or documents within 30 calendar days after the receipt of the application and documents. Article
Resolution on Issuing a Banking Licence The Bank of Lithuania shall adopt a resolution concerning a banking licence and notify the applicant of its decision within two months of the date of the receipt of the application. If, pursuant to Paragraph 4 of Article 10 of this Law, the Bank of Lithuania requests to submit additional documents, the two-month term shall be calculated from the date of the receipt of all documents and information required for adopting a decision. A banking licence issued on decision of the Bank of Lithuania may include conditions and restrictions with respect to certain operations for which the bank in question is not yet ready. Conditions and restrictions included in the license issued to a bank shall also apply to its subdivisions. While informing the applicant about its decision to reject its application for a banking licence or to issue a licence which contains certain conditions and restrictions, the Bank of Lithuania shall present a written substantiation of the decision and inform the manager of the Register thereof. The Board of the Bank of Lithuania shall consider the application and issue a banking licence only in such cases when submitted documents and available information prove that the founders: 1) have accumulated the minimum amount of paid in fixed capital; 2) retain expert managers of the bank (members of the board and heads of administration) who possess the required qualifications, are of impeccable reputation and experienced in banking; 3) the bank has premises and equipment necessary for carrying out banking operations. The banking license shall be issued for an unlimited term and shall be not transferable. The restrictions imposed by the banking license shall be lifted on the decision of the Bank of Lithuania. A stamp duty established by laws shall be paid for the issuing of a banking licence. A decision refusing to issue a banking license may be appealed in court within 10 days of its adoption. Article.
Revocation of the Banking Licence The banking licence shall become invalid as of the day the Bank of Lithuania adopts a decision to revoke it by reason of: 1) the bank's liquidation; 2) the bank's reorganisation; and 3) bank's failure to commence activities within 6 months of the day of its registration. Article
Revocation of the Banking Licence upon the Request of a Bank Upon adopting a decision on its liquidation, the bank shall submit to the Bank of Lithuania a written application requesting for liquidation permission and revocation of the banking licence. The latest balance sheet and the scheme for settling its creditors' claims must be attached to the application. The Bank of Lithuania shall grant permission for the liquidation if the bank is in a position to fully satisfy the creditors' claims within the time period acceptable to them. Upon the settlement of the creditor's claims the Bank of Lithuania shall revoke the banking licence. CHAPTER 3 SHAREHOLDERS OF THE BANK AND THEIR RIGHTS Article
Shareholders and shares of the Bank A shareholder of the bank shall be an actual or legal individual or an enterprise which does not possess the rights of a legal person who has acquired at least one share of the bank in accordance with the procedure established by laws. It shall be prohibited to issue bearer shares for the formation of the bank's share capital. An individual who acquires a block of shares in the bank without the permission of the Bank of Lithuania shall have no right to vote at the shareholders' meeting. Non-monetary (property) contribution for the acquired bank shares may only be immovable property necessary for guaranteeing the bank's direct activities. The portion of the bank's share capital paid in non-monetary (property) contributions may not exceed 20 per cent of the bank's share capital. On the decision of the bank council, the bank may buy up its shares but their nominal value may not exceed 5 per cent of the bank's share capital. The following entities may not be shareholders of banks: 1) bodies of state power and administration, with the exception of the Government and local governments of the Republic of Lithuania; 2) institutions financed from the state budget; 3) subsidiaries or enterprises of the issuing bank; and 4) enterprises in which the bank's investments account for 10 percent or more of the share capital. The Government and local governments of the Republic of Lithuania shall be prohibited from acquiring and holding non- voting shares of the bank. Article
Property and Non-Property Rights of the Shareholders of Banks Individuals who acquire bank shares acquire property and non-property rights: 1) during the foundation of the bank - after the shares are paid up and the bank is registered in accordance with the procedure established by law; 2) if the shareholders acquire shares of the bank's new share issue - from the moment of registration in accordance with the procedure established by law of the amendments to the bank's statute (bylaws) in connection with the increase of the bank's share capital by reason of a new share issue; and 3) persons who acquire shares in the secondary market - from the day of registration of the acquired shares. The shareholders' property and non-property rights shall be established by the Company Law of the Republic of Lithuania. CHAPTER 4 MANAGEMENT OF BANKS Article
Managing Bodies The managing bodies of the bank shall be comprised of the shareholders' meeting, the council and the board of the bank, and the head of the bank administration. Article
