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Press Release of September 18, 1998

  

 

On September 17, 1998, the Council of the Bank of Latvia approved four normative documents.

Regulation for Preparing Reports on Investments by Credit Institutions

This regulation was worked out to control the compliance with the requirements of Paragraph 7 of Article 1, and Articles 44, 45 and 47 of the Law "On Credit Institutions", which refer to credit institution activity. In accordance with the amendments to the Law "On Credit Institutions" approved on May 21, 1998, which regulate investments made by credit institutions in the paid-up capital of enterprises (undertakings) and in movable and immovable property, the regulation introduces four new reports for banks and one report for credit unions.

As the new reports will also contain information on relations between banks and other credit institutions and financial institutions, it will be possible to determine which of the credit institutions will be subject to supervision based on consolidated financial statements in 1999.

Regulation for Performing Trust Operations

 

In accordance with the Law "On Credit Institutions", a bank that has received a Bank of Latvia licence to conduct banking operations may engage in trust operations, provided that its licence does not stipulate any restrictions in respect of financial operations. Although trust operations have shown a tendency to increase, as yet there is no legislation that would regulate the rights, responsibilities and authority of the client (an owner of money or securities) and the trustee (a bank). This means that customers are not adequately protected. In view of this, the Bank of Latvia has worked out a regulation governing the performance of trust operations, which contains minimum requirements to prevent a conflict of interest between an investor and a bank. The regulation lays out requirements for the accounting of trust operations, as well as the procedure for holding and maintaining investors' property, including money, to observe the principle of separation stipulated by the Law "On Credit Institutions". The regulation will take effect on January 1, 1999.

Resolution "On Determining Requirements to Credit Institution Activity"

With this resolution the Council of the Bank of Latvia establishes new restrictions regarding exposures that arise from transactions with residents of Zone B countries (excluding the Republic of Latvia). A credit institution's exposure to residents of a single Zone B country (including that country's government) shall not exceed 25 percent of the credit institution's own funds, while its total exposures to residents of Zone B countries shall not exceed them more than twofold. Claims on demand on credit institutions of Zone B countries in their national currencies will not be classified as exposures.

The regulation will take effect on October 1, 1998. Credit institutions will not be required to withdraw those investments in the securities of Zone B central and local governments that were made prior to the date this regulation takes effect; they will be allowed to hold the securities until the redemption date. The new regulation will make banks diversify their investment in Zone B countries and will curb Latvia's risks.

Amendments to "Regulation for Calculating Credit Institution Performance Indicators"

 

Amendments to "Regulation for Calculating Credit Institution Performance Indicators", which was passed on May 17, 1996 by the Bank of Latvia's Council Resolution 33/3, provide for calculating the capital adequacy ratio by applying a 50% degree of risk (up to now - zero) to claims on central banks and central governments of Zone B countries in their national currencies.

Previously, the degree of risk in calculating the capital adequacy ratio was determined in accordance with internationally approved practice and EU requirements. The recent unprecedented events in Russia, as well as problems experienced by other Zone B countries, were the reasons why the Bank of Latvia resolved to reassess the degree of risk for such assets. The amendments will take effect on October 1, 1998.