The Lithuanian central bank on Monday declared Ukio Bankas insolvent and opened talks on transferring the lender's assets to the Baltic state's smaller Siauliu Bankas.
After a board meeting late Monday, the central bank also authorised Ukio's temporary administrator "to begin negotiations with Siauliu Bankas regarding the transfer of the assets, rights, transactions and liabilities," a statement said.
Siauliu is the Baltic EU state's seventh-largest bank, a fifth of which is owned by the European Bank for Reconstruction and Development. Lithuania's central bank governor Vitas Vasiliauskas said Monday that he expected talks with Siauliu Bankas to conclude this week.
A majority 64.9 percent of Ukio Bankas had been owned by Russian-born businessman Vladimir Romanov and it was Lithuania's sixth biggest bank.
Romanov also owns Scotland's top-flight football club Hearts and the Zalgiris Kaunas basketball club.
Central bank authorities said Monday the asset transfer "would better protect the confidence of the shareholders in the stability and reliability of the banking system."
"Ukio bank's liabilities exceeds its assets by 1.1 billion litas (320 million euros, $420 million)," temporary administrator Adomas Audickas told journalists Monday, adding that an "analysis showed assets were over-valued".
He said the asset transfer option was also chosen to avoid burdening the state with paying out 2.7 billion litas in insured deposits.
On February 12, the central bank suspended Ukio after it was established that it had been involved in risky activities.
Prosecutors said last Tuesday they had launched a probe into "suspicious contracts" between 2005 and 2012.
No charges have yet been pressed, they said.