The Shareholders' Meeting The shareholders' meeting shall be the supreme management body of the bank. All shareholders shall have the right to participate in the shareholders' meeting, irrespective of the class, type and number of shares they hold. The members of the board and the employees of the administration, who are not shareholders, may also participate in the shareholders' meeting with the right of advisory vote. It shall be solely within the competence of the shareholders' meeting to: 1) adopt and amend the statute (bylaws) of the bank; 2) elect and dismiss, if necessary, prior to the expiry of the term of their office, members of the board of the bank and members of the audit service; 3) settle the issue of the dismissal of the board of the bank upon the dismissal of the bank council; 4) approve the bank's annual balance sheet, estimate of income and expenses and distribution of profits, and decide the matters of compensating losses. 5) adopt decisions concerning the increase or decrease the fixed capital; 6) adopt decisions on the liquidation or reorganisation of the bank, elect and dismiss the members of bank's liquidation commission and approve accounting of said commission in the event of the bank's voluntary liquidation; 7) approve the valuation of non-monetary (property) contributions; 8) decide other matters proposed by the board, council and the audit service (the auditor); 9) analyse the shareholder's proposals and complaints concerning the work of the board and council of the bank; and 10) adopt a decision to appeal to court for the institution of bankruptcy proceedings against the bank in accordance with Article 45 of this Law. The procedure of the organisation of the shareholders' meeting and adoption of decisions during the shareholders' meetings shall be set forth in the Company Law of the Republic of Lithuania. Decisions on the matters specified in items 1, 3, 5, 6 and 10 of Par. 2 hereof shall be adopted by a 2/3 vote of the attending shareholders. Article
The Procedure of the Formation of the Council of the Bank and its Powers The number of the council members shall be specified in the statute (by - laws) of the bank: it must be odd and not less than three. The council shall be elected by the shareholders' meeting. During the election of the bank council, each shareholder shall have a number of votes which shall be equal to the product of shares held by him or her and the number of the council members. The votes shall be cast at the discretion of the shareholder himself (herself) - for one or several candidates. The candidates receiving the majority of votes shall be elected members of the bank council. The council of the bank shall be elected for the maximum period of four years from among its shareholders and individuals who are not shareholders but represent legal individuals who are the bank's shareholders. Only a legally capable individual may be a member of the bank council. In the event that the legal person revokes the powers of the person representing it in the council, the individual must be dismissed form the council regardless of whether or not he or she is the bank's shareholder. A new member of the council may be elected at the shareholders' meeting according to the general procedure to fill in the vacant position. Members of the bank council may be re-elected for another term. The council of a bank shall commence its activities upon the end of the shareholders' meeting which elects it. The following individuals may not be elected as members of the council: 1) board members or head of the administration of the same bank; and 2) persons, who, according to the procedure established by law, have been deprived of the right to occupy this position or prohibited from accepting it. Neither the council of the bank nor members thereof shall have the right to delegate their functions to other persons or authorise them to discharge said functions. The shareholders' meeting may specify remuneration (honorariums) payable to the council members only from the profit of the bank. The council of a bank shall: 1) appoint members of the board, its chairperson and deputy chairpersons, and dismiss them; 2) approve the regulations of the activities of the board; 3) at the request of the board, settle the issues regarding dismissal of any member of the council who is a staff member of the bank ; 4) observe and analyse the activities of the board, the application of financial resources, organisation of management, profitability of capital, salaries, and long-term evaluation of the financial situation of the bank; 5) submit proposals and comments to the shareholders' meeting on the bank's annual balance sheet, profit and loss account , distribution of profit and the report of the board; 6) represent the bank in court while settling the disputes arising between the bank and the board, a member of the board, or the head of the bank administration; 7) decide other matters provided for in statute (bylaws) and resolutions of the general meeting of shareholders; 8) draw up the plan of the bank's activities; 9) establish the procedure for granting loans, which may be granted only upon the approval of the council; 10) adopt decisions on the establishment of the branches, bank agencies and enterprises of the bank and investments into the capital of other enterprises; and 11) set the procedure of the formation of additional capital and application thereof. The council of the bank shall have the right to appoint an expert ( a panel of experts) for the examination and assessment of the bank's bookkeeping and financial accounting. At the request of the council of the bank, the board and administration of the bank must present documents related to the activities of the bank. Article
