Capital Adequacy Regulatory Framework for Banks Operating in Lebanon

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Circular No. 44 of the Central Bank of Lebanon

We hereby enclose a copy of the Basic Decision No. 6939 dated 25/3/1998 concerning the Regulatory Framework for the Capital Adequacy of Banks Operating in Lebanon.

Beirut, March 25, 1998 Governor of the Central Bank of Lebanon Riad Toufic Salamé

1

• Last amendment to this title introduced via Article 1 of Interim Decision No. 11714 dated 2014/3/6 (Interim Circular No. 358).

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1 Basic Decision No. 6939

2 Regulatory Framework for the Capital Adequacy of Banks Operating in Lebanon

The Governor of the Central Bank of Lebanon, Pursuant to the Monetary and Banking Law, Considering the necessity to strengthen the solvency of Lebanese banks and foreign bank branches in Lebanon to protect the banking sector and consolidate stability in the financial market, 3 And given that this affects interbank relations, particularly with banks from countries party to the Basel Agreement, And based on the decision taken by the Central Council in its meeting held on 18/3/1998, Decides as follows:

First: Conditions for Acceptance of Capital Instruments in Capital Categories

Article 1: For the purpose of applying Part One of this Decision, the following terms shall have the meanings set forth before each: -1 "Free Profits": Distributable profits after deducting any shortfall in provisions and after allocating statutory, regulatory, and other reserves required to be allocated according to regulations issued by the Central Bank of Lebanon.

1

• Articles of this Basic Decision were amended via Article 2 of Interim Decision No. 11714 dated 2014/3/6 (Interim Circular No. 358). 2
• Last amendment to this title introduced via Article 1 of Interim Decision No. 11714 dated 2014/3/6 (Interim Circular No. 358). 3
• The following paragraph was repealed via Article 2 of Interim Decision No. 10848 dated 2011/12/7 (Interim Circular No. 282): « And given that the monetary authorities in member countries of the "Basel Committee" agreed in July 1988 on a uniform solvency ratio not less than 8% to be applied from the beginning of 1993 ».

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-2 "Subsidiaries": Banks and financial and non-financial institutions in Lebanon and abroad subject to consolidation under the "Full Consolidation Method" (Global Integration) with the bank, i.e., those in which the bank directly or indirectly owns 50% or more of their shares or voting rights attached to such shares, or those in which the bank has the ability to control their decisions (Control). -3 "Associates": Banks and financial and non-financial institutions in Lebanon and abroad in which the bank directly or indirectly owns at least 20% of their shares or voting rights attached to such shares, or those in which the bank has significant influence over their decisions (Significant Influence).

Article 2: Total Regulatory Capital shall be divided into the following categories: -1 Tier 1 Capital, comprising: a. Common Equity Tier 1. b. Additional Tier 1 Capital. -2 Tier 2 Capital.

Article 3: Capital instruments shall be accepted within the Common Equity Tier 1 category if they collectively possess the following characteristics: -1 They rank lowest in the hierarchy when sharing remaining assets in the event of bank liquidation. -2 They have the right to share remaining assets upon liquidation according to their proportion of capital (without a cap on the value that can be obtained upon liquidation). -3 They are perpetual (Perpetual), i.e., not redeemable except in the event of liquidation or in exceptional cases specified according to prevailing legal or regulatory provisions, such as the repurchase of ordinary shares listed on regulated financial markets or the repurchase of public deposit certificates linked to the bank's shares.

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-4 The issuing bank shall not directly or indirectly imply that it will subsequently redeem or cancel these capital instruments, and issuance contracts shall not contain any direct or indirect reference to that effect. -5 Dividends on these instruments shall not be paid except from "Free Profits" or from distributable retained prior results, and the dividend value shall not be linked in any way to the issue price or capped at a certain level. -6 The bank shall not be obliged to distribute any dividends on these instruments, without such failure being considered, for any reason, an Event of Default. -7 Dividends shall not be paid except after the bank has met all its legal or contractual obligations due to creditors and preferred shareholders and other capital instruments, meaning these instruments do not enjoy any priority right to receive dividends. -8 They shall be ready to absorb the bank's losses immediately upon occurrence, without any restriction or condition, according to their proportion in the bank's capital and equally with all holders of instruments accepted in this category. -9 They shall be recognized upon liquidation as equity rights and not as bank liabilities. -10 They shall be classified as Equity according to International Financial Reporting Standards (IFRS). -11 They shall be issued directly by the bank and fully paid, and the bank shall not have contributed to financing their purchase or subscription directly or indirectly. -12 They shall not be guaranteed by the bank or any related party (parent institution, "subsidiaries", sister institutions, or any other related party), nor shall they enjoy any legal or economic privileges resulting from any agreements or separate or ancillary contracts that would reduce their subordination to depositors and/or other creditors. -13 Their issuance shall be approved by the Extraordinary General Assembly of Shareholders. -14 They shall be clearly disclosed in separate lines in the bank's balance sheet.

