Opinion of the European Central Bank of 7 December 2011 on the revised amendments to Lietuvos bankas’ profit distribution rules (CON/2011/99)
Date: 2011-12-07
Institutions: European Central Bank
Subjects: Lithuania, central bank, financial year, loss, national law, profit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 7 December 2011  

on the revised amendments to Lietuvos bankas’ profit distribution rules 

(CON/2011/99) 

Introduction and legal basis 

On 30 November 2011, the European Central Bank (ECB) received a request from Lietuvos bankas for an 

opinion on a revised draft law amending and supplementing Article 23 of the Law on Lietuvos bankas as 

regards the rules on the distribution of Lietuvos bankas’ profit (hereinafter the ‘revised 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  Central  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 European Central Bank, the Governing Council has adopted 

this opinion. 

1.  

Purpose of the revised draft law 

1.1  Pursuant to Article 23(3) of the Law on Lietuvos bankas, the profit for a financial year is allocated 

in the following order:  

(a) 

first, to cover losses carried forward 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, any remaining profit is allocated equally between authorised and reserve capital, until 

the authorised capital reaches LTL 200 million;  

(d) 

fourth, any residual profit is allocated to reserve capital. 

1.2  The revised draft law establishes a new framework for the distribution of Lietuvos bankas’ profits. 

1.2.1  It provides for improved arrangements relating to the sequence in which the net distributable profit 

will be allocated. First, the net distributable profit will cover uncovered losses and will be allocated 

to authorised capital up to a determined amount. Second, it will be used to maintain an adequate 

reserve capital level; the Board of Lietuvos bankas will establish the adequate reserve capital level 

independently,  based  on  its  assessment  of  potential  risks  faced  by  Lietuvos  bankas.  The  reserve 

capital may not be less than five times the amount of the authorised capital. Third, any excess will 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
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be contributed to the State budget; this contribution may not exceed the amount corresponding to 

70 % of the calculated average of Lietuvos bankas’ profit (loss) of the last three financial years.  

1.2.2  Furthermore,  the  revised  draft  law  provides  for  the  possibility  to  carry  forward  the  part  of  the 

profit, which remains after the allocation of the net distributable profit according to the established 

sequence,  and  by  doing  so  to  create  retained  earnings.  The  net  distributable  profit  for  a  given 

financial  year  therefore  consists  in  the  profit  for  the  financial  year  and  any  undistributed  profit 

carried over from the previous financial years. Similarly, the revised draft law provides that the loss 

for  a  given  financial  year  and  any  undistributed  profit  carried  over  from  the  previous  financial 

years will be attributed to the net distributable loss and that, furthermore, the net distributable loss 

will  be  covered  by  Lietuvos  bankas’  reserve  capital,  and  where  this  is  insufficient,  by  the 

distributable profit of the succeeding financial years.  

1.3  The revised draft law also sets out the conditions under which the part of Lietuvos bankas’ profit 

contribution to the State budget for the financial year 2011, which is to be calculated according to 

the  rules  currently  in  force,  may  be  used  to  compensate  Lietuvos  bankas  at  market  value  for  the 

transfer of some assets of Lietuvos bankas to the State authorities. 

2. 

General observations  

2.1  On 10 November 2011, the ECB adopted Opinion CON/2011/91 on the amendments to Lietuvos 
bankas’ profit distribution rules2 in response to a request for an opinion on a previous version of the 

revised  draft  law  (hereinafter  the  ‘draft  law’).  The  draft  law  amended  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 was 

to  be  based  on  the  average  profit  of  the  preceding  three  financial  years.  Where  the  calculated 

amount, based on the average profit of the preceding three years, was to be greater than the profit 

of the preceding financial year, the remaining part of Lietuvos bankas’ distribution was to be paid 

to  the  State  budget  from  Lietuvos  bankas’  reserve  capital.  In  addition,  the  following  were  to  be 

deducted before distribution 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 was lower than five times the authorised capital, an amount equal 

to this difference. 

2.2 

In  Opinion  CON/2011/91  the  ECB  noted  that  several  aspects  of  the  draft  law  raised  concerns 

regarding  its  compatibility  with  central  bank  financial  independence  and  with  the  monetary 

financing prohibition. The ECB notes that its remarks were taken into account. 

