REPUBLIC OF LITHUANIA

REPUBLIC OF LITHUANIA Official translation REPUBLIC OF LITHUANIA LAW ON COMMERCIAL BANKS 21 December 1994 No. I-720 Vilnius as last amended  by 20 June 2002 No. IX-977 CHAPTER I GENERAL PROVISIONS Article 1. The Purpose of the Law The purpose of this Law is to regulate  the activities  of commercial banks (hereinafter referred to as "banks") in order to assure a stable, credible, efficient and safe system of banks. The  Law  shall  set out  the  procedure  and  conditions for establishing and  licensing banks and their subdivisions as well as the character of  their  activities,  reorganisation  and liquidation. Banks  and   their  subdivisions   shall  be  registered  in accordance with  the procedure  established by  the  Law of the Republic of Lithuania on  the Register of Enterprises. In their  activities banks shall be guided by the Law of the  Republic of  Lithuania on Companies and  other legal acts unless this Law provides otherwise, as well as by their statutes/articles of association. This Law  shall not  apply to the banks whose activities are regulated by individual  laws. Article 2.  Definitions Bank - an enterprise operating on the basis of share capital, engaged in the business of accepting deposits  and other repayable  funds, extension of loans, assuming  all the risks and responsibility related thereto; it also engages in other activities specified by this Law, carrying out all or part of the transactions  referred to in Article 25 of this Law.   Subsidiary - a bank in which any other bank controls  directly or indirectly  a proportion of the authorised capital entitling it  to  more than 50 per cent of voting rights or a proportion of the  authorised capital enabling it to  control management of this bank. Branch - a subdivision of a bank registered in the Republic of Lithuania or a foreign state, or a subdivision  of a foreign bank in the Republic of Lithuania, without the  rights of a legal person, operating on behalf  of the bank in a place other then the place  where the registered office of the bank is situated and carrying out at least one of  transactions under the authorisation of the bank which is liable for the transactions and activities of the branch to the extent of all  its assets; Representative office - a territorial subdivision of a bank representing the bank  abroad or in the Republic of Lithuania which, however,  is not engaged in  transactions and any other commercial and economic activity. Banking licence -  a  written authorisation granted by the Bank of Lithuania to a bank to engage in the activities specified in its statutes/s, carrying on  all  or part of the transactions referred to in Article 25 of this Law. Qualifying holding -  one-tenth or larger portion of the share or voting capital of the bank acquired or managed directly or indirectly by legal or natural persons or a group of such persons. Controlling interest-  a qualifying holding acquired or managed directly and/or indirectly by legal or natural persons enabling its owner 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. Article 3. Prohibitions It shall  be  prohibited  to  engage  in  credit  activities without a banking licence. The  words  "bank", "commercial bank"  or any  other combinations  or derivatives  of these words may be used in their  name  or  for  advertising  or  any  other purposes only  by legal persons registered in the Republic of Lithuania which have  been  issued  with  a  banking  license  according  to  the procedure established  by this  Law. Words  specified   in  paragraph  2  hereof,  as  well  as  their combinations and  derivatives   may be used in the names of other economic entities provided the context in which they occur implies that such usage is not associated with  the activities of the bank. The word "state" or derivatives of the word may only be used in a  bank's name  where at  least 51  per cent  of the bank's share  capital belongs  to the  State  of  Lithuania  by  the  right  of ownership. Article 4. Name 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 logo  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 5.  Liability of Banks A bank shall  be a legal  person of  limited liability.  It shall not  be liable  for the  obligations of  the shareholders and/or founders,  and the  shareholders and/or  founders shall be liable for  the obligations of the bank only to the extent of the assets they have transferred to the bank either as founders or by acquiring shares thereof. A bank shall  not be liable for the obligations of the state, nor the  state shall  be liable for the obligations of banks, except in cases when the state assumes such liability. Article 6. Activities of Foreign Banks in the Republic of Lithuania A foreign bank in the Republic of Lithuania may: 1) alone or together with other banks establish a subsidiary; [Version of subparagraph 1) as of the day of accession of the Republic of Lithuania to the European Union: 1) alone or together  with the other founders establish a subsidiary;] 2) acquire shares of a bank which is being founded or of a functioning bank and, subject to the authorisation of the Bank of Lithuania, acquire a qualifying holding of a functioning bank; 3) establish subsidiaries/branches and representative offices of a bank. A subsidiary of a foreign bank may be established as a private or public company only in a closed manner. Only banks may be founders of a subsidiary of a foreign bank. The memorandum of association of the bank shall be drawn up in accordance with the procedure provided for in the Law of the Republic of Lithuania on Companies. [Version of paragraph 2 as of the day of accession of the Republic of Lithuania to the European Union: A subsidiary of a foreign bank may be established as a private or public company. At least one  founder of a subsidiary of a foreign bank must be a foreign bank which  acquires the controlling interest  of the bank which is being founded. The memorandum of association of the bank shall be drawn up in accordance with the procedure provided for in the Law of the Republic of Lithuania on Companies.] Subsidiaries/branches and representative offices of foreign banks may  commence their activities in the Republic of Lithuania subject to authorisations issued by the Bank of Lithuania for setting up of subsidiaries/branches or representative offices and their operation as well as their registration with the Register of Enterprises.  