EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 10 November 2011  
on the amendments to Lietuvos bankas’ profit distribution rules 
(CON/2011/91) 
 
Introduction and legal basis  
On 14 October 2011, the European Central Bank (ECB)  received a request from Lietuvos bankas for an 
opinion on a draft law amending and supplementing Ar ticle 23 of the Law on Lietuvos bankas as regards 
the rules on the distribution of Lietuvos bank as’ profit (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent  of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft law relates to Lietuvos bankas.  In accordance with the first sentence of 
Article 17.5 of the Rules of Procedure of the Eur opean Central Bank, the Governing Council has adopted 
this opinion. 
 1.  Purpose of the draft law 
1.1 Pursuant to Article 23(3) of the Law on Lietuvos bankas, profit for a financial year is allocated in 
the following order:  
(a) first, to cover losses carried forw ard from previous financial years;  
(b) second, 70 % is distributed to the State budget, after deducting losses carried forward from 
the previous financial years; 
(c) third, remaining profit is allocated equally between authorised and reserve capital, until the 
authorised capital reaches LTL 200 million;  
(d) fourth, residual profit is allocated to reserve capital. 
1.2 The draft law amends the procedure for calculati ng Lietuvos bankas’ profit contribution to the State 
budget, the profit distribution and loss coverage rules.  
1.2.1 The draft law amends the reference period for calculating Lietuvos bankas’ profit to be distributed 
to the State budget. Instead of basing the calculation on the preceding financial year, as provided for in the Law on Lietuvos bankas, it will be b ased on the average profit of the preceding three 
financial years.  
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
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2 1.2.2 The following are to be deducted before dist ribution to the State budget: (a) 30 % of the market 
value of Lietuvos bankas’ real property transferred to the State Property Fund during the preceding financial year; and (b) if Lietuvos bankas’ reserve capital is lower than five times the authorised 
capital, an amount equal to this difference. 
1.2.3 Where the profit, based on the av erage profit of the preceding three y ears, is greater than the profit 
of the preceding financial year, the remaining part of  Lietuvos bankas’ distribution is to be paid to 
the State budget from Lietuvos bankas’ reserve capital. 
1.2.4 As in the case of the Law on Lietuvos bankas,  remaining profit is allocated equally between 
authorised and reserve capital, until the aut horised capital reaches LTL 200 million; thereafter 
residual profit is allocated to the reserve capital. 
1.3 The draft law is expected to enter into force on 1 January 2012.  2. General observations  Any transfer of national central bank (NCB) resources to a Member State, either in the form of a profit 
distribution scheme or any equivalent form, needs to co mply with the limitations imposed in this respect 
by the Treaty, in particular with the principle of central bank independence pursuant to Article 130 of the 
Treaty, and with the prohibition on moneta ry financing laid down in Article 123(1). 
 3.  Central bank independence 3.1 Each Member State is obliged to safeguard the institutional and financial independence of its NCB, 
thus ensuring the proper performance of its task s under the Treaty and the Statute of the European 
System of Central Banks and the European Centra l Bank (hereinafter the ‘Statute of the ESCB’)
2. 
The compatibility of the Law on Lietuvos bankas with the requirements of Article 130 of the 
Treaty and the provisions of the Statute of the ESCB on central bank independence is therefore of utmost importance, as Lietuvos bankas’ primary objec tive of price stability is best served by a fully 
independent institution with a precisely defined mandate
3. 
3.2 The concept of financial independence should be assessed from the perspective of whether any 
third party is able to exercise either direct or indirect influence not only over an NCB’s tasks, but 
also over its ability to fulfil its  mandate, both operationally in term s of manpower and financially in 
terms of appropriate financial resources4. A Member State may not put its NCB in a position where 
it has insufficient financial resources to carry out its ESCB-related tasks5. NCBs must also have 
sufficient financial means to carry out their other functions at all times, i.e. they must be able to 
                                                 
