Unofficial translation
BOARD OF THE BANK OF LITHUANIA
RESOLUTION No 138
of 9 November 2006
on the general regulations for the calculation of capital adequacy
Vilnius
(Valstybės žinios (Official Gazette) No 142-5442, 2006)
10 May 2007, No 541 (Valstybės žinios (Official Gazette) No 54-2119, 2007)
7 June 2007, No 74 (Valstybės žinios (Official Gazette) No 65-2549, 2007)
21 October 2010, No 03-127 (Valstybės žinios (Official Gazette) No 130-6689)
15 March 2011, No 03-30 (Valstybės žinios (Official Gazette) No 35-1697, 2011)
In observance of Article 9 of the Law of the Republic of Lithuania on the Bank of Lithuania (Valstybės žinios (Official Gazette) No99-1957, 1994; No28-890, 2001), in implementing Article 48(2) of the Law of the Republic of Lithuania on Banks (Valstybės žinios (Official Gazette No54-1832, 2004), Article 37(3) of the Law of the Republic of Lithuania on the Central Credit Union (Valstybės žinios (Official Gazette) No 45-1288, 2000; No61-2181, 2004), Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (OJ 2006 L 177, p.1), Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (OJ 2006 L 177, p.201), Commission Directive 2007/18/EC of 27 March 2007 amending Directive 2006/48/EC of the European Parliament and of the Council as regards the exclusion or inclusion of certain institutions from its scope of application and the treatment of exposures to multilateral development banks (OJ 2007 L 87, p. 9), Commission Directive 2009/27/EC of 7 April 2009 amending certain Annexes to Directive 2006/49/EC of the European Parliament and of the Council as regards technical provisions concerning risk management (OJ 2009 L 94, p. 97), Commission Directive 2009/83/EC of the European Parliament and of the Council of 27 July 2009 as regards technical provisions concerning risk management (OJ 2009 L 196, p. 14), and Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (OJ 2009 L 302, p. 97) and Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies (OJ 2010 L 329, p. 3), the Board of the Bank of Lithuania has r e s o l v e d:
1. To approve:
1.1. General Regulations for the Calculation of Capital Adequacy (attached);
1.2. Capital Adequacy Report Form 6004 (attached);
1.3. Report on Maximum Exposure Amount to a Single Borrower and Large Exposures, Form 7001 (attached).
2. The present Resolution, except for the requirements specified in Par. 3, comes into effect as from 1 January 2007.
3. The requirements of the General Regulations for the Calculation of Capital Adequacy approved by this Resolution relating to the internal ratings based approach (IRB method) using loss given default (LGD) calculated by banks and (or) conversion factors (CF), as well as with the application of the Advanced Measurement Approach (AMA) for operational risk, shall come into effect as from 1 January 2008.
4. Having regard to Par. 8, Article 152 of the Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ 2006 L 177, p.1) and Par. 1, Article 50 of Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (OJ 2006 L 177, p.201), to establish that until 1 January 2008 banks and the Central Credit Union may apply the approach in force until 1 January 2007 instead of the standardised method set forth in Section I of Chapter IV of these General Regulations.
5. If banks and the Central Credit Union choose the option referred to in Par. 4 above, by 1 January 2008:
5.1. they shall be exempt from application of the General Regulations for the Calculation of Capital Adequacy approved by this Resolution;
5.2. credit derivatives should be included in the list of the off-balance sheet items set forth in subitem 37.1 of the on the Rules for the Calculation of Capital Adequacy approved by the Bank of Lithuania Board Resolution No 172 of 21 December 2000(Valstybės žinios (Official Gazette) No7-223, 2001);
5.3. requirements set forth in items 38–40 of the Rules for the Calculation of Capital Adequacy approved by the Bank of Lithuania Board Resolution No 172 of 21 December 2000 (Valstybės žinios (Official Gazette) No 7-223, 2001) shall apply both, to the balance sheet and off-balance sheet items.
