• Applicable Legislation
• Regulation of Banking Activities
• Restrictions on Bank Ownership and Operations
• Opening Bank Account
• Banking Supervision
• Foreign Exchange Restrictions
• Regulation of Insurance Market

The restoration of independence in the Republic of Lithuania on 11 March 1990 created the need for new finance institutions. After absence of fifty years, the Bank of Lithuania was re-established on 1 March 1990. The statutes of the Bank of Lithuania were ratified in September of the same year. Initially, the Bank of Lithuania performed only one of the functions of a central bank: it monitored and regulated the activities of other banks. Due to a hyperinflationary period, as of 1 September 1991 Lithuania introduced a provisional currency - the talonas ("coupon") - to circulate along with the rouble. The Bank of Lithuania and the Litas Committee removed the rouble from circulation in Lithuania on 1 October 1992. The current Lithuanian currency - the Litas (LTL) - was introduced on 25 June 1993 and became the only legal tender in Lithuania as of 1 September 1993.

The following types of credit institutions currently exist in Lithuania:

• The Bank of Lithuania (performing central bank functions);
• The Property Bank (AB "Turto bankas") (providing asset management services, primarily in the collection of doubtful loans, operating under a special law);
• 9 commercial banks;
• 4 branches of foreign banks;
• 1 representative office of a foreign bank; and
• 40 credit unions.

Currently, about 31 insurance companies operate in Lithuania.


Applicable Legislation

1. The 1 July 2001 Civil Code of the Republic of Lithuania ("the Civil Code");
2. The 1 July 1993 Law No. I-199 of the Republic of Lithuania "On Money";
3. The 13 July 2000 Law No. VIII-1835 of the Republic of Lithuania "On Companies" ("the Company Law");
4. The 13 March 2001 Law No. IX-205 of the Republic of Lithuania "On the Bank of Lithuania";
5. The 21 December 1994 Law No. I-720 of the Republic of Lithuania "On Commercial Banks";
6. The 10 July 1996 Law No. I-1456 of the Republic of Lithuania "On Insurance";
7. The 1 July 1993 Resolution No. 16 of the Board of the Bank of Lithuania "On the Core Capital of Commercial Banks";
8. Regulations of the Formation of Commercial (Joint Stock) Banks, Their Sub-units and the Registration of Increases in the Initial Capital of the Bank, as approved by the 1 July 1993 Resolution No. 22 of the Board of the Bank of Lithuania;
9. Regulations of the Registration with the Bank of Lithuania of Foreign Loans Received without Government Guarantee, by Legal Persons and Enterprises without the Rights of Legal Persons of the Republic of Lithuania, and Loans Issued to Foreign Entities as approved by the 27 May 1999 Resolution No. 77 of the Board of the Bank of Lithuania.

The Law on the Bank of Lithuania defines the functions of the Bank of Lithuania as consistent with those functions normally granted to a central bank, namely granting it the right to: issue money; form and implement the monetary policy; establish the system of regulating the exchange rate of LTL and announce the official exchange rate of LTL; manage, dispose of and use foreign reserves of the Bank of Lithuania; perform functions of the State's treasury agent; license and supervise commercial banks and other credit institutions; establish financial accounting principles and the order of accountability with regard to banking activities; establish an inter-bank clearing system and adopt the requirements thereof; and accumulate the statistical data on money, banks' payment balance, finances of Lithuania and establish the Lithuanian payment balance. Furthermore, the Law on the Bank of Lithuania defines the management structure of the Bank, regulates the execution of the functions of the Bank and defines the powers and competence of its managing bodies.

The provisions of the Company Law are applicable to a commercial bank, as established by the Law on Commercial Banks. The Company Law establishes general principles regarding the formation, reorganisation and liquidation of companies acting on the basis of share capital, including the rights of shareholders and the organisation and responsibilities of the company's management. A commercial bank may be organised as a public or private company. The Law on Commercial Banks defines the procedure for establishing a commercial bank, defines acceptable fields of activities, regulates the bank's capital and management structure and defines bankruptcy procedures for a commercial bank.