2  Opinion CON/2009/53, paragraph 2.1 and Opinion CON/2009/83,  paragraph 2.4.1. All ECB opinions are available on the 
ECB’s website at www.ecb.europa.eu. 
3  Opinion CON/2009/26, paragraph 2.1 and Opinion CON/2009/83, paragraph 2.4.1. 
4 
 ECB’s Convergence Report May 2010, p. 22. 
5 ECB’s Convergence Report May 2010, p. 21; Opinion CON/2009/53, paragraph 2.2 and Opinion CON/2009/83, 
paragraph 2.4.2. 
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3 perform their national tasks, to meet their inte rnational obligations and to properly cover their 
administrative and operational expenses6. 
3.3 The ECB also reminds the consulting authority that Articles 28.1 and 30.4 of the Statute of the 
ESCB (the latter applies to Member States whose cu rrency is the euro) provide for the possibility 
of further calls being made on the NCBs, to make  contributions to the ECB’s capital and to make 
further transfers of foreign reserves. The pr inciple of financial independence means that 
compliance with these provisions requires an NCB to  be able to perform its functions unimpaired7. 
3.4 Finally, NCB’s profits may be  distributed to the State budget only after any accumulated losses 
have been covered8 and financial provisions deemed necessary to safeguard the real value of the 
NCB’s capital and assets have been created. Tempor ary or ad hoc legislative measures amounting 
to instructions to the NCBs in relation to the distribution of profit are not possible9. 
3.5 Stability of profit distribution rules 
3.5.1  The frequency of amendments to the rules on the distribution of Lietuvos bankas’ profit raises 
specific concerns from the central bank independence perspective.  
3.5.2 The amendments to the rules on the distribution of Lietuvos bankas’ profit have been submitted for 
consultation three times since March 200910. The ECB’s Convergence Report of May 201011 noted 
that the distribution of NCB’s profit is one of th e areas of financial independence where an NCB is 
most vulnerable to outside influence. An NCB’s statutes may prescribe how its profit is to be allocated. Even though amendments to such ru les are possible, they should not be changed 
frequently. It is important to protect the rules re lating to the distribution of profit from third-party 
interests and to ensure a legal framework that pr ovides a stable and long-term basis for an NCB’s 
functioning
12. Moreover, frequent amendments do not co mply with the accounting principles of 
consistency, comparability13 and continuity.  
3.6 Treatment of losses 
Unlike the Law on Lietuvos bankas14, the draft law no longer explicitly ensures that profit is paid to 
the State budget only after accumulated losses from prev ious financial years have been covered. To 
the contrary, it is uncertain whether, notwithsta nding Lietuvos bankas’ profits or losses, it would 
                                                 
6 Opinion CON/2009/26, paragraph 2.3, Opinion C ON/2009/53, paragraph 2.2, and Opinion CON/2009/83, 
paragraph 2.4.2. 
7  ECB’s Convergence Report May 2010, p. 21. 
8   ECB’s Convergence Report May 2010, p. 23. 
9   ECB’s Convergence Report May 2010, p. 23.  
10   See Opinions CON/2009/26 and CON/2009/83. 
11  ECB’s Convergence Report May 2010, p. 22. 
12 Opinion CON/2007/14, paragraph 2.2, Opinion CON/2009/26,  paragraph 3.4, Opinion CON/2009/83, paragraph 3.2. 
13    Guideline ECB/2010/20 of 11 November 2010 on the legal fr amework for accounting and financial reporting in the 
European System of Central Bank (recast) (OJ L 35, 9.2.2011 , p. 31). Lietuvos bankas also follows the principles of 
consistency and comparability when preparing financial statements, as st ated in its Annual Report 2010, pp. 95-96. The 
Annual Report is availabl e on Lietuvos bankas’ we bsite at www.lbank.lt. 
14  Article 23(3)(1). 
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4 still need to make contributions to the State budget, without first covering the uncovered losses for 
the previous financial years. This is incompa tible with central bank financial independence. 
Therefore, the current provision of the Law on Lietuvos bankas, specifying that profit is paid to the State budget only after accumulated losses from previous financial years have been covered, has to 
be maintained in the Law on Lietuvos bankas.   
3.7 Creation of financial provisions 
3.7.1 The ECB reiterates that NCBs must be free to independently create financial provisions or buffers 
to safeguard the real value of their capital and assets
15. This could ideally be achieved by creating 
provisions against certain risks arising from an NCB’s activities, such as a provision for foreign 
exchange rate, interest rate, credit risk, gold price16 and other risks17.  
3.7.2 The draft law raises specific concerns from th e central bank independence perspective since profits 
may be distributed to the State budget only afte r any accumulated losses from previous years have 
been covered and financial provisions deemed nece ssary to safeguard the real value of the NCB’s 
capital and assets have been created18. 
3.7.3 In the same vein, in order to ensure the pr oper performance of its tasks under the Treaty and the 
Statute of the ESCB, the NCB needs to maintain ad equate net equity to be  covered against potential 
risks arising from the nature of its activities . In this context the ECB reiterates19 that the data 
available to the ECB shows that, relatively, the net equity (including capital and reserves) of non-
Eurosystem NCBs is much lower than that of th e Eurosystem NCBs. The data also shows that the 
ratio between risk-bearing assets and net equity is  several times higher at non-Eurosystem NCBs 
than at the Eurosystem NCBs. The higher the ratio  in absolute terms, the lower the ability of a 
central bank to cover the risk of adverse asset price movements or defaults. The ECB understands 
that Lietuvos bankas is still in the process of bu ilding up its net equity to a level corresponding to 
that of the Eurosystem NCBs. 
3.8 Legal status of Lietuvos bankas’ assets 
3.8.1 Opinion CON/2010/4220 noted the ECB’s concern at the unclear legal status of Lietuvos bankas’ 
assets. The ECB understands that the Lithuanian State is currently considered to be the legal owner 
of Lietuvos bankas’ real property and that, as a resu lt, there is a risk that Lietuvos bankas is only 
able to dispose of this property with governmen tal approval. This legal situation undermines both 
the institutional as well as the financial independe nce of Lietuvos bankas. From an institutional 
                                                 
