Regulations for the Real Estate Investments and Participations of Banks

Basic Circular No. 65

We hereby enclose a copy of Basic Decision No. 7462 dated November 23, 1999, concerning the Regulations for Real Estate Investments and Participations of Banks.

Beirut, November 23, 1999 Governor of Banque du Liban Riad Tawfiq Salamé

Basic Circular No. 1776

Basic Decision No. 7462 Concerning the Regulations for Real Estate Investments and Participations of Banks

The Governor of Banque du Liban, Pursuant to the Monetary and Exchange Law, particularly Articles 153, 155, and 174 thereof, And pursuant to the decision of the Central Council taken in its session held on November 17, 1999, Decrees as follows:

Article One: The Regulations for Real Estate Investments and Participations of Banks attached to this decision are hereby put into effect.

Article Two: Decision No. 6940 dated March 25, 1998 (attached to Circular No. 1613 dated March 25, 1998) is repealed, and all regulatory provisions repealed by the aforementioned decision remain repealed. ¹ This number follows the old numbering system.

Article Three: This decision takes effect upon its issuance.

Article Four: This decision is published in the Official Gazette.

Beirut, November 23, 1999 Governor of Banque du Liban Riad Tawfiq Salamé

Text/Section 1 / Circular 65 dated July 31, 2022

Regulations for Real Estate Investments and Participations of Banks

First: Direct Real Estate Investments

Article One: Within the scope of Article 153 of the Monetary and Exchange Law, banks may use their own funds for real estate investments only to purchase properties of the following categories: a) Buildings intended for bank offices; b) Buildings intended for employee housing; c) Buildings intended for commercial investment, provided they house the bank’s headquarters if Lebanese, or its general administration center if foreign; d) Land not exceeding the area required to construct buildings of the aforementioned categories, provided the bank proves at purchase that it has sufficient own funds for construction and can complete the building within three years from the land purchase date.

Article Two: Real estate investments are subject to prior approval from Banque du Liban after consulting the Banking Control Commission, which appraises the property via one or more experts appointed for this purpose at the expense of the concerned bank.

Article Three: Subject to provisions of Law published by Decree No. 11614 dated January 4, 1969 and within the conditions of Articles One and Two above, a bank owning property to satisfy a debt may request final ownership approval at least six months before the deadline stipulated in Article 154 of the Monetary and Exchange Law.

Article Four: Approval for owning units in a property under the co-ownership system (Legislative Decree No. 88 dated September 16, 1983) is granted only if these units are intended for bank offices or employee housing of those entitled.

Article Five: Banks must maintain special accounting for their real estate investments, recording:

• On the debit side: annual 2% depreciation value, as well as all expenses, burdens, taxes, and fees related to the aforementioned investments;
• On the credit side: rent and various revenues from these investments.

Article Six: The Banking Control Commission may appraise any bank’s real estate investments at any time via experts appointed by it, at the expense of the concerned bank. If expert reports show a depreciation in value, the concerned bank must set up a special provision in its financial year’s budget. However, the Banking Control Commission may authorize setting up part of the provision in the year depreciation appeared and the remainder in the following year.

Article Seven: To apply the previous provisions, “funds allocated for real estate investments” in favor of a foreign bank branch are considered own funds if the following conditions are met: a) They are paid or transferred from the foreign branch’s head office; b) The foreign bank’s head office explicitly agrees in writing to the content of Article 7 of Law No. 28/67 dated May 9, 1967; c) The foreign bank branch pays no interest on these “funds allocated for real estate investments”; d) The foreign bank branch does not return these “funds allocated for real estate investments” to its head office while conducting operations in Lebanon.

Article Eight: Provisions of this regulation do not apply to investments legally completed before August 21, 1975.

Second: Participations in Real Estate Companies -A. Voluntary Participations

Article Nine: When banks participate, within the scope of Article 153 of the Monetary and Exchange Law, in real estate companies owning properties dedicated to bank operations, they must comply with the conditions stipulated in subsequent articles.

Article Ten:

1. These real estate companies must be limited liability companies with a purpose restricted to owning the property where the bank’s headquarters and/or branches operate or will fully occupy.
2. Banque du Liban must priorly approve the statutes of these companies and any subsequent amendments, which must include: a) The bank’s shareholding not falling below 51% at any time; b) The company borrowing from any source requires prior Banking Control Commission approval; c) The company allocating fees, attendance allowances, or salaries to its president and board members requires prior Banking Control Commission approval; d) The issuance or transfer of company shares for any reason requires prior Banque du Liban approval.

Article Eleven: Real estate owned by these companies must be appraised by the Banking Control Commission, and each company’s capital value is determined based on this appraisal. This appraisal is at the expense of the concerned bank.

Article Twelve: The rental value for banks occupying these properties is determined after Banking Control Commission approval. Without this prior approval, rent increases are only allowed at legally prescribed rates.

Article Thirteen: ¹ The provisions of Section “Second” of this regulation do not apply to bank participations in real estate companies completed before February 2, 1996.

-B. Mandatory Participations

Article Fifteen: A bank required to transfer tangible assets it owns to legally established real estate companies, in exchange for acquiring shares in these companies’ capital, must:

1. Record the cancellation of the book value of the tangible asset in its ledgers;
2. Register acquired shares resulting from the transfer, denominated in the currency they are issued in, under “Shares and participations” within the “Investment securities” section of the balance sheet;
3. Record the difference between the nominal value of acquired shares and the book value of the tangible asset (in that currency) alongside liabilities as unrealized profits. Unrealized profits are transferred to the profit and loss account only upon share liquidation.

Article Sixteen: The details for applying Article Fifteen of this regulation are determined by the Banking Control Commission.

¹ Repealed by Intermediate Decision No. 13437 dated May 17, 2022 (Intermediate Circular No. 623). ² Amended by Article One of Intermediate Decision No. 9151 dated October 7, 2005 (Intermediate Circular No. 92).

Third: Miscellaneous Provisions Article Seventeen: ¹ ² To sell real estate, participations, or partnership shares under Article 153 of the Monetary and Exchange Law, sales must be executed in US Fresh Dollars (Dollar Fresh) or its Lebanese Lira equivalent based on the daily announced exchange rate for transactions executed on the electronic foreign exchange platform “Sayrafa” on the day preceding the sale date.

This regulation was approved in a session of the Central Council on November 17, 1999.

Governor of Banque du Liban Riad Tawfiq Salamé

¹ Added by Article One of Intermediate Decision No. 13465 dated July 27, 2022 (Intermediate Circular No. 637). ² Added by Article One of Intermediate Decision No. 13465 dated July 27, 2022 (Intermediate Circular No. 637).