Authorisations for subsidiaries/branches and representative offices of foreign banks shall be issued in accordance with the procedure established by the Bank of Lithuania. The Bank of Lithuania shall grant a banking license to a foreign bank subsidiary provided: 1) the foreign bank has acquired the controlling interest in the subsidiary which is being founded; 2) the core capital of the subsidiary which is being founded is no less than the minimum core capital set by the Bank of Lithuania and is fully paid-in; 3) the laws of the foreign state which has jurisdiction over the foreign bank  permit its banks to set up subsidiaries abroad, and there is no objection to that on the part of the banking supervisory institution of that country; 4) the statutes/articles  of association of the bank have been registered in accordance with the procedure established by the laws of the Republic of Lithuania. The Bank of Lithuania shall grant an authorisation for a subsidiary/branch of a foreign bank to be established and  to operate provided: 1) the Republic of Lithuania has concluded an agreement with a foreign state on the security of capital investments and legal assistance, or a foreign bank provides sufficient guarantees to the Bank of Lithuania that it will assume liability for the operation of its subsidiary/branch in the  Republic of Lithuania; 2) the regulations of the subsidiary/branch are in compliance with the laws and other legal acts of the Republic of Lithuania; 3) the foreign bank has a banking license issued by the state under whose jurisdiction it is operating; 4) the financial position  of the bank is sound and stable and, according to the criteria set by the Bank of Lithuania, it is rated as sound, and the banking supervisory institution of the state having jurisdiction over the bank has no objection to the establishment of a subsidiary/branch of the bank in the Republic of Lithuania; 5) the Bank of Lithuania has signed an agreement with the banking supervisory authority of that state on supervision of the operation of the subsidiary/branch and on provision of information, or the banking  supervisory authority of the foreign state has assumed unilateral obligations to supervise the operations of the subsidiary/branch of a bank of that state and to provide information to the Bank of Lithuania; 6) documents referred to in paragraph 6 hereof have been submitted. A foreign bank seeking an authorisation for setting up a subsidiary/branch  and its operation in Lithuania, must submit to the Bank of Lithuania the following documents: 1) an application for authorisation; 2) the founding documents of the branch; 3) the statutes/articles  of association of the bank/founder, the licence, registration certificate or any other documents confirming the right to engage in banking; 4) financial statements of the three previous years of the bank/founder; 5) the statutes/articles  of association of the subsidiary/branch; 6) documents certifying that the premises which will be used by the subsidiary/branch meet the requirements set forth by the Bank of Lithuania; 7) a written consent of the banking supervisory authority of the state having jurisdiction over the foreign bank to establish a subsidiary in the Republic of Lithuania if it is provided for in the laws of that foreign state; 8) other  additional documents at the request of the Bank of Lithuania necessary for the adoption of a decision. A subsidiary/branch of a foreign bank shall have the right to accept deposits and other repayable funds into the accounts opened for its customers and manage them in the Republic of Lithuania provided: 1) the bank which has established it has the right to accept deposits and other repayable funds into the accounts opened for its customers in its home country; 2) the deposits held at the subsidiary/branch of a foreign bank are insured or are covered by any other protection under the legislation of the home country of the bank which has established a subsidiary/branch and the terms and the conditions of deposit insurance/safety guarantees are no less favourable than those provided by the laws of the Republic of Lithuania or if the deposits held at the subsidiary/branch of the foreign bank are insured pursuant to the laws of the Republic of Lithuania. The capital of the foreign bank which is establishing its subsidiary/branch in the Republic of Lithuania must be no less then the minimum core capital determined by the Bank of Lithuania. The activities of a subsidiary or a branch  of the foreign bank shall be governed by the laws and other legal acts of the Republic of  Lithuania. The subsidiaries/branches and representative offices of the foreign bank shall be registered in accordance with the procedure laid down in the Law of the Republic of Lithuania on the Register of Enterprises. A foreign bank subsidiary/branch shall have the right to establish its other subdivisions in the place other than the place of its head office, if this is provided in the statutes/articles of association of the subsidiary/branch, and to carry out all the operations  set out in the statutes/articles  of association of the branch. CHAPTER II ESTABLISHMENT AND LICENSING OF BANKS Article 7. Founders of the Bank Legal and natural persons of the Republic of Lithuania and enterprises without the rights a legal person, as well as foreign banks which have concluded a memorandum of association  in accordance with the procedure prescribed by the Law of the Republic of Lithuania on Companies may be founders of a bank. The memorandum shall define the founders' rights and duties at the moment of founding the bank, as well as their liability for failure to perform their obligations. The minimum number of founders may not be less than 7. Each founder of a bank must also be its shareholder who acquired at least 2 per cent of the bank's share capital at the moment of founding of the bank. [Version of paragraph 1 as of the day of membership of the Republic of Lithuania in the European Union: Legal and natural persons as well as enterprises without the rights a legal person of the Republic of Lithuania and foreign countries, which have concluded a memorandum of association  in accordance with the procedure set out in of the Law of the Republic of Lithuania on Companies may be founders of a bank. The memorandum shall define the founders' rights and duties at the moment of founding of the bank, as well as their liability for failure to perform their obligations. The minimum number of founders may not be less than 7. Each founder of a bank must also be its shareholder who acquired at least 2 per cent of the bank's share capital at the moment of founding  of the bank. The provision of paragraph 1 of this Article, relating to the  number of founders shall not apply to the founders  of a foreign bank or the founders of a subsidiary of a bank registered with the Register of the Enterprises of the Republic of Lithuania  or  when a bank is being established by the Government of the Republic of Lithuania. Article 8. Establishment of a Bank A bank may be founded in a closed or an open manner. After registration of the statutes/articles  of association of the bank in accordance with the procedure established by the Law of the Republic of Lithuania on the Register of Enterprises, issue of shares and accumulation of the core capital, the founders of the bank shall file an application for a banking licence to the Bank of Lithuania. The shares of the bank issued during its founding may not be offered for sale publicly irrespective of the manner in which the bank was founded until the bank is registered in accordance with the procedure established by law. Where a functioning public or private company intends to engage in the business of banking, the provisions of the Law of the Republic of Lithuania on Companies relating to