15  ECB’s Convergence Report May 2010, p. 23. 
16   As regards the ECB, ‘Taking into due consideration th e nature of the ECB’s activiti es, the Governing Council may 
establish a provision for foreign exchange rate, interest rate, credit and gold price risks in the balance sheet of the ECB. 
The Governing Council shall decide on the size and use of the provision on the basis of a reasoned estimate of the ECB’s 
risk exposures’ (Article 7 of Decision ECB/2010/21 of 11 November 2010 on the annual accounts of the European 
Central Bank (recast) (OJ L 35, 9.2.2011, p. 1)).  
17  Caption 10 of Annex IV to Guideline ECB/2010/20. 
18  ECB’s Convergence Report May 2010, p. 23. 
19  CON/2009/83, paragraph 3.7. 
20 Opinion CON/2010/42, paragraph 2.1.  
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5 perspective, State authorities could instruct Li etuvos bankas on the real estate assets held by it. 
Lietuvos bankas’ financial indepe ndence would be undermined since it would no longer be entirely 
free to decide on the allocation of its resources a nd could be unable to secure sufficient means for 
the performance of its tasks21. 
3.8.2 The ECB reiterates22 its understanding that this problem has arisen because no national law 
explicitly specifies whether Lietuvos bankas has th e right to own the assets, or whether Lietuvos 
bankas can only manage and hold such assets on tr ust. The ECB also reiterates that the current 
legal status of Lietuvos bankas’ real property is  incompatible with the central bank independence 
requirement23. 
3.8.3  The draft law does not clarify the legal status of Lietuvos bankas’ real property assets. The Law on 
Lietuvos bankas should specifically state that Li etuvos bankas legally owns the assets belonging to 
it, i.e. ensuring that the legal title and economic control of the assets will rest with Lietuvos bankas. 
 
4. Monetary financing prohibition 
4.1  National rules on the distribution of an NCB’s profit must comply with the monetary financing 
prohibition laid down in Article 123(1) of the Treaty and Council Regulation (EC) No 3603/93 of 
13 December 1993 specifying definitions for the a pplication of the prohibitions referred to in 
Articles 104 and 104b(1) of the Treaty establishing the European Community24. Those provisions 
prohibit central banks from providing overdraft faciliti es or any other type of credit facility to the 
public sector, which includes any financing of the public sector’s obligations vis-à-vis third parties
25. In interpreting Article 123 of the Treaty, the ultimate objective and the spirit of the 
monetary financing prohibition must be taken in to account, i.e. the overall aim of public finance 
discipline and the aim of prohibiting NCBs from financing the public sector. Against this 
background, the monetary financing prohibition ma y also apply to other forms of funding, i.e. 
without the obligation to repay26. Moreover, the distribution of cen tral bank profits which have not 
been fully realised, accounted for and audited does not comply with the monetary financing 
prohibition27.  
4.2 Proposed three-years average rule and contributio n to the State budget from the reserve capital 
4.2.1 The application of the proposed three-years av erage rule would result in a contribution by Lietuvos 
bankas’ to the State budget which would be disconnected from the realised profit of the financial year under consideration. Moreover, if the contri bution to the State budget, calculated according to 
the three-years average rule, is higher than the pr ofit of the preceding fina ncial year, the draft law 
                                                 
