Subsidy of Interest on Loans Extended to the Industry, Tourism and Agriculture Sectors

517 Text / Section 1 / Circular 80 dated 31/10/2022

Central Bank Circular No. 80 Also addressed to financial institutions and leasing companies

We submit to you the Fundamental Decision No. 7743 dated 2/1/2001 regarding the support of interest on loans granted to the industrial, tourism, or agricultural sectors.

Beirut, on 2 January 2001 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah Old Number 1880

518

Fundamental Decision No. 7743

Support of Interest on Loans Granted to the Industrial, Tourism, or Agricultural Sectors

The Governor of the Central Bank of Lebanon, Based on the Monetary and Banking Law, particularly Articles 85 and 87 thereof, Based on Law No. 173 dated 14/2/2000 (General Budget Law for the Year 2000), Particularly Article 12 thereof, Based on the approval of His Excellency the Minister of Finance, Based on the decision of the Central Council of the Central Bank of Lebanon held on 13/12/2000

Decides as follows:

Article 1 Private sector institutions benefiting from development loans for tourism, agriculture, industry, or crafts, as well as those that locally manufacture information technology devices, programs, and specialized technologies and provide services related to these devices, programs, and technologies, may benefit from the State's support of interest on loans granted to them. This is under the full responsibility of the granting entities, whether banks, financial institutions, or leasing companies.

Article 2 To benefit from the State's support of interest, the loan must meet the following conditions: 1 - It must be fully utilized in Lebanon to finance a new project or complete an existing project, with the exception of:

• a) Financing the purchase of land.
• b) Financing the purchase of qualified and ready-to-use buildings, provided that up to 50% of the value of non-ready buildings can be financed for their qualification, provided that the amount allocated for the purchase of the building does not exceed 50% of the value of the subsidized loan.
• c) Financing means of transport.
• d) Financing working capital.
• e) Financing the purchase of shares or partnership stakes in tourism, agricultural, or industrial institutions.

Note: This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance."

2 - Its duration must range between five and seven years, and no more than 15% of its principal may become due during the first two years. The repayment period for loans granted to customers approved to benefit from the State's support of interest may be extended, provided that the loan duration after extension does not exceed 19 years and without any change in the estimated cost of support for the basic loan duration.

3 - The loan must be securitizable according to the concept contained in the regulatory texts issued by the Central Bank of Lebanon.

4 - It must be granted in Lebanese Lira, US Dollars, or Euros, with a maximum interest rate, non-fixed, including all interest and commissions, determined as of the date of signing the contract and calculated as follows:

a - For loans granted in Lebanese Lira: The calculated interest must not exceed the rate of Lebanese Treasury bonds for two years plus 1%. The interest is calculated as per the last issuance of Treasury bonds in the primary market preceding the signing of the loan contract, with annual recalculation and collection every three months on 31/3, 30/6, 30/9, and 31/12 of each year.

Note: The last amendment to this clause was introduced by Article 1 of Interim Decision No. 12575 dated 6/6/2017 (Interim Circular No. 465). The beginning of this clause was amended by Article 1 of Interim Decision No. 10184 dated 26/6/2009 (Interim Circular No. 195).

b - For loans granted in US Dollars: The interest must not exceed the SOFR Term rate for three months plus the Adjustment Spread value determined by the International Swaps and Derivatives Association (ISDA) plus 7%. The interest is calculated as of the date of signing the loan contract, with recalculation and collection every three months on 31/3, 30/6, 30/9, and 31/12 of each year.

c - For loans granted in Euros: The interest must not exceed the Rate Average Compounded ESTR for three months plus the Adjustment Spread value determined by the International Swaps and Derivatives Association (ISDA) plus 7%. The interest is calculated as of the date of signing the loan contract, with recalculation and collection every three months on the dates specified in paragraph (b) above.

d - For loans granted with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company: The interest for the first year is calculated as of the date of signing the contract. For each subsequent year after the contract signing date, the interest calculation relies on the date of issuance of the guarantee by Kafalat S.A.L. – SME Loan Guarantee Company.