reorganisation of the company by restructuring shall apply. Following adoption of a resolution by the general shareholders' meeting of the company to engage in the business of banking, the company may apply to the Bank of Lithuania  for a licence. Upon been granted a licence by the Bank of Lithuania and after registration in the manner prescribed by the Law of the Republic of Lithuania on the Register of Enterprises, the bank shall acquire the right to commence its activities. Amendments to the statutes/articles   of association of the bank, regulations of  its subsidiaries/branches  and representative offices as well to the regulations of  subsidiaries/branches  and representative offices of foreign banks shall be registered in accordance with he procedure established by the Law of the Republic of Lithuania on the Register of Enterprises, subject to a prior authorisation of he Bank of Lithuania. Upon being granted a licence by the Bank of Lithuania and having been registered in the manner laid down in the Law of the Republic of Lithuania on the Register of Enterprises, a bank acquires the right to commence its activities. Amendments to the statutes/articles   of association of the bank shall be registered following the procedure laid down in the Law of the Republic of Lithuania on the Register of Enterprises, subject to a prior authorisation of the Bank of Lithuania.            Article 9. Establishment of Subsidiaries/Branches and Representative Offices of the Bank Subsidiaries/branches and representative offices of a bank shall be established in the Republic of Lithuania and abroad subject to an authorisation of the Bank of Lithuania and shall be registered according to the procedure established by the laws of the Republic of Lithuania. Other subdivisions of the bank shall be established pursuant to the procedure provided for in the statutes/articles of association of the bank. They shall function without exceeding their powers granted to them by the bank and in compliance with the regulations approved by the bank. Article 10. Application for Banking Licence The application for a banking licence must contain the following: 1) guidelines  of the  bank's activities; 2) the address of the bank's head office; 3) the legal status of the founders; 4) the names of the chairmen of the bank's supervisory board and the management board as well as of the head of the bank's administration. The application shall be accompanied by the following documents and information: 1) the statutes/articles of association of  the bank; 2) the founding documents of the bank (the memorandum of association, minutes of the statutory meeting, the resolution on the establishment of the bank and the certificate of registration of the bank's name); 3) a three-year programme of economic activities/business plan completed in the form and contents prescribed by the Bank of Lithuania, and a description of structural organisation of the bank and the services it intends to provide by it; 4) information about the members of the bank's supervisory board and management board, the chairman of the management board and the chief accountant/financier: their age, educational background, citizenship, knowledge of the Lithuanian language, description of work experience, professional qualifications, participation in the administrative bodies of other enterprises, participation in the activities of other enterprises with own capital, their place of residence, and information whether he has had any convictions; 5) a document of the banking supervisory authority of the foreign state under whose jurisdiction the foreign bank is operating, certifying that this authority does not object to the establishment of  a subsidiary of the bank in the Republic of Lithuania; 6) the list of the bank's founders and shareholders compiled in the form prescribed by the Bank of Lithuania; 7) documents confirming that the core capital has been paid in; 8) documents and information about the status of the bank's founders and shareholders, the origin of the funds used for the acquisition of the bank's shares, the financial position, participation in the management of other enterprises and about their share in the capital of these enterprises, as well as the relations of kinship, property and management  between the founders and the shareholders; 9) documents certifying that the premises which will be used by the bank meet the requirements established by the Bank of Lithuania; 10) a document certifying payment of the stamp duty for the banking licence. An operating company, upon adopting a decision to be reorganised into a bank, must terminate, prior to the issue of a banking licence or within the period specified therein, its   previous activities and, in addition, submit  the following: 1) the founding documents, the resolution of the general shareholders' meeting to be reorganised into a bank and the reorganisation plan; 2) description of its former activities, financial statements of the preceding and current year which are submitted together with the report of independent auditors, information about the structure of the share capital, and the owners of qualifying holdings; 3) documents verifying that the company holds a sufficient amount of capital necessary for banking activities; 4) information about the payment of taxes and debts to creditors. The Bank of Lithuania shall have the right to require additional documents and information  within 30 calendar days of the receipt of the application and documents. Article 11. Decision on Granting of a Banking Licence The Bank of Lithuania shall, within 6 months of the date of the receipt of the application, adopt a decision on granting a banking licence and notify the applicant about it in writing. If, under the procedure set out in paragraph 4 of Article 10 of this Law, the Bank of Lithuania requested additional documents, the six-month time-period shall be calculated from the date of the receipt of all the documents and information necessary for making a decision. The state and municipal institutions, as well as enterprises, agencies and organisations must, at the request of the Bank of Lithuania, provide all the available information concerning the founders and shareholders of the bank, their financial position, activities, established violations of laws and other legal acts, the findings of the checks and revisions as well as other information necessary for the Bank of Lithuania in order to adopt a decision concerning the issue of a banking licence. A banking licence issued by a decision of the Bank of Lithuania may include conditions and limitations on certain operations for which the bank in question is not yet ready. Conditions and limitations stipulated in the banking licence shall also apply to the  subdivisions of the bank. The Bank of Lithuania,  when communicating to the applicant its decision to refuse granting a banking licence or to grant a licence with certain conditions and limitations, shall present a written justification of such decision and duly inform about it the Administrator of the Register. The management board of the Bank of Lithuania shall consider the application and