Opinion of the European Central Bank of 19 March 2025 on the profit distribution rules of Lietuvos bankas (CON/2025/5)

OPINION OF THE EUROPEAN CENTRAL BANK of 19 March 2025 on the profit distribution rules of Lietuvos bankas (CON/2025/5) Introduction and legal basis

On 20 February 2025 the European Central Bank (ECB) received a request from the Office of the President of the Republic of Lithuania for an opinion on a draft law amending Article 23 of the Law on Lietuvos bankas as regards the profit distribution rules of Lietuvos bankas (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 on Article 2(1), third indent, of Council Decision 98/415/EC , as the draft law relates to Lietuvos bankas. In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 Pursuant to the Law on Lietuvos bankas , the profit of Lietuvos bankas for a financial year is allocated in the following order: (1) to cover the uncovered loss from the previous financial year; (2) from the excess remaining after distribution under point (1), an amount or part thereof is distributed to authorised capital up to the amount of EUR 60 million ; (3) from the excess remaining after distribution under point (2), an amount or part thereof is distributed to the capital buffer up to an amount specified by an independent decision of the Board of Lietuvos bankas, taking into account the risks and potential impact thereof, which shall be no less than five times the amount of the authorised capital of Lietuvos bankas; (4) from the excess amount remaining after distribution under point (3) an amount or part thereof is distributed to the State budget as the profit contribution of Lietuvos bankas; this contribution must not exceed the amount corresponding to 70 % of the calculated average of the profit (loss) of Lietuvos bankas of the last three financial years; and (5) thereafter, the remaining amount is considered as undistributed profit and is distributed in accordance with the same procedure in subsequent financial years. 1.2 The draft law amends the profit distribution rules of Lietuvos bankas. After the distribution of a portion of the profit to the capital buffer of Lietuvos bankas up to an amount specified by an independent decision of the Board of Lietuvos bankas under Article 23(3), point (3), of the Law on Lietuvos bankas (as detailed in paragraph 1.1), the remaining full amount is distributed to the State budget as the

profit contribution of Lietuvos bankas. The draft law deletes the rules under Article 23(3), points (4) and (5), of the Law on Lietuvos bankas concerning, respectively, the distribution to the State budget of up to 70 % of the average profit (loss) from the last three financial years and the distribution of the remaining undistributed profits. 1.3 The draft law applies the new procedure for the distribution of the profit of Lietuvos bankas for the financial year 2024 and subsequent financial years.

2. Observations

2.1 Under the principle of financial independence under the Treaty , a national central bank (NCB) must have available to it sufficient financial resources to perform its European System of Central Banks (ESCB) related tasks required of it under the Treaty and the Statute of the European System of Central Banks and of the European Central Bank . With regard to profit allocation, an NCB’s statutes may prescribe how its profits are to be allocated. Furthermore, profits may only be distributed to the State budget after any accumulated losses from previous years have been covered and financial provisions deemed necessary to safeguard the real value of the NCB’s capital and assets have been created . The ECB welcomes the fact that the draft law still provides for this contingency. 2.2 The draft law deletes the provision under which the profit contribution of Lietuvos bankas must not exceed the amount corresponding to 70 % of the calculated average of the profit (loss) of Lietuvos bankas of the last three financial years and the provision under which the remaining (undistributed) amount is considered as undistributed profit and is then distributed in accordance with the profit allocation rules in subsequent financial years. Notwithstanding Lietuvos bankas’s current financial position, the ECB cautions against any situation in which an NCB’s net equity is below the level of its statutory capital (or is even negative) for a prolonged period of time, including where losses beyond the level of capital and the reserves are carried over. Any such situation may negatively impact the NCB’s ability to perform its ESCB-related tasks. Therefore, the event of an NCB’s net equity becoming less than its statutory capital (or even negative) would require the respective Member State to provide the NCB with an appropriate amount of capital at least up to the level of the statutory capital within a reasonable period of time so as to comply with the principle of financial independence . Against this backdrop, the ECB considers that the existing mechanism whereby undistributed profits are distributed in accordance with the profit allocation rules in subsequent financial years serves to strengthen Lietuvos bankas’s financial independence, as an undistributed profit may be used in the subsequent financial year to reduce an eventual loss for that year. The undistributed profit accordingly operates as a de facto additional buffer for Lietuvos bankas, which is not maintained in the draft law.

This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 19 March 2025. [signed]

The President of the ECB

Christine LAGARDE