Press Release of January 14, 1999



On January 14, 1999 during its ordinary meeting, the Council of the Bank of Latvia made amendments to the "Regulations for Calculating Credit Institutions Performance Indicators" approved on May 17, 1996 and approved a list of auditors entitled to carry out the auditing of annual financial statements of Latvian credit institutions.

The amendments to said regulations have been made in compliance with the changes in the Law "On Credit Institutions," effective as of January 1, 1999, and within the framework of further harmonisation of credit institution regulatory requirements with EU directives and international practice.

The Evolution of international economy has prompted alteration of the definition of Zone A countries. As a result, the list of Zone A countries will no longer coincide with that of OECD member states. The former definition of Zone A countries is no longer appropriate for purposes of objectivity in establishing the capital adequacy indicator and meeting other regulatory requirements, as at present OECD comprises countries at different levels of development. In addition, there are no grounds for setting a lower degree of risk for claims on individual OECD governments and credit institutions. Countries like Mexico and Korea, which, over the past five years, have experienced problems servicing their external debt, have been removed from the list of Zone A countries. The Czech Republic, Poland and Hungary, members of less than five years, are not on this list either. The list has been supplemented with Saudi Arabia, which is not a member of OECD but has signed the General Loan Agreement with the International Monetary Fund.

The current amendments to the Regulations were necessitated, in part, by changes to the own funds definition set out in Article 1(7) of the Law "On Credit Institutions". Before January 1, 1999, own funds of a credit institution were calculated by subtracting the credit institution's participation in the paid up share capital of other credit institutions. Pursuant to the new statutory requirements, own funds are further reduced by subtracting participation in the paid up share capital of financial institutions and investments in the subordinated capital of credit and financial institutions, applying an algorithm that varies in accordance with the amount of each participation.

Amendments to the "Regulations for Calculating Credit Institutions Performance Indicators" also stem from changes in exposure limits as prescribed by the Law "On Credit Institutions". Pursuant to the Law, as of January 1, 1999, the 15% limit for exposures with persons associated with a credit institution is no longer applicable to the credit institution's participation in the paid up share capital of its subsidiaries or those companies where it exercises a significant influence.

In response to the introduction of the euro, the Regulations have been supplemented with an article specifying the procedure for calculating the open foreign exchange position.

The Council of the Bank of Latvia has authorised the following auditing companies to audit the annual reports of credit institutions registered in the Republic of Latvia: Arthur Andersen, Deloitte & Touche Tohmatsu International, Ernst & Young, KPMG and PricewaterhouseCoopers.