issue a banking licence only in such cases when the documents  submitted and the available information prove that: 1) the statutes/articles of association of the bank about to be founded are in conformity with the laws and other legal acts of the Republic of Lithuania; 2) the core capital indicated in the statutes/articles of association has been paid in; 3) the laws and other legal acts of the Republic of Lithuania have not been violated during the founding of the bank; 4) the bank's chief executive officers/members of the management board and heads of the administration possess the requisite qualifications, are of high moral standing and have experience in banking; 5) the financial position of the founders and shareholders is good and stable, they are persons of high moral standing, and the origin of the funds used for the acquisition of the shares of the bank which is being founded is legal; 6) the premises and equipment owned or rented by the bank meet the requirements prescribed by the legal acts of the Bank of Lithuania for carrying out banking operations; 7) the founders have paid the state charges. The banking licence shall be issued for an unlimited term and may not be transferable. The limitations imposed on the banking licence shall be lifted by a decision of the Bank of Lithuania. State charges established by the Law of the Republic of Lithuania on Fees and Charges and other laws shall be paid for the granting of a banking licence. A decision to refuse granting of  a banking licence may be appealed against in court within 10 days of its adoption. Article 12. 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; 3) the bank's failure to commence its activities within 6 months of the day of its registration. Article 13. Revocation of the Banking Licence upon the Request of the Bank Upon adopting a decision on self-liquidation, the bank shall file to the Bank of Lithuania a written application seeking authorisation for liquidation and revocation of the banking licence. The application must be accompanied by the last balance sheet and the scheme for settling its creditors' claims. The Bank of Lithuania shall grant an authorisation for self-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 creditors' claims the Bank of Lithuania shall revoke the banking licence. CHAPTER III SHAREHOLDERS OF THE BANK AND THEIR RIGHTS Article 14. Shareholders and Shares of the Bank A shareholder of the bank shall be a natural or legal person or an enterprise without the rights of a legal person who has acquired at least one share of the bank in accordance with the procedure established by law. The number of the bank's shareholders may not be less than 7, with the exception of cases when the controlling interest of the bank is held by the Government of the Republic of Lithuania,  a bank registered in the Register of Enterprises of the Republic of Lithuania or a foreign bank. It shall be prohibited to issue bearer shares for the formation of the bank's share capital. An individual who acquires a qualifying holding in the bank without the authorisation of the Bank of Lithuania shall have no right to vote at the general shareholders' meeting. A non-monetary/property contribution for the acquired bank shares may be only immovable property necessary for guaranteeing the direct activities of the bank. The portion of the bank's share capital paid in non-monetary/property contributions may not be more than 20 per cent of the bank's share capital. By the decision of the bank supervisory board, the bank may repurchase its shares, however, their nominal value may not exceed 5 per cent of the bank's share capital. The following entities may not be shareholders of a bank: 1) bodies of state power and administration, with the exception of the Government and municipalities of the Republic of Lithuania; 2) institutions financed from the state budget; 3) subsidiaries or enterprises of this bank; 4) enterprises in which the bank's investments account for 10 percent or more of their capital; 5) persons who have been convicted for the offences against economy and business  practices and the financial system; 6) persons who cannot provide any proof that the funds used for the acquisition of shares have been acquired legally; 7) persons who have liabilities/obligations to the bank; 8) economic entities which refuse to supply information to the Bank of Lithuania about their owners, activities and the financial position. The Government and municipalities of the Republic of Lithuania shall be prohibited from acquiring and holding non-voting shares of the bank. To increase the share capital, new shares shall be issued by the decision of the bank's shareholders. The newly issued bank shares must be subscribed for and fully paid up within the time-period set out in the subscription agreement, but not longer than 12 months from the date of the shareholders' meeting which passed the  resolution to issue new shares. If within 12 months of the date of the shareholders'  meeting the amendments to the bank statutes/articles of association relating to the increase of share capital are not registered in accordance with the procedure established by the laws of the Republic of Lithuania, the share capital shall be deemed not to have been increased. The Bank of Lithuania shall grant an authorisation to register the amendments to the bank statutes/articles  of association relating to the increase of share capital, provided the information supplied by the bank to the Bank of Lithuania proves that: 1) the issued shares have been subscribed for and fully paid up; 2) the shares have been issued and fully paid up in compliance with the laws and other legal acts, as well as with the terms and conditions prescribed by the resolution of the shareholders' meeting,  the bank statutes, the share issue prospectus/memorandum and subscription agreements; 3) the origin of funds for the purchased shares is legal. The bank shall be prohibited from accepting the shares held by a debtor of the bank in return for an outstanding loan. The funds for the accumulation of the core capital of the bank which is being founded or for the payment for the newly issued bank shares shall be accumulated in the account opened with Bank of Lithuania or any other bank. The accumulated funds shall be transferred to the account of the bank subject to the registration with the Register of Enterprises of the Republic of Lithuania of the bank which is being founded or the amendments to the bank  statutes/articles of association relative to the increase of the capital indicated in the statutes/Articles  of association  Where the bank or the amendments to the bank statutes/articles of association relative to the capital increase have not been registered in accordance with the procedure established by law, the accumulated funds shall be disbursed at the request of the persons who deposited them. The resolutions of the management board of the Bank of Lithuania concerning the increase of the share capital shall be made public in the manner prescribed by law. Article 15. Property and Non-Property Rights of the Shareholders of the Bank Individuals who acquire