Pursuant to the European Agreement Establishing an Association between the European Communities and their Member States and the Republic of Lithuania, which came into force on 1 February 1998, Lithuania has undertaken to harmonise its monetary policy and finance sector with that of the EU countries. The process of making adjustments to the Lithuanian finance sector to fulfil the requirements of the EU is organised in two stages. The first stage - harmonisation with the EU directives regarding the formation of financial institutions (including credit institutions) - has been implemented. The second stage will deal with the creation of internal markets consistent with the EU. New legislation is already in place regarding the overall harmonisation and implementation of EU legislation within the Lithuanian legal system.


Restrictions on Bank Ownership and Operations

Restrictions on Who May Own Bank

The founders of a commercial bank may be: (1) Lithuanian legal and natural persons and enterprises which do not possess the rights of a legal person; and (2) foreign banks. The minimum number of founders of a bank is seven, except when a bank is established by a foreign or Lithuanian bank or by the Government of the Republic of Lithuania. Each founder must also acquire at least 2% of the bank's share capital. Any person needs the permission of the Bank of Lithuania in order to acquire directly or indirectly 10% and more of shares or votes in a commercial bank.

The following entities may not own shares in banks:

1. State institutions, except the Government and municipalities of the Republic of Lithuania;
2. institutions financed from the State budget;
3. banking subsidiaries or other subsidiaries of the bank;
4. an enterprise in which the bank's investment equals or exceeds 10% of its capital;
5. persons who have been convicted of crimes committed while carrying out business activities, or financial crimes;
6. persons who are unable to prove that funds used to purchase shares have been acquired through lawful means;
7. persons who have financial obligations to the bank; and
8. entities which refuse to furnish information to the Bank of Lithuania concerning their ownership, activities or financial situation.

Restrictions on What Bank May Own

Pursuant to Article 27 of the Law on Commercial Banks, commercial banks may establish enterprises or be co-owners or shareholders. The total amount of a commercial bank's investments into the shares or capital of other enterprises may not exceed 40% of the bank's capital. The total amount of a commercial bank's investment into the shares or capital of one enterprise may not exceed 10% of the bank's capital. The above mentioned restrictions are not applicable to the investments of a commercial bank into the shares or capital of enterprises considered to be engaged in credit and financial activities according to the laws of the Republic of Lithuania and legal acts of the Bank of Lithuania. A commercial bank may not acquire shares of an enterprise which holds at least 10% of shares or votes in a commercial bank or be a co-owner of such an enterprise.

Point of Interest
The provisions prohibiting a bank from investing 10% or more of its capital in the shares of another enterprise are not applicable if the bank has acquired these shares as compensation for an unpaid bank loan. In this case, the bank must transfer the shares or capital which exceeds the 10% limit within one year.

Banking Activities

Pursuant to Article 25 of the Law on Commercial Banks, commercial banks have the right to:

1. accept cash and other repayable funds for deposit into client accounts opened with the bank and manage these accounts;
2. extend and take loans;
3. issue financial sureties, guarantees and other security obligations;
4. issue payment documents (checks, letters of credit, bills etc.) and carry out transactions with such instruments;
5. carry out transactions with securities (shares, bonds etc.);
6. carry out operations with foreign currencies;
7. buy and sell precious metals;
8. issue and manage credit instruments;
9. receive clients' valuables for safekeeping and rent safe deposit boxes to customers;
10. render services and offer consultations on the management of personal investments, banking activities and finance; and
11. carry out other operations as established by the legal acts of the Bank of Lithuania.

Lithuanian and foreign entities (including individuals) may, without limitations, open both LTL and foreign currency accounts with Lithuanian banks by concluding a written contract. The accounts must be opened upon a written request by a customer in accordance with the conditions (internal rules) announced by a commercial bank. Usually the following documents must be presented for opening a bank account:

1. By Lithuanian enterprises:
   1. the entity's registration certificate;
   2. an identity document of the individual authorised to open an account;
   3. the entity's Articles of Association;
   4. a list of the individuals with authority over the account, together with samples of their signatures and a sample of the entity's seal. If the account is to be used for electronic transfer orders, the enterprise and the bank should set up a personal identification code (PIN, secret keys etc.) and resolve the issue of responsibility for the account security;
   5. other documents, as may be necessary in accordance with the applicable laws and regulations or the bank's internal rules;
   
   
2. By foreign enterprises:
   1. a copy of the entity's registration certificate or analogous document, properly legalised;
   2. an identity document of the individual authorised to open an account;
   3. a properly legalised copy of the entity's Articles of Association (if applicable);
   4. a list of the individuals with authority over the account, together with samples of their signatures and a sample of the entity's seal. If the account is to be used for electronic transfer orders, the enterprise and the bank should set up personal identification code (PIN, secret keys etc.) and resolve the question of responsibility for the account security;
   5. other documents, as may be necessary in accordance with applicable laws and regulations of the Republic of Lithuania or the bank's internal rules;
   6. an enterprise under formation must submit its act of incorporation.
   