The Procedure of Work of the Bank Council Members of the bank council shall have equal rights. In voting, each member shall have one vote. In the event of a tie vote, the chairperson shall have the casting vote. If a member of the council cannot be present at the meeting of the council, he or she, having got acquainted with the draft, may inform the meeting of his or her opinion on the resolution put to the vote by voting "for " or " against" in writing. Meetings of the council shall be valid if attended by more than a half of the council members. Resolutions shall be adopted by a simple majority of votes, with the exception of resolutions on the dismissal of the members of the council which shall be adopted by a no less than 2/3 majority vote of the council members. The meetings of the council must be held at least every three months. Ordinary meetings of the council shall be convened by the chairperson of the council; in the event of his or her absence - by a deputy chairperson. Meetings shall also be convened if requested by no less than 1/3 of the council members or by the board of the bank. Issues put forward by the initiators of the meeting must be included in the agenda of the meeting. Article
The Board of the Bank The board of the bank shall manage the activities of the bank, and its affairs, represent the bank, and be liable under law for carrying out the operations of the bank. The number of the members of the board may not be less than three, as well as the activities of the board and its members, rights and powers, the procedure for the passing of resolutions shall be set forth in the statute (bylaws) of the bank and regulations of the work of the bank board. The members of the board, its chairperson and deputy chairpersons shall be appointed for the period not exceeding 4 years. The number of terms a board member may serve is not limited. Only legally capable persons may be appointed members of the board of the bank. The following persons may not be appointed members of the board: 1) a person who is a member of the council of the same bank; 2) a person who is a member of the board or head of the administration of any other bank registered in the Republic of Lithuania; and 3) a person who is by law deprived of the right to sit on the board or prohibited from taking. Some additional requirements to the member of the board may be provided for in the statute (bylaws). A member of the board may resign after presenting a written application. The application must be considered and granted no later than within 14 calendar days from the day of its filing. Members of the board, chairperson of the board and deputy chairpersons shall work in the bank and get an official salary, which shall be determined by the council of the bank. On the decision of the shareholders' meeting, honorariums may be paid to the members of the board, the chairperson of the board and deputy chairpersons. The members of the board shall have no right to delegate their duties to other persons. A board member who is temporarily unable to work may be replaced by a member of the council who shall be appointed by the council of the bank. The powers of the council member shall be suspended for the period he or she is performing the duties of the board member. Article
Administration of the Bank The administration of the bank shall be comprised of the structural subdivisions of its central management staff as well as managers and deputy managers of bank branches. The administration of the bank shall carry out the resolutions of the shareholders' meeting, the council, and the board. The duties and powers of the administration of the bank shall be set forth by the statute (bylaws) of the bank , and the regulations approved by the board of the bank. The administration of the bank including the head of the administration shall be hired by the board of the bank. The head of the administration may not undertake the duties of chief financier (accountant), be a member of the board of another bank or work in the administration of another bank. The head of the administration shall have the right to conclude employment contracts with other employees. The duties of the head of the administration may be performed by the chairperson of the board or any other board member. Article
The Audit Service of the Bank (Auditor) At least one auditor shall serve in the bank. The auditor shall be elected by the shareholders' meeting for a period determined by the statute (bylaws) and not exceeding 4 years. The number of terms of office of the auditor shall not be limited. Any legally capable actual person with relevant qualifications may occupy said position. A member of the council or board, or the head of the administration, or the chief financier (chief accountant) may not be the auditor of the bank. The audit service (auditor) must: 1) inspect the realisation of the estimate, the activities of the bank, and control the compliance of the bank's activities with the laws and the statute (bylaws) of the bank; 2) inspect the annual balance-sheet and other financial accountability documents which serve as a basis for the adoption of resolutions by the shareholders' meeting; 3) report to the next shareholders' meeting or meeting of the bank board all violations established during the examination. The audit service (auditor) shall carry out audits on the instructions of the shareholders' meeting, board or council of the bank. Article
Standing Committees and Services of the Bank Every bank must have an internal audit service and a standing loan committee. other committees and services of the bank may also be formed. Their functions, formation and operation procedure shall be determined by the legal acts of the Bank of Lithuania and the bank statute (bylaws). CHAPTER 5 THE ACTIVITIES OF BANKS Article