6. To repeal with effect from 1 January 2008:
6.1. Bank of Lithuania Board Resolution No 172 of 21 December 2000on the Rules for the Calculation of Capital Adequacy (Valstybės žinios (Official Gazette) No 7-223, 2001);
6.2. Bank of Lithuania Board Resolution No 111 of 1 July 2004 on the Amendment to the Bank of Lithuania Board Resolution No 172 of 21 December 2000on the Rules for the Calculation of Capital Adequacy (Valstybės žinios (Official Gazette) No 105-3932, 2004);
6.3. Bank of Lithuania Board Resolution No 159 of 23 September on the Amendment to the Bank of Lithuania Board Resolution No 172 of 21 December 2000 (Valstybės žinios (Official Gazette) No 145-5301, 2004);
6.4. Bank of Lithuania Board Resolution No 70 of 25 May 2006 on the Amendment to the Bank of Lithuania Board Resolution No 172 of 21 December 2000on the Rules for the Calculation of Capital Adequacy (Valstybės žinios (Official Gazette) No 61-2246, 2006);
6.5. Bank of Lithuania Board Resolution No 100 of 27 July 2006 on the Implementation of point 13.2.5 of the Rules for the Calculation of Capital Adequacy approved by Bank of Lithuania Board Resolution No 172 of 21 December 2000on the Rules for the Calculation of Capital Adequacy (Valstybės žinios (Official Gazette) No 86-3393, 2006);
6.6. Bank of Lithuania Board Resolution No 151 of 28 November 2002 on Methodical Recommendations for Banks Regarding the Application of the Internal Market Exposure Assessment Models (Valstybės žinios (Official Gazette) No 117-5290, 2002);
6.7. Bank of Lithuania Board Resolution No 28 of 9 March 2000 on the Procedure for Establishing the Country Risk (Valstybės žinios (Official Gazette) No 24-636, 2000);
6.8. Bank of Lithuania Board Resolution No 94 of 4 July 2002 on the Amendment to the Bank of Lithuania Board Resolution No 28 of 9 March 2000 on the Procedure for Establishing the Country Risk (Valstybės žinios (Official Gazette) No 70-2959, 2002);
6.9. Bank of Lithuania Board Resolution No 2 of 29 January 2004 on the Amendment to the Bank of Lithuania Board Resolution No 28 of 9 March 2000 on the Procedure for Establishing the Country Risk (Valstybės žinios (Official Gazette) No22-697, 2004);
6.10. Item 2 of the Bank of Lithuania Board Resolution No 91 of 4 July 2002 on the Maximum and Large Exposure Requirements (Valstybės žinios (Official Gazette) No73-3133, 2002);
6.11. Bank of Lithuania Board Resolution No 84 of 20 May 2004 on the Amendment to the Bank of Lithuania Board Resolution No 91 of 4 July 2002 on the Maximum and Large Exposure Requirements (Valstybės žinios (Official Gazette) No 86-3167, 2004);
6.12. Subitems 2.1, 2.3 and 2.4 of the Bank of Lithuania Board Resolution No 131 of 23 August 2001 on Financial Statements and Calculation of Prudential Requirements of the Central Credit Union (Valstybės žinios (Official Gazette) No75-2662, 2001);
6.13. Subitems 1.1 and 1.3 of the Bank of Lithuania Board Resolution No 105 of 23 October 2003 on Amending and Supplementing the Bank of Lithuania Board Resolution No 131 of 23 August 2001 on Financial Statements and Calculation of Prudential Requirements of the Central Credit Union (Valstybės žinios (Official Gazette) No104-4694, 2003);
6.14. Bank of Lithuania Board Resolution No 146 of 2 September 2004 on the Amendment to the Bank of Lithuania Board Resolution No 131 of 23 August 2001 on Financial Statements and Calculation of Prudential Requirements of the Central Credit Union (Valstybės žinios (Official Gazette) No139-5091, 2004);
6.15. Item 10 of the Bank of Lithuania Board Resolution No 210 of 30 December on Reporting Deadlines (Valstybės žinios (Official Gazette) No 2-56, 2000);
6.16. Item 23 of the Bank of Lithuania Board Resolution No 45 of 28 March 2002 (Valstybės žinios (Official Gazette) No35-1338, 2002);
6.17. Item 2 of the Bank of Lithuania Board Resolution No 37 of 10 March 2005 on Approving the Requirements for the Information Made Available to the Public, Amending Resolutions of the Board of the Bank of Lithuania Regulating the Reporting Periodicity and Repealing Some Resolutions of the Board of the Bank of Lithuania (Valstybės žinios (Official Gazette) No37-1219, 2005).