5 - The value of the loan granted to any institution must not exceed 20% of the private funds of the granting entity, and must not be less than fifty million Lebanese Lira or its equivalent in US Dollars or Euros. The total balance of subsidized loans granted by banks, financial institutions, and leasing companies operating in Lebanon to a single institution or a single economic group (as defined in the regulatory texts issued by the Central Bank of Lebanon) must not exceed fifteen billion Lebanese Lira or its equivalent in US Dollars or Euros.

Note: This paragraph was amended by Article 1 of Interim Decision No. 13482 dated 4/10/2022 (Interim Circular No. 642), whose Article 3 stipulates: "Banks are granted a maximum deadline of 30/6/2023 to amend contracts and information systems related to the interest rates mentioned above, to be implemented as of 1/7/2023, with notification of affected clients accordingly."

Any granting entity may request the Central Council of the Central Bank of Lebanon to approve not considering a number of debtor customers as a single economic group for justified economic and financial reasons, such as when several companies are owned by one person but operate in different economic sectors (e.g., tourism, industry, agriculture, crafts...). In this case, the total actual balances of subsidized loans granted to this group must not exceed sixty billion Lebanese Lira or its equivalent in US Dollars or Euros.

6 - The loan must not be repaid in whole or in part before maturity without prior approval from the Central Council of the Central Bank of Lebanon.

Article 2 bis

Article 3 1 - The loan application for benefiting from the State's support of interest must be submitted by the granting entity to the Office of the Governor of the Central Bank of Lebanon, accompanied by three copies, one of which is original, containing:

• a) The loan contract dated and signed according to standards.
• b) An initial schedule organized according to Form (01PB) attached to this decision, signed by Kafalat S.A.L. – SME Loan Guarantee Company if the loan is guaranteed by the aforementioned company.
• c) A debtor inquiry card organized according to the form attached to this decision.
• d) A copy of the guarantee from Kafalat S.A.L. – SME Loan Guarantee Company if the loan is guaranteed by the aforementioned company.
• e) Any other documents requested by the Central Bank of Lebanon.

2 - The Financing Unit at the Central Bank of Lebanon and the Banking Supervision Commission must be provided with a final schedule organized according to Form (PB01) when the full loan is withdrawn.

Note: This article was added by Interim Decision 9723 dated 27/9/2007 (Interim Circular No. 148) and later repealed by Article 2 of Interim Decision No. 13482 dated 4/10/2022 (Interim Circular No. 642). This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance."

3 - The granting entity may, at its full responsibility, grant the borrower an advance against the loan, notifying the Central Bank of Lebanon thereof by addressing three copies, one original, to the Governor's Office. Support applies to the mentioned loan and the mentioned advance from the date of the Central Bank of Lebanon's approval. However, if the Central Bank of Lebanon is not notified of the aforementioned advance, it will not be calculated as part of the subsidized loan.

Article 4 1 - The value of the interest support on the loan is determined as a percentage of the utilized balance according to the granting entity's books or the balance linked to the repayment schedule, whichever is lower. It is calculated and settled on 31/3, 30/6, 31/9, and 31/12 of each year as follows: First: A rate of 4.5% on loans for which the application for benefiting from the State's support of interest is submitted after 1/1/2012. Second: Regarding loans for which the application for benefiting from the State's support of interest, accompanied by the loan contract, was submitted before 1/1/2012:

• a) A rate of 7% on the portion of the loan up to five billion Lebanese Lira or its equivalent in US Dollars or Euros.
• b) A rate of 5% on the portion of the loan exceeding five billion Lebanese Lira or its equivalent in US Dollars or Euros, up to a maximum limit of fifteen billion Lebanese Lira or its equivalent in US Dollars or Euros for each borrower or single economic group. The Central Bank of Lebanon applies an average support rate on the total loans subject to "Second," granted to a single institution or a single economic group, if the value of these loans exceeds five billion Lebanese Lira or its equivalent in US Dollars or Euros.