Bank Statute (Bylaws) The statute (bylaws) of the bank shall state: 1) the name of the bank; 2) the head office of the bank, its address; 3) the bank's operations; 4) the nominal value of share capital and its composition according to classes of shares as well as the rights and duties they give to the owners; 5) other capital; 6) the procedure of payment for shares; 7) the procedure of transfer of shares to the ownership of other persons; 8) the procedure of exchange of the shares of one class or type into the shares of another class or type; 9) the procedure for the issue and circulation of bonds; 10) the management structure of the bank; 11) the procedure of the formation of managing bodies and election or appointment of their heads, their rights, duties and responsibilities; 12) the procedure of calling the shareholders' meetings as well as voting at the; 13) the procedure for the distribution of profit; 14) the procedure for publishing bank information in the press; 15) the procedure of bank reorganisation and liquidation; and 16) other provisions which are in compliance with laws and legal acts of the Bank of Lithuania. Article
Bank Operations Banks shall have the right to: 1) accept deposits and other repayable funds to the clients' accounts opened in the bank and to manage these accounts; 2) extend and take loans; 3) issue financial pledges, guarantees, and other security obligations; 4) issue payment documents (cheques, bills. etc.) and carry out transactions with them; 5) carry out transactions with securities (shares, bonds, etc.); 6) carry out operations in foreign currencies; 7) buy and sell precious metals; 8) issue and manage credit instruments; 9) receive from clients valuables for safe-keeping and rent safe deposit boxes of the bank vaults to customers for the safe- keeping of valuables and documents; 10) render services and consultations on issues of banking activities, finances, and clients' investment management; and 11) carry out other operations established by the .legal acts of the Bank of Lithuania. Article
Standards Restricting the Risk of Banking Activities The following standards shall be established for banks: 1) capital adequacy ratios; 2) liquidity ratios; 3) maximum open position in foreign currencies and precious metals; and 4) maximum lending to one borrower. The standards and the methods of their calculation shall be established by the Bank of Lithuania. Article
Bank Investments Banks may establish enterprises, be their co-owners or shareholders. The total sum of a bank's investments into the shares or capital of another enterprise may not exceed 10 percent of the bank's fixed capital. A bank may not acquire and hold controlling interest in another company. Provisions of Pars. 2 and 3 hereof shall not be applicable to the bank's investments into the shares or capital of the enterprises which are assigned, according to the laws of the Republic of Lithuania and legal acts of the Bank of Lithuania, to enterprises engaged in credit and financial activities. The requirements of Par. 2 hereof shall not be applicable if the bank acquired shares as a compensation for an unpaid bank loan. In this case the bank must within one year's period realise the share of investments into the shares or capital of other enterprises of investment which exceeds the standard established by Par. 2 hereof. A bank shall be prohibited from acquiring shares of an enterprise which holds controlling interest in the bank or from being a co-owner of the enterprise.. Article
Safekeeping of the Bank Documents Banks shall keep the following documents during the term of validity of agreements and three years after the time of expiration: 1) agreements of loan, guarantee, security and pledge; 2) any other documents of bank's partners, on the basis of which the agreements have been concluded; and 3) other documents provided for by the Bank of Lithuania. The bank may also keep other documents, as well as establish a different time frame for safekeeping, which however, may not be shorter than that provided for within the first section of this article. Article
Connected Lending Connected lending of banks may not exceed 10 per cent of the bank's capital. The following individuals shall be considered as connected persons: 1) owners of a block of shares in the bank and its subsidiaries, the spouses, parents and children of such owners or enterprises in which said persons have acquired directly and/or indirectly or hold more than 20 percent of ownership capital; 2) members of the council and board of the bank and its subsidiaries and enterprises, auditors, heads of the administration and bank branches and the spouses, parents, and children of the above persons, or enterprises in which the above persons have acquired directly or/and indirectly or hold more than 20 percent of ownership capital. Banks must submit to the Bank of Lithuania information on loans extended to connected persons in accordance with the procedure established by the Bank of Lithuania. Article
Securing the Fulfilment of Obligations In order to secure fulfilment of obligations under loan agreements, banks may accept as pledge goods and other materials and commodities, bills and other securities, bills of lading, currency values and other valuables, may conclude agreements of pledging, guarantee, security or other agreements, which are in compliance with the laws of the Republic of Lithuania. If the borrower fails to repay the loan by the date fixed in agreement and the repayment of the loan is secured by property, the bank shall have the right to have its claims satisfied from the value of the pledged property before other creditors. The bank may request that after the disbursement of the loan its client (credit recipient) present information or documents required for the evaluation of his financial position. In the event of danger that the loan may not be timely repaid, the bank may unilaterally terminate the agreement or change it, or request additional security. Banks shall be prohibited from accepting securities issued by the bank itself or by connected persons as well as agreements of pledging and guarantee in order to secure fulfilment of bank obligations under loan agreements. Article