Chairman of the Board Reinoldijus Šarkinas
approved by
Resolution No 138 of
the Board of the
Bank of Lithuania of
9 November 2006
GENERAL REGULATIONS
FOR THE CALCULATION OF CAPITAL ADEQUACY
(Valstybės žinios (Official Gazette) No 142-5442, 2006)
10 May 2007, No 541 (Valstybės žinios (Official Gazette) No 54-2119, 2007)
7 June 2007, No 74 (Valstybės žinios (Official Gazette) No 65-2549, 2007)
15 November 2007, No 152 (Valstybės žinios (Official Gazette) No 121-4998, 2007)
21 October 2010, No 03-127 (Valstybės žinios (Official Gazette) No 130-6689)
15 March 2011, No 03-30 (Valstybės žinios (Official Gazette) No 35-1697, 2011)
CHAPTER I
GENERAL REGULATIONS
1. The present General Regulations for the Calculation of Capital Adequacy (hereinafter - Regulations) establish the procedure for the calculation of capital adequacy, the requirements of maximum open position in foreign currency and precious metals, the maximum loan to one obligor (hereinafter maximum exposure amount to one borrower) and large exposures (loans) limits.
2. The present Regulations shall apply to all commercial banks and the Central Credit Union licensed by the Bank of Lithuania (hereinafter within the framework of application referred to as the “bank”).
3. The capital adequacy of the bank shall be calculated in consideration of credit, market and operating risks.
4. For the purposes of these Regulations the following definitions shall apply:
General terms
4.1. Credit institution means an undertaking of the Republic of Lithuania or another Member State of the European Union whose business is to receive deposits or other repayable funds from the public (unprofessional market participants) and to grant credits for its own account; or to issue and manage electronic money, or a undertaking of another foreign state, which holds a license issued by a competent authority of that state to receive and which receives deposits or other repayable funds from the public (unprofessional market participants) and to grant credits for its own account; or to issue and manage electronic money.
4.11. EU parent credit institution means an undertaking as defined in the Rules on Consolidation of Accounts of the Financial Group and on Joint (Consolidated) Supervision approved by Resolution No 153 of the Board of the Bank of Lithuania of 7 December 2006 (Valstybės žinios (Official Gazette) No 143-5461, 2006).
4.2. Investment firm means an undertaking of the Republic of Lithuania or another Member State of the European Union whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis.
4.3. Institution means a credit institution or an investment firm.
4.4. Public sector entities means public legal entities of the Republic of Lithuania, i.e. legal entities set up by the government or municipality, their institutions or other non-profit entities for the purpose of satisfying public interests (state and municipal enterprises, public and municipal bodies, public institutions, etc.), non-profit private legal entities controlled by the government or its institutions and granted special status (guarantees)), as well as other entities of the public sector of the European Union Member States as defined in legal acts thereof.
4.5. Venture capital company means undertaking, which invests in the private capital companies with high value generation opportunities.
4.6. Trading book means balance sheet and off-balance sheet positions of the bank’s financial instruments used for trading purposes or for hedging other positions of the trading book, which satisfy the conditions set forth in pars. 541-549 hereof.
4.7. Banking book means all balance sheet and off-balance sheet positions of the bank’s claims excluded from the trading book.
4.8. Lease means lease and operating lease. Operating lease shall be included only in the calculation of capital adequacy of the financial group.
4.9. Bank capital means capital calculated in the manner established in Chapter II.
4.10. Capital requirement of the bank means minimum bank capital necessary for covering the credit, market and operating risks.
4.11. Internal capital of the bank means capital requirement calculated for the internal purposes of the bank.
4.12. Credit risk means likeliness that the counterparty will fail to settle in the contractual manner.
4.13. Market risk means likeliness that as a result of change in market variables – interest rate, exchange rate, prices of equity securities and commodities – the bank will sustain losses from the concluded transaction.
4.14. Operational risk means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, and includes legal risk.
4.15. Repurchase (reverse repurchase) agreement means any agreement in which the bank or its counterparty transfers securities or commodities or guaranteed rights relating to title to securities or commodities (where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities) and the agreement does not allow the bank to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them (or substituted securities or commodities of the same description) at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the bank selling the securities or commodities and a reverse repurchase agreement for the bank buying them.