   
3. By natural persons (citizens of Lithuania or foreign nationals):
   documents, as may be required by the bank for identification purposes (e.g. an identity document, a completed signature card with a sample of the signature of the owner (or co-owners) of the account, power of attorney etc.).

Supervisory Authority

One of the most important functions of the Bank of Lithuania is the supervision of commercial banks. This function is performed by the Bank of Lithuania's Department of Credit Institution Supervision. According to Article 44 of the Law on the Bank of Lithuania, the Bank is charged with the establishment of minimum requirements and mandatory reserve levels for banks and other credit institutions.

Supervisory Powers

According to Article 46 of the Law on the Bank of Lithuania, the Bank of Lithuania has the right to:

1. obtain all information necessary for the performance of its supervisory function;
2. inspect banks and other credit institutions and examine their accounts, book-keeping records and other documents;
3. apply sanctions to commercial banks and other credit institutions for violations of laws and legal acts of the Bank of Lithuania regulating the activities of credit institutions;
4. take such measures which are necessary to ensure the effective functioning of the credit system.

1. to warn banks when their activities may lead to, or are in violation of, banking standards and prescribe the time period during which deficiencies or violations must be corrected;
2. to impose administrative fines according to the procedures prescribed by law;
3. to suspend or revoke a bank's license, or restrict one or more of its operations;
4. to suspend or revoke the license of a bank's branch operation;
5. to request the removal or remove from office a member(s) of the bank's board or its head of administration;
6. to request the suspension or suspend the powers of a member(s) of the bank's council;
7. to suspend the powers of the bank's council, remove from office the entire board of the bank and its head of administration and appoint a bank administrator (and, if necessary, his/her deputies);
8. to establish restrictions on disposal of the bank's account(s) opened with the Bank of Lithuania; and
9. to revoke the license of the bank.

Approval and Registration Procedures Applicable to Foreign Banks

According to Article 6 of the Law on Commercial Banks, a foreign bank in the Republic of Lithuania may:

1. establish a subsidiary independently or together with another bank;
2. acquire shares in an operating bank or a bank that is in the process of formation or, with prior consent of the Bank of Lithuania, acquire a block of shares (amounting to 10% or more of shares or votes in a bank) in an operating bank; or
3. establish a representative office or the bank's branch.

The capital of a foreign bank establishing a subsidiary or a branch in the Republic of Lithuania must be not less than the minimum core capital requirement applicable to Lithuanian banks as set by the Bank of Lithuania. According to the 1 July 1993 Resolution No. 16 of the Board of the Bank of Lithuania, as of 1 January 1998 the core capital of a commercial bank operating in Lithuania must be not less than EUR 5,000,000.

The Bank of Lithuania must adopt a decision regarding the issue of a banking license within 6 months from the date of receipt of an application.

The laws and other legal acts of the Republic of Lithuania fully apply to the activities of a foreign bank subsidiary or branch in Lithuania.

Point of Interest
On 17 December 2001 the Law on Insurance of Liabilities of Commercial Banks and Financial Brokerage Firms to Investors was passed and will come into force as of 1 July 2002. The law will regulate the order of insurance of commercial banks and financial brokerage firms' liabilities to their investors and amounts of insurance payments.


Foreign Exchange Restrictions

According to the Law on Money, the only legal tender in Lithuania is the Lithuanian Litas (LTL). The LTL may be freely exchanged with foreign currency, but only by credit institutions licensed by the Bank of Lithuania to perform foreign exchange transactions.

According to the 17 March 1994 Law of he Republic of Lithuania on Creditability of the Litas, the official exchange rate of the LTL is fixed against a base currency. Prior to 2 February 2002 LTL was pegged to USD, the official exchange rate was set at LTL 4.00 to USD 1.00.