bank shares shall acquire property and non-property rights: 1) during the founding of the bank - from the moment  of paying up the shares and registration of the bank in accordance with the procedure established by law; 2) the persons who have acquired 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 statutes/articles  of association related to the increase of the bank's share capital by reason of a new share issue; 3) the persons who have acquired shares in the secondary market - from the day of registration of the acquired shares. The shareholders' property and non-property rights shall also be established by the Law of the Republic of Lithuania on Companies. CHAPTER IV BANK MANAGEMENT Article 16. Managing Bodies The managing bodies of the bank shall be comprised of the general shareholders' meeting, the supervisory board, the management board of the bank, and the head of the bank administration. Article 17. The General Shareholders' Meeting The general shareholders' meeting shall be the supreme managing body  of the bank. All shareholders shall have the right to participate in the general shareholders' meeting, irrespective of the class, type and number of shares they hold. Members of the management board and the employees of the administration, though they are not shareholders, may participate in the general shareholders' meeting with the right of a deliberative vote. It shall be solely within the competence of the general shareholders' meeting: 1) to adopt and amend the statutes/articles  of association of the bank; 2) to elect and dismiss members of the supervisory board of the bank and members of the internal audit service/the internal auditor, if necessary, also before the expiry of the term of their office; 3) where the supervisory board has been dismissed, to consider the issue of the dismissal of the management board of the bank; 4) to approve the bank's annual balance sheet, the estimate of income and expenses, distribution of profit, and to decide the matters  related to the compensation of losses; 5) to make decisions on the increase or decrease of the core capital; 6) to make decisions on the liquidation or reorganisation of the bank, elect and dismiss the members of the bank's liquidation commission and to approve the report of said commission in the event of the bank's voluntary liquidation; 7) to approve the valuation of non-monetary/property contributions; 8) to decide other matters proposed by the management board, the supervisory board and the internal audit service/the internal auditor; 9) to analyse the shareholder's proposals and complaints concerning the work of the management board and the supervisory board of the bank; 10) to make a decision to apply to court for the institution of bankruptcy proceedings against the bank in accordance with Article 45 of this Law. The rules of procedure of the general shareholders' meeting and adoption of decisions during the shareholders' meetings shall be set forth in the Law of the Republic of Lithuania on Companies. Decisions on the matters specified in items 1, 3, 5, 6 and 10 of paragraph 2 hereof shall be adopted by  2/3 vote of the shareholders present. Where an administrator is appointed in the manner  prescribed by Article 39 of this Law, all decisions about the issues within the competence of the general shareholder's meeting must be co-ordinated with the Bank of Lithuania and the Government or an institution authorised by it. The procedure for such co-ordination shall be established by a resolution of the Government and the Bank of Lithuania. The Bank of Lithuania shall have the right to authorise the management board of the bank to convene an extraordinary general shareholders' meeting. Article 18. The Procedure of the Formation of the Supervisory Board of the Bank and its Powers The number of members of the supervisory board shall be specified in the statutes/ articles  of association of the bank: it must be odd and not less than three. The supervisory board of the bank shall be elected by the general shareholders' meeting. During the election of the supervisory board, each shareholder shall have a number of votes equal to the votes of the shares held by him multiplied by the number of members of the supervisory board. The votes shall be cast at the discretion of the shareholder himself - for one or several candidates. The candidates receiving the majority of votes shall be elected. The supervisory board of the bank shall be elected for the maximum period of four years from among its shareholders and individuals, who are not the bank's shareholders, representing legal persons, the bank's shareholders. Only a legally capable natural person may be a member of the supervisory board of the bank. If a legal person revokes the powers of the person representing it in the supervisory board, the person must be dismissed form the supervisory board regardless of whether or not he is the bank's shareholder. A new member of the supervisory board may be elected to fill in the vacant position at the general shareholders' meeting according to the general procedure. A member of the bank's supervisory board  may be re-elected for another term. The supervisory board of a bank shall commence its activities upon the closure of the general shareholders' meeting which has elected it. The following individuals may not be elected  members of the supervisory board: 1) a member of the managing board or the head of the administration of the same bank; 2) a person, who, according to the procedure established by law, has been deprived of the right or who has been prohibited from holding this position. The supervisory board of the bank and its members shall not have the right to authorise other persons to discharge their functions or to delegate their functions to them. The general shareholders' meeting may determine the salary/bonuses to members of the supervisory board only from the profit of the bank. The supervisory board of the bank shall: 1) appoint and dismiss members of the management board, its chairman  and deputy chairmen; 2) approve the regulations of the activities of the management board; 3) at the request of the board, make a decision about dismissal of a member of the supervisory board who is an employee of the bank; 4) observe and analyse the activities of the board, the application of financial funds, organising of  management, return on the capital, salaries, and a long-term evaluation of the financial situation of the bank; 5) submit proposals and comments to the general 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 during the hearing of 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 the statutes/articles of association and resolutions of the general shareholders' meeting; 8) draw up the plan of the bank's activities; 9) establish the procedure for granting loans which may be granted only subject to the approval  of the supervisory board; 10) adopt decisions on the establishment of the subsidiaries/branches, bank representative offices and enterprises of the bank and investments into the capital of other enterprises; 11) set the procedure for the formation and use of the parts of the