Note: This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." This clause was amended by Article 1 of Interim Decision No. 10864 dated 16/12/2011 (Interim Circular No. 286).

2 - Support applies to the loan starting from the withdrawal date and after obtaining the Central Bank of Lebanon's approval. The amount of support is recorded, when due, in the account of the granting entity opened at the Central Bank of Lebanon, which must then credit the mentioned amount to the borrower's account to reduce his obligations.

3 - The total value of the support cannot exceed the value of interest actually paid by the borrower.

4 - If the loan is not put into effect within one year from the date of the Central Bank of Lebanon's approval of the support, the approval decision is considered void, unless the Central Bank of Lebanon approves extending the aforementioned deadline by an additional six months for reasons within its discretion.

5 - Support on the loan is suspended:

• If it is classified as "doubtful" or "bad" or if the project is halted. If the loan is reclassified so that it is no longer "doubtful" or "bad" or if work on the project resumes, the aforementioned loan can be approved to benefit from support again.
• If a final decision is issued by the "Special Investigation Authority" to place the client's accounts under supervision (Traceable) or to freeze these accounts. If these accounts are released, the aforementioned loan can be approved to benefit from support again.

Article 4 bis Banks, financial institutions, and leasing companies may process loans benefiting from the State's support of interest granted to customers affected by the July 2006 war on Lebanon, whose debts are repayable according to the following rules and mechanism: 1 - Accepting debts benefiting from the State's support of interest granted before 31/7/2006, provided that:

• a) Debts of customers indirectly affected by the July 2006 war on Lebanon and/or the imposed blockade, which led to a change in their cash flows without destroying their ability to continue their work and thus repay these debts within a specific period.
• b) Debts of customers directly affected by the war operations without preventing these debtors from continuing their work and resuming repayment of these debts within a specific period.

2 - Providing the Central Bank of Lebanon with information about their clients intended to settle their debts according to forms (a), (b), and (c) attached to this decision, within a maximum deadline of 31/12/2006.

3 - Extending the repayment period for loans benefiting from the State's support of interest not guaranteed by Kafalat S.A.L. – SME Loan Guarantee Company granted to affected customers for one year by postponing the due installments and those that will become due from the principal debt starting 12/7/2006 until 30/6/2007, and repaying them during the extended year. The State's support of interest on those installments is suspended during the extended repayment period.

4 - Restructuring loans granted with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company for affected customers, with the possibility of extending the repayment schedule for up to two years in addition to granting an additional loan, all according to the conditions of Kafalat S.A.L., with the State's support of interest suspended during the additional repayment period exceeding the seven-year period specified in paragraph (2) of Article 2 of this decision.

5 - Granting affected customers, who benefit from loans granted based on agreements signed between the Lebanese Republic and the European Bank for Reconstruction and Development, an additional loan that does not benefit from the State's support of interest, designated to settle the installment due to the European Bank for Reconstruction and Development between 12/7/2006 and 30/6/2007. The additional loan must be repaid during the remaining time of the basic loan's life by distributing it equally over this period.

6 - Notifying the Central Bank of Lebanon and the Banking Supervision Commission when affected customers benefit from assistance or grants from any source.

Note: This clause was amended by Article 2 of Interim Decision No. 11813 dated 25/7/2014 (Interim Circular No. 366). This article was added by Article 1 of Interim Decision No. 9451 dated 9/11/2006 (Interim Circular No. 121).

Article 5 Without the need for individual approval from the Central Council of the Central Bank of Lebanon, the following reductions are permitted: 1 - The mandatory reserve for any bank by an amount equivalent to 60% of the balance of loans benefiting from support and granted by it in Lebanese Lira with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company. 2 - The liabilities for maturity subject to part of the mandatory reserve for any bank by an amount equivalent to the value of loans granted by it and benefiting from the State's support of interest, including those granted in foreign currency with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company.