As of 2 February 2002 LTL was pegged to EUR, without devaluating or revaluating it, by the decision of the Bank of Lithuania in co-ordination with the Government of the Republic of Lithuania. The official exchange rate was established by the 1 February 2002 Decision No. 15 of the Bank of Lithuania on the Official Exchange Rate of Litas to the Base Currency. The official exchange rate was set at LTL 3.4528 to EUR 1.00.

The Bank of Lithuania may, in co-ordination with the Government of the Republic of Lithuania, change the base currency and/or the official exchange rate, but only if it is determined that the continued use of the established exchange rate would destroy the stability of the national economy.

The Bank of Lithuania establishes, on a daily basis, the exchange rates between the LTL and other world currencies, based upon the exchange rate of the EUR against other currencies. The LTL is freely convertible at the official rate, with nominal commissions and without restriction. According to the law, Lithuanian entities must use the official exchange rate in their bookkeeping. Commercial banks, however, may establish their own market-based exchange rates that do not necessarily coincide with the official exchange rate. In most cases, the bank rate is very close to the official rate.


Regulation of Insurance Market

Domestic Entities

Subject to certain exceptions, in order to engage in insurance activities in the Republic of Lithuania, a company must comply with the following requirements:

1. it must be incorporated as a public or private company;
2. it must have obtained a license from the Insurance Supervisory Authority; and
3. it must have raised minimum authorised capital in the following amounts:
   1. LTL 4,000,000 (EUR 1,158,480) for companies engaged in life insurance activities;
   2. LTL 2,000,000 (EUR 579,240) for companies engaged in general (non-life) insurance activities; and
   3. LTL 7,000,000 LTL (EUR 2,027,340) for companies engaged in credit insurance activities.

According to Article 27 of the Law on Insurance, a foreign insurance company may establish an insurance company or an affiliate of an insurance company in the Republic of Lithuania if it:

1. possesses an insurance license issued by the foreign state having jurisdiction over its activities;
2. has a permission from the insurance supervisory authority of the country, having jurisdiction over its activities, to set up an insurance company in the Republic of Lithuania; and
3. provides a certificate, issued by the country in which a foreign insurance company has its headquarters, which confirms that insurance companies of the Republic of Lithuania are permitted to engage in insurance business within that country if such country is not a member of the World Trade Organisation.

Restrictions on Investment of Funds

As established by Article 54 of the Law on Insurance, an insurance company may invest its funds of the authorised capital only in:

1. Governmental and municipal bonds;
2. real estate;
3. term deposits with banks.

Restrictions on Insurance Activities

Article 5 of the Law on Insurance establishes two categories of insurance: life insurance and general (non-life) insurance.

Life insurance is subdivided as follows:

1. marriage and birth insurance;
2. life insurance, where the investment risk falls on the insured; and
3. life insurance (not covered in items 1 and 2).

1. accident insurance;
2. health insurance;
3. insurance of surface transport vehicles, excluding rail transport;
4. insurance of rail vehicles;
5. aircraft insurance;
6. shipping (sea, lake, river and canal) insurance;
7. cargo insurance;
8. insurance of property against fire and natural disasters (except as provided in items 3, 4, 5, 6 and 7);
9. insurance of property against other damage (except as provided in item 8);
10. surface transport vehicle third party insurance;
11. aircraft third party insurance;
12. vessel (sea, lake, river and canal) third party insurance;
13. general civil liability insurance;
14. credit insurance;
15. surety insurance;
16. insurance against financial losses;
17. insurance against legal expenses; and
18. assistance insurance.

Supervisory Authority

The Insurance Supervisory Authority is the institution that supervises the activities of insurance companies in Lithuania. The Board of the Insurance Supervisory Authority performs the following functions:

1. issues licenses allowing companies to engage in insurance activities;
2. issues permits authorising activity in different types of insurance;
3. licenses insurance brokers;
4. provides permissions to insurance companies to establish branch offices;
5. issues permits to insurance companies to represent foreign insurance companies;
6. examines requests from insurance companies to amend insurance-specific regulations, change rates of insurance premiums or terms of insurance policies;
7. grants permission to insurance companies and brokers to amend their Articles of Association;
8. grants insurance companies permissions to transfer all or a portion of their insurance or reinsurance contracts to other insurance companies;
9. supervises adherence to laws and other legislative acts by insurance companies and insurance agents;
10. examines the financial status of insurance companies; issues legal acts in accordance with its powers;
11. performs other functions.