bank's capital listed in subparagraphs 5-12 of paragraph 2, Article 33 of this Law. The  supervisory board of the bank  shall have a right to appoint an expert/group of experts to inspect and evaluate the bank's financial accounting. At the request of the supervisory board, the management board and administration of the bank must supply documents relating to the activities of the bank. Article 19. Rules of Procedure of the Supervisory Board Members of the supervisory board shall have equal rights. When voting, each member shall have one vote. In the event of a tie, the chairman shall have the casting vote. Where a member of the supervisory board is not able to attend the meeting of the supervisory board, having got acquainted with the draft resolution, he may inform the meeting in writing of his opinion on the resolution that  was put to the vote by voting "for" or "against". A meeting of the supervisory board shall be valid if it is attended by more than half of the members of the supervisory board. A resolutions shall be adopted by a simple majority of votes, with the exception of resolutions on the dismissal of the members of the management board which shall be adopted by no less than 2/3 majority vote of members of the supervisory board. Meetings of the supervisory board must be held at least once every three months. Meetings of the supervisory board shall be convened by the chairman of the supervisory board and when he is not available - by a deputy chairman. Meetings shall also be convened if no less than 1/3 of members of the supervisory board or the management board of the bank. Issues put forward by the initiators of the meeting must be included in the agenda of these meetings. Article 20. The Management Board of the Bank The management board of the bank shall direct the activities of the bank, manage its affairs, represent the bank, and shall be liable under law for carrying out the transactions of the bank. The number of members of the management board which may not be less than three, as well as the activities, powers and rights of the management board and its members, and the procedure for passing of resolutions shall be set forth in the statutes/articles  of association of the bank and the rules  of procedure of the bank management board. The chairman, deputy chairmen  and members of the management board shall be appointed for a term of not more than 4 years. The number of terms a management board member may serve shall not be limited. Only a legally capable person may be appointed a member of the bank's management board. The following persons may not be appointed members of the management board: 1) a member of the supervisory board of the same bank; 2) a member of the management board or head of the administration of any other bank registered in the Republic of Lithuania; 3) a person who, according to the procedure established by law, has been deprived of the right or prohibited from holding this  position. The statutes/articles  of association may provide for some additional requirements for a member of the management board. A member of the management board may resign after submitting a written application. The application must be considered and granted within 14 calendar days of its filing.   The chairman of the management board,  deputy chairmen and  members of the management board shall work in the bank and get a salary which shall be determined by the supervisory board of the bank. By a decision of the general shareholders' meeting, bonuses may be paid to the members of the management board, the chairman of the management board and deputy chairmen. The members of the management board shall have no right to delegate their duties to other persons. A member of the management board who is temporarily unavailable may be replaced by a member of the supervisory board who shall be appointed by the supervisory board of the bank. The powers of a member of the supervisory board shall be suspended for the period he or she is performing the duties of the management board member. Article 21. Administration of the Bank The administration of the bank shall be comprised of the heads and deputy heads of the central management body, structural subdivisions and subsidiaries/branches of the bank. The administration of the bank shall implement the resolutions of the general shareholders' meeting, the supervisory board, and the management board. The duties and powers of the administration of the bank shall be set forth in the statutes/articles  of association of the bank, and the regulations approved by the management board of the bank. The administration of the bank and its head shall be recruited by the management board of the bank. The head of the bank administration may not perform the duties of the chief financier/accountant, be a member of the management board of another bank or work in the administration of another bank. The head of the bank administration shall conclude employment contracts with the other employees of the bank. The duties of the head of the bank administration may be performed by the chairman or any other member of the management board. Article 22. The Internal Audit Service of the Bank/Internal Auditor There must be at  least one internal auditor at the bank. He shall be elected by the general shareholders' meeting for a period determined by the statutes/articles of association of the bank but not longer than for 4 years. The number of terms of office of the internal auditor shall not be limited. Any legally capable natural person with relevant qualifications may occupy said position. A member of the supervisory board or the management board, the head of the administration, or the chief financier/chief accountant may not be the internal  auditor of the bank. The internal audit service/internal auditor must: 1) inspect the implementation of the income and expenditure estimate, the activities of the bank, and control compliance of the bank in its activities with the laws and the statutes/articles of association of the bank; 2) audit the annual balance sheet and other financial accounting documents on the basis of which resolutions are adopted by the general shareholders' meeting; 3) report at the next general shareholders' meeting or the meeting of the bank management board about the violations established during the audit. The internal audit service/internal auditor shall carry out audits on the instruction of the general shareholders' meeting, the management or the supervisory board of the bank. Article 23. Committees and Services of the Bank Every bank must have a standing loan committee and a standing internal audit service. Other committees and services of the bank may also be formed. Their functions as well as the procedure of their formation and operation shall be determined by the legal acts of the Bank of Lithuania and the bank statutes/articles of association. CHAPTER IV ACTIVITIES OF BANKS Article 24. Bank Statutes/Articles of Association of the Bank The statutes/articles of association of the bank shall state: 1) the name of the bank; 2) the head office of the bank and  its address; 3) the transactions carried out by the bank; 