Keeping of Secrecy Present and former members of the council, the board, the administration and employees of the bank must keep secret and not use for personal or other person's gain information that they obtain in the course of their service with the bank. At the request of the Bank of Lithuania it must be furnished with all documents and information related to the founding and activities of a bank. Documents and information shall be presented at the request of other institutions in the cases and according to the procedure established by the laws of the Republic of Lithuania. Banks must inform the institutions of law and order if the documents submitted to them or any other available information about the transactions of their clients testify to the legalisation of illegally acquired property or financial servicing of unlawful activities. Banks must establish the procedure for keeping secrets. Article
Liability for Losses Incurred by the Bank Liability for losses incurred by the bank through the fault of members of the council, and the board of the bank, or the administration and employees of the bank shall be established by the laws of the Republic of Lithuania as well as by other legal acts and the statute (bylaws) of the bank. CHAPTER 6 TYPES OF CAPITAL AND DISTRIBUTION OF PROFITS Article
Types of Capital A bank shall have fixed capital and additional types of capital. Article
Fixed Capital of a Bank Fixed capital of a bank may not be less than the minimum fixed capital established by the Bank of Lithuania. Upon prior permission of the Bank of Lithuania, banks may reduce their fixed capital to the size of the minimum fixed capital established by the Bank of Lithuania. Reserve capital of banks shall be formed form additional contributions of their shareholders and/or allocations from the bank profit. The purpose of reserve capital is to guarantee the bank's financial stability. Article
Distribution of Profit Bank profit shall consist of the funds which remain after deduction of bank expenses and losses of the financial year from bank income of the current year. The financial year of a bank shall coincide with the calendar year. The resolution on the allocation of profit must specify: 1) the amount of profit; 2) taxes; 3) allocations to specific provisions for loan losses; 4) allocations to reserve capital; 5) allocations to other capital and funds specified by bank statute (bylaws); 6) dividends; 7) annual payments (honorariums) to members of the bank board and council; 8) retained profit. Profit which is left after the payment of taxes and allocations to bank reserve capital and other capital and funds provided for in the bank statute (bylaws) may not be paid out in the form of dividends and honorariums if after a corresponding decision of the shareholders' meeting capital adequacy ratio and minimum fixed capital become less than the amounts prescribed by the Bank of Lithuania Taxable profit of banks shall be computed and the tax on the profit shall be paid in accordance with the procedure established by the Law on Taxes on Profits of Legal Persons of the Republic of Lithuania CHAPTER 7 ACCOUNTING, AUDIT, AND ACCOUNTABILITY Article
Accounting and Accountability Banks and their branches shall keep accounting and accountability according to the procedure set forth by the Bank of Lithuania. Financial statements of banks must be examined by an independent auditor and, within three months from the end of the financial year, approved by the shareholders' meeting, and submitted to the Bank of Lithuania. The financial statements of banks shall be published in press by May 1 in accordance with procedure established by the Bank of Lithuania. Banks shall be liable for the accuracy of the information presented in the annual report according to the procedure prescribed by laws. Auditors shall be obliged to present to the Bank of Lithuania explanations on financial statements. CHAPTER 8 SANCTIONS Article
Sanctions Applied to Banks The Bank of Lithuania seeking to protect the interests of depositors, and to assure the safety, trustworthiness and stability of the bank and banking system shall have the right to apply to banks the following sanctions: 1) to ward the bank for the shortcomings and violation of their activities and set the term for their elimination; 2) to impose fines on the heads of the bank administration according to the procedure prescribed by law; .3) to suspend or revoke the licence of a bank restricting only, several or all of its operations (moratorium); 4) to suspend or revoke the licence of a bank branch operation; 5) to request the removal of a member (members) of the bank board or head of the bank administration and the appointment of administrator to the bank; 6) to request the suspension of powers of a member (members) of the bank council; 7) to suspend the powers of the bank council, remove from office the board of the bank, the head of the bank administration and appoint a bank administrator; 8) to limit access and use of the accounts held in the Bank of Lithuania; and 9) to revoke a bank license. The type of sanctions shall be selected by the Bank of Lithuania taking into consideration the nature of the violation on the grounds whereof the sanction is imposed, and the effect that the violation and the imposed sanction shall have on the safety, stability and trustworthiness of the bank and the banking system . The validity of the resolution to apply sanctions may be within one month appealed against in a court of law, unless the laws of the Republic of Lithuania establishes otherwise. Appeal shall not stop the application of the resolution. The court shall consider the validity of the grounds for the application of a sanction and whether or not the procedure of the application thereof has been complied with. The court may not decide questions concerning the choice of sanction and the expediency of its application. Article