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Article 4: Capital instruments shall be accepted within the Additional Tier 1 Capital category if they collectively possess the following characteristics: -1 They are issued directly by the bank and fully paid. -2 They are subordinated to depositors and/or other creditors in the bank, including investors in subordinated loans and debt securities and other instruments accepted within Tier 2 Capital. -3 They are not guaranteed by the bank or any related party (parent institution, "subsidiaries", sister institutions, or any other related party), nor do they enjoy any legal or economic privileges resulting from any agreements or separate or ancillary contracts that would reduce their subordination to depositors and/or other creditors. -4 They are perpetual (perpetual), i.e., they have no fixed maturity date and do not contain any incentives/up-step features that might induce the bank to redeem them. -5 Any redemption of issued instruments is subject to prior approval by the Central Bank of Lebanon. -6 In the event of a call option, it can only be exercised at the bank's sole discretion, and at least five years must have passed since issuance, provided the following conditions are collectively met: a. The bank obtains prior approval from the Central Bank of Lebanon before exercising the call option. b. The bank does not imply in any way that it will exercise the call option. c. The bank:

• Proves that its solvency ratios exceed the minimum thresholds, in addition to the "Capital Conservation Buffer" ratio, imposed by this Decision even after exercising the call option; OR
• Replaces these instruments, concurrently with the redemption process, with capital instruments of at least the same quality and under suitable conditions that do not pressure profitability and/or by retaining the financial year's profits, provided these profits are sufficient to maintain solvency ratios exceeding the minimum thresholds, in addition to the "Capital Conservation Buffer" ratio, imposed by this Decision.

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-7 The bank shall have the absolute right, in all circumstances, to cancel any dividends that may accrue to these instruments without such cancellation being considered, for any reason, an Event of Default. -8 Accrued dividends/returns that may be cancelled shall not be paid except from "Free Profits". -9 Dividends/returns shall not be linked to changes in the bank's creditworthiness. -10 They shall not be considered liabilities when determining the net asset value of the bank's assets upon liquidation. -11 The bank and any "subsidiaries" or "associates" shall not be allowed to purchase, subscribe to, or finance the purchase or subscription of these instruments directly or indirectly. -12 Issuance terms shall not affect the bank's future ability to strengthen its capitalization (e.g., terms shall not require the bank to compensate investors in these instruments in case of new issuances with higher dividends/returns).

Article 5: Capital instruments shall be accepted within the Tier 2 Capital category if they collectively possess the following characteristics: -1 They are issued directly by the bank and fully paid. -2 They are subordinated to depositors and/or other creditors in the bank. -3 They are not guaranteed by the bank or any related party (parent institution, "subsidiaries" in Lebanon and abroad, sister institutions, or any other related party), nor do they enjoy any legal or economic privileges resulting from any agreements or separate or ancillary contracts that would reduce their subordination to depositors and/or other creditors in the bank.

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-4 Regarding original maturity: a. This maturity shall not be less than five years. b. It shall be amortized according to a straight-line method over the five years preceding the maturity date (i.e., deducting 20% of its value for each of the five years preceding the maturity date). c. It shall not contain any incentives/up-step features that would induce the bank to redeem them before the maturity date. -5 In the event of a call option, it can only be exercised at the bank's sole discretion, and at least five years must have passed since issuance, provided the following conditions are collectively met: a. The bank obtains prior approval from the Central Bank of Lebanon before exercising the call option. b. The bank does not imply in any way that it will exercise the call option. c. The bank:

• Proves that its solvency ratios exceed the minimum thresholds, in addition to the "Capital Conservation Buffer" ratio, imposed by this Decision even after exercising the call option; OR
• Replaces these instruments, concurrently with the redemption process, with capital instruments of at least the same quality and under suitable conditions that do not pressure profitability and/or by retaining the financial year's profits, provided these profits are sufficient to maintain solvency ratios exceeding the minimum thresholds, in addition to the "Capital Conservation Buffer" ratio, imposed by this Decision. -6 Investors in these instruments shall not have the right to demand early repayment of unpaid installments (principal and returns), except in cases of bankruptcy and liquidation. -7 Returns on these instruments shall not be linked to changes in the bank's creditworthiness.