4) the nominal value of share capital and its composition according to the classes of shares as well as the rights and duties granted to the owners of the shares; 5) parts of the bank's 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 conversion 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 bank management structure; 11) the procedure of the formation of managing bodies and election or appointment of their heads, their rights, duties and liability; 12) the procedure for calling the general shareholders' meetings and voting at the meetings; 13) the procedure for the distribution of profit; 14) the procedure for making announcements by the bank; 15) the procedure for reorganisation and liquidation of the bank; 16) other provisions which do not contravene the laws and the legal acts. Article 25. Bank Operations Banks shall have the right to: 1) take deposits and other repayable funds into the clients' accounts opened with the bank and to manage these accounts; 2) extend and take loans; 3) issue sureties, guarantees, and other security obligations; 4) issue instruments of payment (cheques, letters of credit, 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 let safe deposit boxes of the bank vault to clients for safe-keeping of valuables and documents; 10) provide services and consultations on issues of banking activities, finances, and management  of clients' investments; 11) carry out other operations established by the legal acts of the Bank of Lithuania. Article 26. Prudential Requirements The following requirements shall be established for banks: 1) capital adequacy ratio; 2) liquidity ratio; 3) maximum open position in foreign currencies and precious metals; 4) maximum exposure; 5) large exposure; 6) other requirements set by the legal acts of the Bank of Lithuania provided they do not contradict the recommendations of the Basle Committee on Banking Supervision and the directives of the European Union. The requirements and the methods of their calculation shall be established by the Bank of Lithuania. Article 27. Bank Investments Banks may establish enterprises, be their co-owners or shareholders. The total amount of a bank's investments into the shares or capital of other enterprises may not exceed 40 percent of the bank's capital. The total amount of a bank's investments into the shares or capital of one enterprise  may not exceed 10 per cent Provisions of paragraphs 2 and 3  of this Article shall not apply to the investments of a bank into the shares or capital of enterprises which are, under the laws of the Republic of Lithuania and the legal acts of the Bank of Lithuania, assigned to the enterprises engaged in credit and financial business. The requirements of  paragraph 2 of this Article shall not apply where a bank acquired the shares as a compensation for an outstanding loan. In this case the bank must, within one year, transfer the portion of investments in excess of the threshold prescribed in paragraph 2 of this Article into the shares or capital of other enterprises. A bank shall be prohibited from acquiring shares of an enterprise having a qualifying holding in the bank or from being a co-owner of the enterprise. Article 28. Keeping of Bank Documents During the term of validity of agreements and for ten years following their expiration a bank shall keep the following documents: 1) loan, guarantee, surety, pledge and other agreements; 2) any other documents of the bank's partners on the basis of which the agreements have been concluded; 3) other documents specified by the Bank of Lithuania. The bank may also keep other documents and set a different time frame for safekeeping, which however, may not be shorter than provided for in he first paragraph of this Article or by the Lithuanian Archives Department. Article 29. Connected Lending Lending by a bank to connected persons may not exceed 10 per cent of the bank's capital. The following individuals shall be considered as connected persons: 1) owners of a qualifying holding in the bank, its subsidiaries and its enterprises,  their spouses, parents and children or enterprises  in which said persons have, directly and/or indirectly, acquired or own more than 20 percent of own capital; 2) members of the supervisory board and the management board of the bank, its subsidiaries and enterprises, internal auditors, heads of the bank's administration and bank's  subsidiaries/branches and their spouses, parents, and children, or the enterprises in which said persons have, directly or/and indirectly, acquired or own more than 20 percent of own capital. Banks must communicate to the Bank of Lithuania information about loans extended to connected persons in accordance with the procedure established by the Bank of Lithuania. Article 30. Security for Fulfilment of Obligations In order to secure fulfilment of obligations under loan agreements, banks may accept as security goods and other valuables, bills and other securities, bills of lading, foreign exchange and other valuables, conclude pledge, guarantee, security or other agreements, which are in conformity with the laws of the Republic of Lithuania. If the borrower fails to repay the loan at maturity under the 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 pledge before other creditors. If the borrower defaults on his obligations the fulfilment whereof was secured by a pledge consisting of the securities of the Government of the Republic of Lithuania or of the Bank of Lithuania, the bank shall have the right to give an instruction to the manager of the securities accounts to transfer to the bank's securities account the pledged securities for the amount corresponding to non-fulfilled obligations, according to the procedure established by the Securities Commission, if so provided under the agreement concluded between the bank and the borrower. Provided the bank is the manager of the  accounts of securities pledged to it, it shall have the right to transfer these government securities of the Republic of Lithuanian as well as the securities of the Bank of Lithuania to its own securities account, pursuant to the conditions, procedure and amounts specified in paragraph 3 of this Article. The bank may request that its client/credit recipient submit information or documents required for the assessment of its financial position during the period he makes use of the loan. In the event of a threat that the loan may not be repaid when due,  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 31. Confidentiality The present and former members of the supervisory board, the management board, the administration and the employees of the bank must protect confidentiality of the information obtained in the course of their work at the bank and not use it for their own or other persons benefit. The Bank of Lithuania shall be supplied, whenever it requests it, all documents and information related to the founding and activities of a bank. Documents and information at the request of other institutions shall be supplied in the cases and according to the procedure established by the laws of the Republic of Lithuania. The bank must provide the information specified