The Grounds and Procedure for the Application of Sanctions The Bank of Lithuania shall apply the sanctions listed in Article 37 of this Law if at least one of the following conditions is present: 1) furnishing of incorrect information to the Bank of Lithuania; 2) failure to provide the Bank of Lithuania with required information or documents which are necessary for banking supervision; 3) non-compliance with the established standards; and 4) violation of any laws or legal acts of the Republic of Lithuania. The sanctions specified in Article 37 of this Law shall be applied to banks on the decision of the Bank of Lithuania. A decision to apply a sanction is taken by the Bank of Lithuania based on the following: 1) documents or information which confirm that laws, other legal acts or standards are violated; 2) analysis of the economic standing of a bank; 3) material concerning previously determined violations and sanctions applied to the bank by the Bank of Lithuania and other institutions; 4) a prognosis of the possible effects of the determined violations on the standing of the bank, the interests of the depositors and other bank creditors, and the stability of the entire banking system; and 5) explanations by the board chairman and head of the administration. The question concerning the application of a sanction to a bank shall be discussed in the presence of bank representatives. In the event that bank representatives fail to attend the discussion or present explanations, the decision to apply sanctions shall be taken without their participation. A decision to apply a sanction, with the exception of the sanction specified in item 2 of Par. 1 of Article 37 of this Law, must be taken within three months of the day of the establishment of the violation. Sanctions may not be applied for violations committed more than one year in the past. Article
Suspension of Powers of the Bank Board and Procedure for Removing the Bank Board and Head of the Administration The powers of the bank council shall be suspended, the bank board and the head of the administration shall be removed, and a temporary administrator shall be appointed if trustworthiness and stability of the bank are threatened but there is a real possibility to remedy the situation upon suspending the powers of the bank council, removing the bank board and the head of the administration. An administrator shall be appointed for a period of up to one year. Upon the administrator's request the Bank of Lithuania may extend the term for another year. Article
The Temporary Administrator The temporary administrator is a manager of the bank appointed by the Bank of Lithuania for the term of the suspension of powers of the bank council and removal of the bank board and head of the administration. From the day of appointment of the temporary administrator all the powers of the council, the board and the head of the administration shall be passed to the administrator and all decisions of the above bodies passed after the appointment shall be illegal and unenforceable. The temporary administrator shall have the right to terminate employment contracts with members of the bank board and the head of the bank administration. The temporary administrator shall not be bound by the resolutions of the shareholders' meetings if they are in conflict with the purpose of his/her appointment or are passed on issues which under this Law are within the competence of the bank council and bank board. The temporary administrator may not without the authorisation or agreement of the shareholders' meeting sell or otherwise transfer, mortgage the bank's real estate, reorganise or liquidate the bank, or decide other questions which are within the competence of the shareholders' meeting. The temporary administrator must inform the Bank of Lithuania and the shareholders' meeting of the developments and results of administration within the terms set by them and according to the established procedure. The temporary administrator must initiate a full bank audit which is to be completed within three months from the appointment of the administrator. The candidatures of the auditors must be approved by the Bank of Lithuania. The audit report must show the actual standing of the bank's assets and liabilities. If the audit results show that the bank is insolvent and is not in the position to avoid bankruptcy, the temporary administrator shall appeal to the Bank of Lithuania to institute bankruptcy proceedings. In the event that the temporary administrator of the bank resigns, the Bank of Lithuania shall decide on the appointment of another temporary administrator or on the institution of bankruptcy proceedings. The expenses of the Bank of Lithuania connected with the fees of the temporary administrator shall be compensated by the bank. The temporary administrator shall be liable in accordance with the procedure established by the laws of the Republic of Lithuania for the damage inflicted on the bank through his/her fault. Article
Terminating the Services of the Temporary Administrator The services of the temporary administrator may be terminated called prior to the expiry of his/her term if: 1) the Bank of Lithuania determines that the bank can function in a trustworthy and stable manner; and 2) a bankruptcy proceedings has been instituted according to the procedure prescribed by laws. CHAPTER 9 REORGANISATION AND LIQUIDATION OF BANKS Article
Reorganisation of Banks Banks shall be reorganised in accordance with the procedure established by the Company Law of the Republic of Lithuania upon the agreement of the Bank of Lithuania. Article
