OREANDA-NEWS. September 29, 2008.
1. On the results of inspection of the readiness of AB bank Hansabankas to apply the internal ratings-based credit risk assessment approach and the results of supervisory review and assessment, reported the press-centre of Bank of Lithuania.

The Board of the Bank of Lithuania was presented information on the supervisory review and assessment carried out, on the readiness of bank Hansabankas (the name is being changed into Swedbank) to apply the internal ratings-based credit risk assessment approach.

The Board of the Bank of Lithuania intends to take a decision regarding the approval of the application of the internal ratings-based credit risk assessment approach by bank Hansabankas at the end of the year, when a decision regarding this financial group will be taken by the Swedish supervisory authority.

2. On the Provisions for the Organisation of Internal Control and Risk Assessment (Management)

The recent events in the global economy encourage devoting more attention to the management of bank risks and organisation of the internal control system. Therefore, the Board of the Bank of Lithuania approved The Provisions for the Organisation of Internal Control and Risk Assessment (Management) (hereinafter Provisions).

By this document, credit institutions have been obligated to reassess their risk management processes, to revise the limits applied as well as other business aspects. The document indicates the key principles to be followed by credit institutions in order to ensure that their internal control system functions effectively and ensures the safety and stability of their business.

The new document contains provisions transferred from several individual legal acts of the Bank of Lithuania; also, additional requirements for the management of the risk types not regulated previously are specified. Basic attention is devoted to the credit risk management. Credit risk is the most significant risk faced by the domestic banking sector. The document regulates the aspects of credit risk assessment, reduction of the risk of its concentration, and the principles of accumulation of qualitative and quantitative information on borrowers.

Given that bank trade portfolios have been constantly expanding and their trading activities have been increasing in significance, the document provides the main provisions for the interest rate risk management, sets the principles for ensuring the limits for trading operations, their risk control and risk management.

The provisions for the settlement and liquidity risk management are also laid down. The bank must assess the significance of these risks during the internal capital adequacy assessment process and, where necessary, provide necessary capital to cover the risks. To date, the management of these risks was not regulated sufficiently. The document has transferred and supplemented the provisions for operational risk management. It is established that operational risk management must pertain to all significant fields of the bank’s business, also to the acquisition of ancillary services, and other aspects.

For the application of the Provisions, banks have been granted a preparatory period and the principle of proportionality is ensured, i.e. banks should apply the Provisions in view of the volumes and significance of their business, in coordination with the internal capital adequacy assessment process.

This Resolution of the Board of the Bank of Lithuania shall become effective from 1 April 2009.

3. On amendment of the Rules for Granting Intraday Credit in Euro

The Board of the Bank of Lithuania amended the Rules for Granting Intraday Credit in Euro establishing that individuals must repay the credit by 6 p.m., where the crisis managers of the TARGET2 system do not notify of another time. This amendment of the Rules shall enter into force on 1 October 2008.

The Rules for Granting Intraday Credit in Euro have been amended due to a possibility provided by the new Agreement on TARGET2 to change the time of repayment of intraday credit.

The conditions of joining this system by the Bank of Lithuania and by other central banks of the EU Member States outside the euro area are established by the Agreement on Trans-European Automated Real-Time Gross Settlement Express Transfer System (the Agreement on TARGET2). The ECB’s Governing Council approved of the amendment of the Agreement on TARGET2 on 5 September 2008. The amended Agreement shall become effective on 1 October 2008.