in Articles  8 and 12 of the Law on the Prevention of Money Laundering to the Financial Crimes Investigation Unit under the Ministry of the Interior. Banks must establish the procedure for protection of confidentiality. Article 32. Liability for Losses Caused to the Bank Liability for losses caused to the bank through the fault of members of the supervisory board, the management board, the administration and the employees of the bank shall be established by the laws of the Republic of Lithuania as well as by other legal acts and the statutes/articles of association of the bank. CHAPTER VI TYPES OF CAPITAL AND DISTRIBUTION OF PROFIT Article 33. Capital of the Bank The capital of a bank shall be the amount of parts of the capital specified in  paragraph 2 of this Law less the amounts and in accordance with the procedure determined by the Bank of Lithuania. The parts of the bank's capital shall be as follows: 1) ordinary capital less the purchased own shares and without preference shares with an accumulated dividend; 2) reserve capital; 3) share premium; 4) retained earnings or losses of the previous year; 5) general purpose bad debt reserve; 6) other general purpose reserve; 7) a revaluation reserve; 8) limited distributable profit; 9) retained profit of the current year; 10)  preference shares with an accumulated dividend; 11)  other capital  and funds provided for in the statutes/articles of association of the bank; 12)  debt/subordinated capital. Ordinary capital means  the nominal value of all registered shares. Core capital means the parts of the bank's capital listed in subparagraphs 1, 2, 3 and 4 of paragraph 2 of this Article. Reserve capital means additional contributions of the shareholders/founders of the bank or/and deductions from the profit of the bank. Debt/subordinated capital means borrowed and received cash funds by the bank  in accordance with the terms and conditions established by the Bank of Lithuania. Article 34. Size of the Bank's Capital Core capital of a bank may not be less than the minimum size of the core capital established by the Bank of Lithuania, with the exception of the case specified in paragraph 4 of this Article. A bank may reduce, subject to a prior authorisation of the Bank of Lithuania, its core capital to the amount of the minimum core capital established by the Bank of Lithuania. Reserve capital of a bank shall be formed from additional contributions of its shareholders and/or deductions from the bank profit. The purpose of reserve capital of a bank shall be to guarantee e the bank's financial stability. The bank's share capital must be reduced, by a decision of the general shareholders' meeting, by the amount of the loss where the losses stated in the annual and quarterly financial statements of the bank amount to 75 per cent of the nominal value of the bank's share capital. If the losses stated in the annual and/or quarterly financial statements are in the amount specified in paragraph 4 of this Article the bank management board must, within 3 days, notify the bank supervisory board and the Bank of Lithuania about it and within 45 days convene an extraordinary shareholders' meeting where, if necessary, an independent auditor's findings shall be presented. The meeting shall decide on the issues of the reduction of the bank's share capital and further activities of the bank. If the losses stated in the annual and/or quarterly financial statements of the bank are equal to the nominal value of the bank's share capital or exceed it, the general shareholders' meeting must reduce the share capital of the bank by cancelling its shares in order to cover the losses. After adopting such a decision, the Bank of Lithuania shall appoint an administrator pursuant to the procedure provided for in Article 39 of this Law. If the general shareholders' meeting is not convened within the prescribed period, does not take place or does not approve the reduction of the share capital by the amount of loss, the Bank of Lithuania shall appoint the administrator in accordance with the procedure prescribed by Article 39 of this law or apply to court for the institution of bankruptcy proceedings against the bank. In such a case the administrator must, within 7 days from his appointment, apply to court for the reduction of the bank's share capital. When the court renders a decision to reduce the share capital, the administrator shall, with the approval of the Bank of Lithuania, adopt a decision to reorganise the bank or shall advise the Bank of Lithuania to institute bankruptcy proceedings against the bank pursuant to Article 45 of this Law. The procedure prescribed in paragraphs 4, 5, 6, 7 and 8 hereof shall also apply when the Bank of Lithuania establishes the losses in the amount specified in paragraph 4 of this Article  and notifies the bank management board thereof. All shareholders must be notified of the forthcoming general shareholders' meeting and its agenda not later than 30 days before the meeting. The amendments to the banks' statutes made as a result of the reduction of the share capital shall be registered in accordance with the procedure prescribed by the laws of the Republic of Lithuania. The share capital shall be deemed reduced only after the registration of the amendments of the statutes. If a bank is insolvent, its share capital may be increased by additional contributions generated from public trading in shares whose subscription agreements indicate that the bank is insolvent. Share capital may be increased pursuant to the procedure specified in paragraph 11 of this Article only subject to an authorisation of the Bank of Lithuania, with the exception of the case when bankruptcy proceedings have been instituted against the bank. When banks reduce their share capital in the manner prescribed by this Law, paragraphs  6, 7, 10 and 14 of Article 54 of the Law of the Republic of Lithuania on Companies shall not apply. Article 35. Distribution of Profit Bank profit shall consist of the funds which remain after deducing bank expenses and losses of the financial year from the bank income of the current year. The financial year of a bank shall coincide with the calendar year. The resolution on the distribution of profit must specify: 1) profit; 2) mandatory payments from profit; 3) deductions to general purpose reserves for loan losses; 4) allocations to reserve capital; 5) deductions to other categories of capital and funds specified by bank statutes/ articles  of association; 6) dividends; 7) annual payments/bonuses to members of the bank management board and the supervisory board; 8) retained profit. Profit of the bank remaining after mandatory payments and deductions to the bank's reserve capital and other categories of capital and funds provided for in the bank statutes/articles  of association may not be paid out in the form of dividends and bonuses if, after an appropriate decision of the shareholders' meeting, the capital adequacy ratio and minimum core capital  are below the thresholds  prescribed by the Bank of Lithuania. The taxable profit of the bank shall be computed and profit tax shall be paid in accordance with the procedure …