Liquidation of Banks Banks shall be liquidated in accordance with the procedure established by the Company Law of the Republic of Lithuania. CHAPTER 10 PROCEDURE FOR INSTITUTING BANKRUPTCY PROCEEDINGS AGAINST BANKS AND COURT INVESTIGATION OF CASES Article
Bank Bankruptcy Procedure Bank bankruptcy procedure means the assignment of the bank administrator, reorganisation or rehabilitation of the bank seeking to avoid its bankruptcy as well as the liquidation of a bankrupt bank. Unless this Law establishes otherwise, the Enterprise Bankruptcy Law of the Republic of Lithuania shall apply to banks. Upon the institution of bankruptcy proceedings creditors' meetings shall be suspended. The institution of bankruptcy proceedings, its course and the bankruptcy procedure implemented at the bank must be recorded in the Register of Enterprises. Article
Conditions for Instituting Bank Bankruptcy Proceedings The court shall institute bank bankruptcy proceedings following a statement of the bank's insolvency by the Bank of Lithuania as well as in accordance with the resolution of the shareholders' meeting or the statement of creditors, provided only there is a conclusion of the Bank of Lithuania concerning the bank insolvency. Article
Instituting Bankruptcy Proceedings in Court Bank bankruptcy proceedings shall be instituted in a court of the locality where the head office of the bank is located. Upon receiving a statement which conforms with the conditions set forth in article 45, the court shall that same day appoint the bank administrator on the recommendation of the Bank of Lithuania and fix his/her remuneration. The court shall pass a decision to institute bankruptcy proceedings within 7 days and must: 1) notify the known creditors, the bank's correspondents and the manager of the register of the initiation of bankruptcy proceedings as well as make a public announcement thereof indicating: the court in which the proceedings are to be held and the case number; the requisites of the bank which is going bankrupt; time period during which creditors' claims will be accepted; 2) suspend other court proceedings instituted against the bank and inform other courts, where proceedings against the bank have been instituted, of the existence of bankruptcy proceedings so as to have all other legal actions against the bank suspended. The decision of the court to institute bankruptcy proceedings may be appealed against in the manner established by the Code of Civil Procedure of the Republic of Lithuania. The filing of appeal shall not stop the bankruptcy proceedings. In the event that a case against the bank is dismissed due to reorganisation or rehabilitation, the registrar of the register shall be informed thereof and public notice shall also be given. If the court institutes bank bankruptcy proceedings: 1) the bank managing bodies shall be deprived of their powers. If the bank bankruptcy proceedings are cancelled the bank managing bodies shall have the right to continue performing their functions; 2) the payment of all financial liabilities, including interest and taxes as well as their recovery by suing for claims or without suit shall be prohibited; also prohibited shall be the distribution or any other allocation of bank assets without a special court order except the expenses necessary for the administrator's activities during the court proceedings; and 3) calculation of interest shall be suspended. Article
Bank Liquidator Bank liquidator is the bank manager appointed for the period while bankruptcy proceedings are underway. A representative of a borrower, the owner (owners) of the bank, shareholders, a member of the bank board or bank council, the head of the administration or a creditor may not be appointed bank liquidator. Bank liquidator must: 1)within three days or his/her appointment transfer all correspondent bank balances to the correspondent account at the Bank of Lithuania or prohibit making any payments therefrom; 2) make a list of the bank borrowers and submit it to court; 3) fix the currency value of all foreign currency deposits according to the official exchange rate as of the day the bankruptcy proceeding was instituted; 4) revalue all repayable loans and assets denominated in foreign currency into litas; 5) report on the progress and results of administration to the court and the Bank of Lithuania within the time period and according to the procedure determined by them; 6) upon the approval of the Bank of Lithuania, recommend the rehabilitation, reorganisation or liquidation of the bank. The bank liquidator shall also have the right and perform the duties provided for in Article 7 of the Law on Enterprise Bankruptcy of the Republic of Lithuania. Banks, against which bankruptcy proceedings are instituted shall be exempt from stamp duty in the proceedings associated with recovery of assets. With the institution of bankruptcy proceedings and suspension of creditors' suits, creditors (claimants) shall be repaid from the state budget the amounts of the stamp duties they paid. Article
Confirmation of the Liquidator's Decisions and his/her Responsibility All decisions of the liquidator concerning any increases in the bank's debt and sales or any other transfers of the bank assets related thereto must be confirmed by court. These decisions shall be invalid without the above confirmation. The liquidator shall be liable for the compensation of any losses which result from implementing unconfirmed decisions specified in Par.1 hereof. Article
Creditors' Rights upon Initiation of Bankruptcy Proceedings. Upon initiation of bankruptcy proceedings against a bank, creditors shall have the right, within the period set by the court, which shall be not less than 30 days nor more than three months from the initiation date of bankruptcy proceedings, to inform the liquidator of their financial claims and to specify guarantees for the fulfilment of obligations. The court shall have the right, until the conclusion of the case, to accept the creditors' financial claims which, due to valid reasons, were presented to the liquidator in violation of the paragraph above. Article
Rehabilitation of a Bank in Bankruptcy Rehabilitation of a bank in bankruptcy shall be economic and financial measures applied with regard to the bank by the owners (shareholders), creditors of the banking or third persons in an attempt to avoid the bank liquidation. Rehabilitation conditions applied to banks in bankruptcy are established by Article 23 of the Law on Enterprise Bankruptcy of the Republic of Lithuania. Article
Performance of the Bank Liquidator's Functions during Rehabilitation During the rehabilitation the functions of the bank liquidator shall be performed by a liquidator appointed by court. Article
Termination and Completion of Bank Rehabilitation Bank rehabilitation may be terminated by a decision of the court upon recommendation of the liquidator and in coordination with the Bank of Lithuania if it proves ineffective or if persons who have undertaken to carry out bank rehabilitation are not fulfilling their responsibilities. Bank rehabilitation shall be completed by a court decision, upon recommendation of the liquidator and in coordination with the Bank of Lithuania if , through the rehabilitation process, the bank can settle its own obligations. Article
Decisions Concerning the Liquidation of Bankrupt Banks The liquidation of a bank by reason of its bankruptcy is the cessation of banking activities according to a decision of the court, where creditor claims are either wholly or partially satisfied from the assets of the bank in liquidation. The decision to liquidate a bankrupt bank shall be taken if; 1) the reorganisation of the bank is terminated by a court decision; 2) rehabilitation is not applied to the bank or its process is terminated. A bankrupt bank may be liquidated only three months after the day the decision to liquidate the bank was taken. The real estate of the bankrupt bank shall be reassessed and sold. The decision to liquidate a bankrupt bank may be appealed against according to the procedure established by the Code of Civil Procedure of the Republic of Lithuania. It is held upon the liquidation of a bankrupt bank that the term of all its debts and debts owed to it has ended. Article 54 Order of Priority for the Settlement of Creditors' Claims The settlement of creditor claims shall be started only upon the courts' decision to liquidate the bank. First priority settlements shall be; 1) secured creditor claims. 2) salary of the court appointed liquidator and other expenses associated with the carrying out of his/her functions. 3) work-related bank employee claims. Secondary depositor claims shall be the demands of physical persons for deposits or a part thereof not exceeding Lt 5,
Secondary claims shall be satisfied only after the first priority claims are satisfied. Tertiary claims are other creditors and depositors if the deposit or its part is over Lt 5,
Tertiary creditor claims shall be satisfied only when secondary claims are satisfied. If the resources of a bank are insufficient to fully satisfy the respective priority category of claimants then their claims shall be satisfied proportionately according to the size of claim. CHAPTER
FINAL PROVISIONS Article
Amendments to the Statutes (Bylaws) of Operating Banks and Reorganisation of Activities The procedure for amending the operating banks' statutes (bylaws) and reorganising their activities in accordance with this Law as well as the time period thereof shall be determined by the Bank of Lithuania, unless this Law provides otherwise. The question of the emergence of property rights to the dividend in the case of persons who have paid for the subscribed for shares of the new issue prior to the coming into effect of this Law shall be decided by the shareholders' meeting, provided that the subscription agreements to the bank share of the new issue do not provide for the compensation for cash and/or property contributions (as payment for shares). The Bank of Lithuania in conjunction with the Government of the Republic of Lithuania shall establish by 1 April 1995 the procedure for implementing Par. 3 of Article 31 of this Law and shall determine the amounts in cash deposited with the bank and paid out by the bank whereof notice must be given to the law enforcement institutions. The state-owned preference shares issued by the banks prior to the day of coming into effect of this Law shall be converted into ordinary bearer shares. On the recommendation of the Government of the Republic of Lithuania or the respective bank board the related amendments to the statutes (bylaws) may registered without convening the shareholders' meeting. Article
Declaring Certain Legal Acts Invalid The following legal acts shall be declared invalid: Law on Commercial (Joint-stock) Banks of the Republic of Lithuania (Þin., 1992 No. 24-696; 1994, No. 43-775, No. 55-1048); The Provisional Law of the Republic of Lithuania "Concerning the Institution of Commercial Bank Bankruptcy Proceedings and Peculiarities of the Court Investigation Procedure" (Þin., 1994, No. 59-1154); The Resolution of the Supreme Council of the Republic of Lithuania "Concerning the Procedure of Entry into Force of the Law of the Republic of Lithuania On Commercial (Joint-Stock) Banks" (Þin., 1992 No. 24-697); Item 2 of the Supreme Council of the Republic of Lithuania Resolution "Concerning the Authorisation of the Government to Decide on Certain Issues" No. I-2928 of October 6,
I promulgate this Law passed by the Seimas of the Republic of Lithuania. President of the Republic Algirdas Brazauskas

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