2.3 

In any event, the proposed revised profit distribution scheme needs to comply with the requirement 

that 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, complies with the limitations imposed in this 

respect  by  the  Treaty,  in  particular  with  the  principle  of  central  bank  independence  pursuant  to 

2  

All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 

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Article  130  of  the  Treaty,  and  with  the  prohibition  on  monetary  financing  laid  down  in 

Article 123(1). 

3. 

Specific observations 

3.1  Treatment of losses 

The revised draft law addresses the ECB concerns as regards the treatment of losses3 and stipulates 

that  any  uncovered  loss  carried  forward  from  previous  financial  years  has  to  be  covered  before 
allocating the net distributable profit4. 

3.2   Creation of financial provisions 

The  ECB  welcomes  the  provision  of  the  revised  draft  law  stipulating  that  the  Board  of  Lietuvos 

bankas  can  take  an  independent  decision  to  allocate  necessary  amounts  to  the  reserve  capital, 
taking  into  account  the  potential  impact  of  risks  faced  by  Lietuvos  bankas5;  this  addresses  the 

ECB’s comment that NCBs must be free to independently create financial provisions or buffers to 
safeguard the real value of their capital and assets6. In this context, the ECB reiterates7 that NCBs 

need to maintain adequate net equity to be covered against potential risks arising from the nature of 

their activities. 

3.3  Three-years average rule 

3.3.1  The revised draft law changes the concept of the three-years average rule, which is now considered 
as a calculation method and a cap for the Lietuvos bankas’ profit distribution to the State budget8; 

Lietuvos  bankas’  net  distributable  profit  includes  the  last  financial  year  profit  plus  undistributed 

profit carried over from the previous financial years. These changes introduced in the revised draft 

law  address  the  ECB’s  concerns  as  regards  the  compliance  with  the  monetary  financing 
prohibition9. 

3.3.2  The  ECB  welcomes  in  particular  that  the  revised  draft  law  leaves  unaffected  Lietuvos  bankas’ 

reserve  capital  and  ensures  that  the  actual  contribution  to  the  State  budget  cannot  exceed  the 

amount of the net distributable profit. The ECB understands that should the net distributable profit 

be insufficient to fully cover the calculated profit contribution according to the revised draft law, 

i.e. the amount corresponding to 70 % of the calculated average of Lietuvos bankas’ profit (loss) of 

the last three financial years, the part of the calculated profit contribution which cannot be paid to 

the State in the given financial year cannot result in a claim of the State for the allocation of profit 

in the future. 

3  
4  
5  
6  
7  
8  
9  

Paragraph 3.6 of Opinion CON/2011/91. 
Proposed Article 23(1) and (2) and Article 23(3)(1) of the revised draft law. 
Proposed Article 23(3)(3) of the revised draft law. 
ECB’s Convergence Report May 2010, p. 23. Paragraph 3.7.1 of Opinion CON/2011/91. 
Paragraph 3.7.3 of Opinion CON/2011/91. 
Proposed Article 23(3)(4) of the revised draft law. 
Paragraph 4.2 of Opinion CON/2011/91. 

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3.4  Transfer of Lietuvos bankas’ real property 

3.4.1  The revised draft law amends the compensation rule for the remuneration of transferred property. It 

addresses the ECB concern that in order to be compatible with the monetary financing prohibition, 

the transfer to the State of NCB assets, e.g. real property, must be remunerated at the 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 remuneration10. The ECB understands that if the compensation rule could not 

be applied due to an insufficient profit contribution by Lietuvos bankas to the State, as provided for 

in the revised draft law, the transfer of Lietuvos bankas’ real property would either not take place or 

an  alternative  appropriate  means  of  remuneration  would  have  to  be  agreed  with  the  State 

authorities. 

3.4.2  The  ECB’s  comment  on  the  unclear  legal  status  of  Lietuvos  bankas’  assets  and  its  consequences 
remains  valid11,  since  the  revised  draft  law  treats  the  transfer  of  some  real  property  of  Lietuvos 

bankas as a one-off measure. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 7 December 2011. 

[signed] 

The President of the ECB 

Mario DRAGHI 

10  
11  

Paragraphs 4.3.1 and 4.3.2 of Opinion CON/2011/91. 
Paragraph 4.3.1 of Opinion CON/2011/91. 

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