Article 6 The provisions of this decision also benefit: 1 - Loans granted based on agreements signed between the Lebanese Republic and the European Bank for Reconstruction and Development, managed by the Central Bank of Lebanon and approved to benefit from support, despite the lack of loan conditions stipulated in this decision (particularly duration and interest). 2 - Leasing operations meeting the conditions stipulated in this decision, except for the condition of not having more than 15% of the principal due during the first two years from the date of signing contracts related to these operations. 3 - Loans granted for the purposes specified in Article 1 of this decision, with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company, despite the lack of loan conditions stipulated in this decision, according to the following principles:

• a) The borrower is granted a grace period for starting repayment of not less than six months and not more than one year from the date of granting the loan.
• b) Support applies to the loan from the date of receiving the application at the Central Bank of Lebanon, accompanied by three copies, one original, containing:
• The loan contract dated and signed according to standards.
• A schedule organized according to Form (01PB) accompanied by the signature of Kafalat S.A.L. – SME Loan Guarantee Company.
• A declaration of putting the loan into effect submitted to both the Office of the Governor of the Central Bank of Lebanon and the Risk Center at the Central Bank of Lebanon.
• Any other documents requested by the Central Bank of Lebanon.
• c) The value of the guarantee provided by the borrower for the loan granted with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company must not exceed 50% of the value of the loan.

Note: The last amendment to this article was introduced by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance."

Article 7 1 - The granting entity of the loan benefiting from support bears the responsibility for the correct implementation and monitoring of the use of the mentioned loan and its conformity with the purpose for which it was granted, and for the correct application of the provisions of Article 4 bis. 2 - If the loan is used for a purpose other than that for which it was granted or in a manner contrary to the provisions of this decision, the granting entity must pay compensation equivalent to a penalty interest of 15% of the value of each loan. Support is suspended, and amounts benefited from this loan are recovered.

Note: This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance."

Article 8 The Banking Supervision Commission is tasked with monitoring the correct implementation of this decision, particularly the correctness of the debts subject to Article 4 bis and their repayment capability, and must immediately report to the Governor of the Central Bank of Lebanon any violation of its provisions.

Note: This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." This article was amended by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance."

Article 9 To calculate the amounts of support, granting entities must provide the Financing Unit at the Central Bank of Lebanon and the Banking Supervision Commission quarterly, within ten days following the end of each quarter, a schedule organized according to Form (02PB) attached to this decision.

Article 10 1 - Granting entities must:

• a) Obtain the Central Bank of Lebanon's approval for any modification in the value, term, withdrawal date, or repayment of loans benefiting from support, and for their release.
• b) Notify the Central Bank of Lebanon of any modification in the allocation of loans benefiting from support, with approval for the modification taken before the project is completed.
• c) Notify the Central Bank of Lebanon of any other modifications related to loans benefiting from support and the release of loans granted with the guarantee of Kafalat S.A.L. – SME Loan Guarantee Company.

2 - The application must be submitted to the Office of the Governor of the Central Bank of Lebanon in three copies, one original, accompanied by documents related to the requested modification or release and a schedule organized according to Form (01PB) attached to this decision.

Note: The last amendment to this article was introduced by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." The numbering of this article was amended by Article 2 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187) so that it became "Article 11" instead of "Article 15". Old circular numbers are according to the old numbering.

Article 11 The following regulatory texts issued by the Central Bank of Lebanon are repealed:

• Decision No. 7284 dated 11/5/1999 subject to Circular for Banks and Financial Institutions No. 1725 dated 11/5/1999.
• Decision No. 7523 dated 17/2/2000 subject to Circular for Banks No. 1797 dated 17/2/2000.
• Decision No. 7524 dated 17/2/2000 subject to Circular for Banks and Financial Institutions No. 1798 dated 17/2/2000.
• Decision No. 7658 dated 8/9/2000 subject to Circular for Banks, Financial Institutions, and Leasing Companies No. 1848 dated 8/9/2000.

Note: The last amendment to this article was introduced by Article 1 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187), whose Article 4 stipulates: "This decision takes effect immediately upon its issuance and applies to loans granted after its issuance." The numbering of this article was amended by Article 2 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187) so that it became "Article 12" instead of "Article 16". The numbering of this article was amended by Article 2 of Interim Decision No. 10144 dated 9/5/2009 (Interim Circular No. 187) so that it became "Article 13" instead of "Article 17".

Article 12 This decision takes effect immediately upon its issuance.

Article 13 This decision is published in the Official Gazette.

Beirut, on 2 January 2001 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah

529 Section / Text 30 T / 80 R / 1

• 6 - 2011 / 1 Central Bank of Lebanon Form No. 01PB Schedule Attached to the Application for Benefiting from Interest Support (New Loan
  Rate
  As of ___ / ___ / ______ ) Bank Name: Responsible Person: Bank Number: Phone Number: Borrower Name: Risk Center Number*: Economic Sector Code: Loan Granted: Loan Currency Code: Utilized Balance: Utilization Date: Maturity Date: Estimated Support Value: Loan Type Code: ** Loan Usage Area Code: Loan Principal Balance Development Program According to Maturity Date Date (Day/Month/Year) Loan Principal Balance (In Loan Currency) Date (Day/Month/Year) Loan Principal Balance (In Loan Currency) Bank Signature Individuals and Real Companies must attach: Risk Identification Card (*) for the borrower in addition to a copy of the borrower's ID card if they do not have a number at the Risk Center. (**) Code "35a": Loans granted to finance environmentally friendly projects and benefiting from interest support. Code "3a": Loans for production sectors benefiting from interest support not mentioned below. Code "5a": Loans granted in foreign currencies with guarantee from Kafalat S.A.L. and benefiting from interest support. Loans benefiting from interest support granted by banks based on agreements signed between the Lebanese Republic and the European Bank for Reconstruction and Development. Code "2q": Loans granted in Lebanese Lira with guarantee from "Kafalat S.A.L." and benefiting from interest support. Code "31a": Loans granted in Lebanese Lira to finance environmentally friendly energy projects with "Kafalat Company" guarantee and benefiting from interest support. Code "32a": Loans granted by banks with financing from IFC, EIB, OPIC, AFD, or AFESD and benefiting from interest support. Code "3q": Loans granted in Lebanese Lira with guarantee from IFC, EIB, OPIC, AFD, or AFESD and benefiting from interest support. Code "33a": Loans granted in foreign currencies with guarantee from IFC, EIB, OPIC, AFD, or AFESD and benefiting from interest support. Code "2l": Leasing operations benefiting from interest support. Note: Signature must be obtained from the guaranteeing entity on the balances of loans guaranteed by them. Last amendment to this form was introduced by Article 4 of Interim Decision No. 10640 dated 29/1/2011 (Interim Circular No. 243), which replaces it with the Thursday following two weeks from its issuance date. 1

530

Central Bank of Lebanon

1 Explanation of Form 01PB:

Information Explanation Bank Name. The bank's name as it appears in the list of banks. Bank Number. The bank's number as it appears in the list of banks. Responsible Person. The direct responsible person for these loans is mentioned for contact if necessary. Phone Number. The direct phone number of the responsible person is mentioned. Borrower Name. The name of the debtor client benefiting from the loan. Risk Center Number. Individuals and Sole Proprietorships must attach an identification card for the borrower in addition to a copy of the borrower's ID card if they do not have a number at the Risk Center. For companies, a company identification card is attached in addition to a copy of the commercial register for companies that do not have a number at the Risk Center. Economic Sector Code. The economic sector code based on the purpose of the loan granted according to Fundamental Decision No. 7705 dated 26/10/2000. Loan Granted. The value of the loan mentioned by the bank in its application. Loan Currency Code. The currency code is mentioned according to the attached table No. 01DEV. Utilized Balance