21  ECB’s Convergence Report May 2010, p. 248. 
22  Opinion CON/2010/42, paragraph 2.3. 
23  ECB’s Convergence Report May 2010, p. 248. 
24 OJ L 332, 31.12.1993, p. 1. 
25  See Article 1(1)(b)(ii) of Council Regulation (EC) No 3603/93. 
26  ECB’s Convergence Report May 2010, p. 24. 
27  ECB’s Convergence Report May 2010, p. 25. 
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6 provides that the remaining part of Lietuvos bankas’  contribution is to be paid to the State budget 
from Lietuvos bankas’ reserve capital . The proposed three-years average rule is therefore not 
compatible with the monetary financing prohibition. 
4.2.2 Moreover, should the proposed rule apply to th e distribution to be paid to the State budget before 
the financial year starting on 1 January 2015, th e profit of the financial years, from which a 
contribution was already paid to the State budget on the basis of the legislative provisions in force at that time, would be taken into account again. It  means that the same real ised profit will be used 
more than once to calculate and distribute Liet uvos bankas’ contribution to the State budget. This 
would in some cases
28 temporarily increase the level of the contribution due to the State budget and 
would amount to the distribution of Lietuvos bankas’ profit which has not been fully realised, contrary to the monetary financing prohibition. Fo r this reason, the draft law should not apply to 
the distribution of profit for the current financ ial year ending 31 December 2011 which in any case 
have to be excluded.  
4.3 Transfer of Lietuvos bankas’ real property 
4.3.1 As stated in Opinion CON/2010/42
29, under the current legal situation, it is unclear whether 
Lietuvos bankas could independently sell its real property and keep the proceeds from the sale. If 
Lietuvos bankas cannot keep the proceeds, this rai ses doubts as to whether the current legislation is 
compatible with the monetary financing prohibition.  To be compatible with the monetary financing 
prohibition, the transfer to the State of NCB assets, e.g. real property, must be remunerated at market value of the real property transferred to it and the transfer of the real property to the State 
should occur at the same time as the remuneration. 
4.3.2 The draft law implies that Lietuvos bankas woul d transfer its real property to the State free of 
charge during the financial year. The transfer w ill then be compensated or netted at the time of 
profit distribution to the State budget, i.e. after th e completion of the financial year. This belated 
compensation or netting is a form of credit to the public sector incompatible with the prohibition on 
monetary financing. To comply with the moneta ry financing prohibition, the calculation of the 
property’s market value, the transfer of owners hip and remuneration must all occur at the same 
time. 
4.3.3 Moreover, if the calculated average profit of  Lietuvos bankas for the preceding three financial 
years is insufficient to compensat e for the property transferred to the State, it is unclear how the 
transferred property would be rem unerated. This could also restrict Lietuvos bankas’ right to 
independently decide on the sale of its property, since the prospects for Lietuvos bankas’ profit accumulation for the financial year, due to the comp ensation for the transfer or property via netting 
only, are likely to obstruct a property transfer decision of Lietuvos bankas. If insufficient or no profit is generated during a financial year a nd Lietuvos bankas is not compensated for assets 
                                                 
28  Lietuvos bankas’ profits for the last th ree financial years amounted to approx imately LTL 364 milli on in 2008, LTL 519,4 
million in 2009 and LTL 90.5 million in 2010. Liet uvos bankas’ Annual Report of 2010, p. 111. 
29 Opinion CON/2010/42, paragraph 2.2.  
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7 transferred to the State during that financial year , another means of remuneration for the transferred 
assets has to be provided for. 
 
 
This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 10 November 2011. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI