Regulatory Alerts1998-10-15 | 7129Reserves for Unspecified Banking Risks
The Central Bank of Lebanon issued Basic Decision No. 7129 to mandate that Lebanese banks annually establish unspecified banking risk reserves from their net after-tax profits, integrated into core tier-one capital. The decision sets the reserve rate between 0.2% and 0.3% of an individually calculated denominator, with aggregate floors of 1.25% and 2% at the tenth and twentieth financial year ends, respectively, calculated using Basel II solvency ratios. These reserves cover annual or unforeseen losses agreed with the Banking Control Commission and are prioritized for full replenishment from subsequent years' realized profits, while repealing Decision No. 6188 and taking immediate effect.
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Basic Circular for Banks No. 50
This circular is abolished effective from the financial year 2018, pursuant to Interim Decision No. 12888 dated 5/10/2018 (Interim Circular No. 510).
We enclose a copy of Basic Decision No. 7129 dated 15/10/1998 concerning the establishment of reserves for unspecified banking risks.
Beirut, on 15 October 1998 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah
- Article Two of Interim Decision No. 12888 dated 5/10/2018 stipulates the following: "Banks remain obligated to establish 'reserves for unspecified banking risks' required for the financial year 2017."
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Basic Decision No. 7129 Establishment of Reserves for Unspecified Banking Risks
The Governor of the Central Bank of Lebanon, pursuant to the Monetary and Credit Law, particularly Articles 174 and 177 thereof, and based on the decision of the Central Council adopted in its meeting held on 9/10/1998,
hereby decides as follows:
Article One: Banks operating in Lebanon are required annually to establish, from their net profits after tax deduction, "reserves for unspecified banking risks", calculated within the core tier-one capital (ONE TIER). Unspecified banking risks are understood as any risks arising from banking operations whose nature and value cannot be explicitly determined, even on an estimated basis.
Article Two: The rate of "reserves for unspecified banking risks" is set at 0.2% annually as a minimum and 0.3% as a maximum of the total denominator (DENOMINATEUR) calculated on an individual basis at the end of the financial year, provided that the aggregate ratio does not fall below 1.25% of the denominator at the end of the tenth financial year and 2% of the denominator at the end of the twentieth financial year.
- This article was amended by Article One of Interim Decision No. 10146 dated 9/5/2009 (Interim Circular No. 189).
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The ratios mentioned above are calculated based on the denominator (DENOMINATEUR) used in calculating the solvency ratio according to the requirements of "BIS 2" (Basel II Agreement), effective from the financial year 2008 accounts.
Article Three: The reserve mentioned in the above Article One is established in Lebanese Lira and foreign currencies, based on the structure of total risk-weighted assets (on and off-balance sheet).
Article Four: The aforementioned reserve is used to cover losses of the annual financial cycle or any unforeseen losses agreed upon with the Banking Control Commission, and it is fully re-established, as a priority, from profits realized in subsequent financial years.
- Article Five: Decision No. 6188 dated 5/6/1998 is repealed.
Article Six: This decision takes effect upon its issuance.
Beirut, on 15 October 1998 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah
- This decision was issued pursuant to Circular No. 1439 (old numbering) dated 5/6/1998.