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-8 The bank and any "subsidiaries" or "associates" shall not be allowed to purchase, subscribe to, or finance the purchase or subscription of these instruments directly or indirectly.

Article 6: First: Cash contributions to capital paid in foreign currency by one or more shareholders pursuant to a contract signed with the bank shall be accepted within Common Equity Tier 1 rights if they collectively meet the following conditions: -1 The contract shall include the following: a. The obligation to keep the cash contributions to capital throughout the bank's operations. b. The obligation to cover losses that may affect capital in accordance with Article 134 of the Monetary and Banking Law, through these contributions in case capital is not replenished by any other legal means. c. The possibility or impossibility of using these contributions, according to the contributors' wish, in case of capital increase, to release the value of shares subscribed by them which legally belong to them. d. No returns shall be paid on these contributions. -2 An extraordinary general assembly of shareholders, convened according to the quorum and majority required by law to amend the articles of association, shall approve the cash contribution to capital contract and any subsequent amendments thereto. -3 The Central Council of the Central Bank of Lebanon shall approve the cash contribution contract and any subsequent amendments thereto. Second: Cash contributions to capital shall be accepted within Additional Tier 1 Capital if the cash contribution contract provides for the possibility of paying returns on these contributions, while fully meeting all other conditions mentioned in clauses (1), (2), and (3) of the "First" section of this Article, and subject to the following additional conditions collectively: -1 Approval of these returns by an extraordinary general assembly of shareholders. -2 Payment of these returns from "free profits" approved by the Banks Supervision Committee.

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Article 6 bis: Lebanese banks are required to: -1 Not distribute dividends on Common Equity Tier 1 rights for the financial years 2019, 2020, 2021, 2022, 2023, 2024, and 2025. -2 Increase their capital by a maximum of 20% of Common Equity Tier 1 rights as of December 31, 2018, by December 31, 2020, through new instruments of any type of capital instruments in foreign currencies that can be accepted within the various capital categories specified in this Decision, excluding retained profits and revaluation gains from real estate assets. Contrary to the provisions of Basic Decision No. 7462 dated November 23, 1999, concerning the system of real estate investments and shareholdings for banks, the Central Council of the Central Bank of Lebanon is authorized to exceptionally approve for the concerned bank to form 50% of the aforementioned 20% ratio by shareholders transferring real estate properties to the concerned bank, to be liquidated within a period not exceeding December 31, 2026.

Article 7: Funds allocated to real estate investments for the benefit of a foreign bank branch operating in Lebanon shall be considered within Common Equity Tier 1 rights if they meet the conditions stipulated in regulations issued by the Central Bank of Lebanon.

1

• This article was added via Interim Decision No. 13129 dated 2019/11/4 (Interim Circular No. 532) then last amended via Interim Decision No. 13795 dated 2026/1/9 (Interim Circular No. 754). 2
• Last amendment to this article introduced via Article 7 of Interim Decision No. 11822 dated 2014/8/11 (Interim Circular No. 367).

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Article 8: First: Banks may revalue all real estate assets (land and buildings) wholly owned by them and real estate assets wholly owned by real estate companies in which these banks hold shares, according to the provisions of Article 153 of the Monetary and Banking Law, annually until December 31, 2026. Second: 75% of the revaluation gain resulting from the aforementioned revaluation shall be accepted within Common Equity Tier 1, subject to the following two concurrent conditions: -1 Verification and approval by the Central Council of the Central Bank of Lebanon, at the expense of the concerned bank, of the validity of the revaluation process. -2 Completion of the revaluation process by December 31, 2026. Third: Assets subject to this Article shall be valued in US Dollars (Fresh Dollar) and recorded in Lebanese Lira based on:

• An exchange rate of 1,507.5 LBP per 1 USD from December 31, 2022, to January 31, 2023.
• An exchange rate of 15,000 LBP per 1 USD from February 1, 2023, to January 31, 2024.
• An exchange rate of 89,500 LBP per 1 USD from February 1, 2024, to May 31, 2025.
• The rate announced on the platform approved by the Central Bank of Lebanon from June 1, 2025.

Article 8 bis: First: 75% of the revaluation gain resulting from the revaluation of fixed assets acquired for debt settlement according to Article 154 of the Monetary and Banking Law shall be accepted within Common Equity Tier 1, subject to the following concurrent conditions: -1 The Central Council of the Central Bank of Lebanon verifies and approves the validity of the revaluation process at the expense of the concerned bank. -2 The revaluation process is completed by December 31, 2026.

1

• Last amendment to this article introduced via Article 2 of Interim Decision No. 13748 dated 2025/9/10 (Interim Circular No. 741).
• Review Ministry of Finance Decision No. 1/715 dated 2025/8/1 (Official Gazette No. 35 dated 2025/8/14). 2
• This article was added via Interim Decision No. 13290 dated 2020/11/5 (Interim Circular No. 575), then last amended via Article 3 of Interim Decision No. 13748 dated 2025/9/10 (Interim Circular No. 741).
• Review Ministry of Finance Decision No. 1/715 dated 2025/8/1 (Official Gazette No. 35 dated 2025/8/14).

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Second: Assets subject to this Article shall be valued in US Dollars (Fresh Dollar) and recorded in Lebanese Lira based on:

• An exchange rate of 1,507.5 LBP per 1 USD from December 31, 2022, to January 31, 2023.
• An exchange rate of 15,000 LBP per 1 USD from February 1, 2023, to January 31, 2024.
• An exchange rate of 89,500 LBP per 1 USD from February 1, 2024, to May 31, 2025.
• The rate announced on the platform approved by the Central Bank of Lebanon from June 1, 2025.

Article 8 ter: Second: Capital Adequacy Ratios for Banks Operating in Lebanon

Article 9: For the purpose of applying the provisions of Part Two of this Decision, the following terms shall have the meanings set forth before each: -1 "Capital Ratios":

• Common Equity Tier 1 ratio to total risk-weighted assets.
• Tier 1 Capital ratio to total risk-weighted assets.
• Total Capital ratio to total risk-weighted assets. -2 "Regulatory Adjustments": Total deductions and/or additions to available capital to arrive at capital that enters into the calculation of capital adequacy ratios. -3 "Common Equity Tier 1": As defined in Annex (1) attached to this Decision. -4 "Tier 1 Capital": As defined in Annex (2) attached to this Decision.

1

• This article was added via Interim Decision No. 13528 dated 2023/1/20 (Interim Circular No. 659) then repealed via Article 2 of Interim Decision No. 13600 dated 2023/12/28 (Interim Circular No. 685).

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-5 "Total Capital": As defined in Annex (3) attached to this Decision. -6 "Risk-Weighted Assets": Sum of on-balance sheet assets and off-balance sheet items weighted by credit risk weights as specified in Annex (4) attached, and market and operational risks calculated according to the methods specified in Basic Decision No. 9302 dated April 1, 2006. -7 "General Provisions": Provisions established by the bank against the possibility of future losses on debts or assets that have not yet shown any sign of impairment in their value and/or in the resulting cash flows. This definition does not include specific provisions or collective provisions allocated against any impairment in the value of an asset or a group of assets exposed to common risks, after conducting impairment tests on these assets according to International Financial Reporting Standards (IFRS). -8 "Reciprocal Cross Holdings": Direct or indirect shareholdings that a bank makes in any capital instruments (including ordinary and preferred shares) issued by another bank (or more) in exchange for that other bank making shareholdings in any capital instruments issued by the first bank, pursuant to an explicit or implicit prior agreement.

Article 10: First: Banks shall apply the minimum capital adequacy ratios in addition to the "Capital Conservation Buffer" mentioned below, according to what is specified in Annex (5) attached. -2 No bank shall be allowed to distribute dividends if any of its capital adequacy ratios fall below:

• 7% at the Common Equity Tier 1 ratio level.
• 10% at the Tier 1 Capital ratio level.
• 12% at the Total Capital ratio level.

1

• Last amendment to this article introduced via Interim Decision No. 13814 dated 2026/5/4 (Interim Circular No. 760).

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-3 A "Capital Conservation Buffer" shall be formed from elements accepted within the Common Equity Tier 1 category, amounting to 2.5% of risk-weighted assets. -4 If the "Capital Conservation Buffer" falls below the ratio specified in clause (3) of this Article at any time, the shortfall in capital shall be replenished from elements accepted within the Common Equity Tier 1 category to reach the aforementioned ratio. -5 Contrary to the provisions of clause (4) of this Article, and exceptionally and temporarily, the "Capital Conservation Buffer" ratio may fall below the required ratio (i.e., 2.5%) in the years 2023, 2024, 2025, and 2026, provided that this shortfall is gradually replenished according to instructions to be issued later by the Central Bank of Lebanon on this matter.

1 Article 11: Each bank shall prepare a comprehensive plan to regain compliance with capital requirements and regulations imposed by the Central Bank of Lebanon and submit it to the Governor of the Central Bank of Lebanon, provided it includes at least the following conditions: a. The plan shall reflect the bank's strategy. b. The period required for the bank to comply with ratios and standards specified by the Central Bank of Lebanon shall be determined. c. The plan shall take into account provisions required by the Banks Supervision Committee and/or supervisory auditors within the framework of their periodic duties. d. The plan shall take into account provisions and losses that may result, according to the bank's estimate, from exposure to all types of risks.

1

• Last amendment to this article introduced via Article 6 of Interim Decision No. 13259 dated 2020/8/26 (Interim Circular No. 567), effective as of financial statements as of June 30, 2020.

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1 Article 11 bis: When calculating capital adequacy ratios, banks shall: -1 Compare the available provision balance for the financial assets on-balance sheet and financial liabilities off-balance sheet that entail credit risk with the expected losses calculated regulatorily according to the following mechanism: a. Regarding on-balance sheet financial assets and off-balance sheet financial liabilities that are performing (i.e., classified as Stage 1 and Stage 2 according to IFRS 9): Annex (6) attached to this Decision shall be relied upon. b. Regarding on-balance sheet financial assets and off-balance sheet financial liabilities that are non-performing (i.e., classified as Stage 3 according to IFRS 9): The greater balance between the following shall be relied upon: • 45% of the total balance of non-performing portfolios (including accrued interest). • The available specific provisions against the total balance of the aforementioned portfolio. -2 In the event of a negative difference between the available provision balance and the regulatorily calculated expected losses according to clause (1) above, this difference shall be deducted from Common Equity Tier 1.

1 Article 12: General provisions and provisions formed against expected credit losses on performing on-balance sheet financial assets and off-balance sheet financial liabilities that have not witnessed a significant increase in credit risk (Stage 1) may be recognized within Tier 2 Capital up to a maximum limit of 1.25% of the value of risk-weighted assets with credit risk weights adopted in calculating capital adequacy ratios.

1

• This article was added via Interim Decision No. 12947 dated 2018/12/20 (Interim Circular No. 512).

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1 Article 12 bis: First: Contrary to the provisions of "Article 12" above, banks may adopt the following exceptional measures: -1 During the years 2020 and 2021, 100% of the value of provisions formed (i.e., provisions previously formed and provisions to be formed) on performing on-balance sheet financial assets and off-balance sheet financial liabilities that have not witnessed (Stage 1) and have witnessed (Stage 2) a significant increase in credit risk shall be added to Tier 1 Capital - Common Equity Tier 1 category. These provisions shall not include those formed on the portfolio of investments in treasury bonds issued by the Lebanese State in Lebanese Lira and foreign currencies, and provisions formed on the portfolio of investments at the Central Bank of Lebanon in Lebanese Lira and foreign currencies, including deposit certificates. -2 From the year 2022 until the end of 2024, the percentage of provisions added to Tier 1 Capital - Common Equity Tier 1 category shall be gradually reduced according to clause (1) above, as follows:

• In 2022: 75% of the value of added provisions, at a maximum.
• In 2023: 50% of the value of added provisions, at a maximum.
• In 2024: 25% of the value of added provisions. 3 2
• Application of "Article 11 bis" is temporarily suspended until further notice. 3 Second: Banks may, exceptionally when calculating capital adequacy ratios, add to Tier 1 Capital - Common Equity Tier 1 category a portion of the value of losses resulting from US Dollar purchase operations from the Central Bank of Lebanon in exchange for Lebanese Lira banknotes to reduce swap positions before November 17, 2022, according to the following:
• In 2022: at a rate of 66%