Regulatory Alerts2022-09-23 | 13475Reserve Requirements, The Regulation of Transfer Operations to and from BDL, Housing Loans Programs and Facilities Granted by BDL to Banks and Financial Institutions
The Central Bank of Lebanon issued Interim Decision No. 13475 to amend four foundational banking regulations, transitioning reference rates from LIBOR to SOFR Term and ESTR ahead of LIBOR's July 2023 cessation. The decision establishes new interest rate caps and calculation methodologies for housing, productive sector, and green loans across Lebanese Lira and foreign currencies, while updating daily reserve requirements and transfer delay penalties. Banks must finalize contract amendments by June 30, 2023, with the updated rates and procedures taking full effect on July 1, 2023.
Circular No. 640 for Banks, Financial Institutions, and Leasing Companies
Copy of Interim Decision No. 13475 dated September 23, 2022, amending:
- Basic Decision No. 6116 dated March 7, 1996 (Facilities Granted by BDL to Banks and Financial Institutions) attached to Basic Circular No. 23.
- Basic Decision No. 6180 dated May 31, 1996 (Housing Savings/Borrowing Programs Adopted by Banks to Obtain Certain Exemptions from BDL) attached to Basic Circular No. 25.
- Basic Decision No. 6367 dated November 9, 1996 (Money Transfer Operations to and from BDL and Fixing/Conducting Certain Financial Transactions with It) attached to Basic Circular No. 30.
- Basic Decision No. 7835 dated June 2, 2001 (Daily Reserves) attached to Basic Circular No. 84.
Beirut, September 23, 2022 Governor of the Central Bank of Lebanon Riad Tawfiq Salameh
Interim Decision No. 13475 Amending Basic Decisions No. 6116 dated March 7, 1996; No. 6180 dated May 31, 1996; No. 6367 dated November 9, 1996; and No. 7835 dated June 2, 2001.
The Governor of the Central Bank of Lebanon, Based on Articles 70, 76, 79, and 174 of the Monetary and Banking Law, Based on Basic Decision No. 6116 dated March 7, 1996, and its amendments regarding facilities granted by BDL to banks and financial institutions, Based on Basic Decision No. 6180 dated May 31, 1996, and its amendment regarding housing savings/borrowing programs adopted by banks to obtain certain exemptions from BDL, Based on Basic Decision No. 6367 dated November 9, 1996, and its amendments regarding money transfer operations to and from BDL and fixing/conducting certain financial transactions with it, Based on Basic Decision No. 7835 dated June 2, 2001, and its amendment regarding daily reserves, And since LIBOR will cease as of July 1, 2023, acting as a reference rate for interest in global markets, necessitating the transition to adopting alternative reference rates, And based on the decision of the Central Bank Council taken in its session held on September 14, 2022, It is decided as follows:
Article One: The word "LIBOR" in paragraph (a) of clause (6) of Basic Decision No. 6116 dated March 7, 1996 is repealed and replaced with the following: "3-month SOFR Term rate plus the ISDA Spread Adjustment, plus 3% on foreign currency loans, to be calculated every three months."
Article Two: Clauses (1) and the first paragraph of clauses (22) in Table IN attached to Basic Decision No. 6116 dated March 7, 1996 are repealed and replaced with the following:
| Serial No. | Loan Category Code | Loan Type Code | Interest Rate & Currency | Description |
|---|---|---|---|---|
| 1 (PRDB) | Loans to productive sectors benefiting from state interest support, except loans guaranteed by Kafalat Co. Ltd. (k3a) | - LBP: Lebanon Bond Series (LBS) rate minus 1.075% | - FCY: 3-month SOFR Term rate + ISDA Spread Adjustment plus 7.075% | |
| 22 (ENVBD) | Loans financing environmentally friendly projects, capped at ENVP. - LBP/USD benefiting from state interest support under Article 9 of this decision prior to Nov 8, 2016. (a35k) | - LBP: 2-year Lebanon Bond Series rate minus 1.2% | - USD: 3-month SOFR Term rate + ISDA Spread Adjustment plus 4.5% |
Article Three: Clauses (35), (40), and (42) in Table IN attached to Basic Decision No. 6116 dated March 7, 1996 are repealed and replaced with the following:
| Serial No. | Loan Category Code | Loan Type Code | Interest Rate & Currency | Description |
|---|---|---|---|---|
| 35 (PRDBD) | USD loans to productive sectors benefiting from state interest support, except loans guaranteed by Kafalat Co. Ltd. (a3k) | 3-month SOFR Term rate + ISDA Spread Adjustment plus 7.5% | ||
| 40 (ENVBD) | USD loans financing environmentally friendly projects benefiting from state interest support, each exceeding $20,000. (a35k) | 3-month SOFR Term rate + ISDA Spread Adjustment plus 5.5% | ||
| 42 (KAFBD) | USD loans to productive sectors guaranteed by Kafalat Co. Ltd., benefiting from state interest support (a5k) | 6-month SOFR Term rate + ISDA Spread Adjustment plus 6% |
Article Four: Clause (2) of Article Three in Basic Decision No. 6180 dated May 31, 1996 is repealed and replaced with the following: "-2 Interest rate calculation basis for savings and borrowing as follows: a - The savings interest rate shall not be less than half the Lebanon Bond Series (LBS) rate paid on bonds of this series plus 1% if denominated in Lebanese Lira, or the 6-month SOFR Term rate plus ISDA Spread Adjustment minus 1% if denominated in foreign currency. b - The borrowing interest rate shall not be less than half the LBS rate paid on bonds of this series plus 4% if denominated in Lebanese Lira, or the 6-month SOFR Term rate plus ISDA Spread Adjustment plus 3% if denominated in foreign currency."
Article Five: Clause (3) of Article Six in Basic Decision No. 6367 dated November 9, 1996 is repealed and replaced with the following: "-3 Any delay in executing transfer orders to BDL bank accounts incurs interest on the delayed amount from the delay period until payment, calculated at the 6-month SOFR Term rate plus ISDA Spread Adjustment plus 2%, in addition to $500 per violation, without preventing the application of legal or administrative procedures stipulated in subordinate legislation."
Article Six: The second clause of Article Four, paragraph 10 in Basic Decision No. 7835 dated June 2, 2001 is repealed and replaced with the following: "- Regarding loans benefiting from state interest support: -1 40% of balances for green/eco-friendly projects benefiting from state interest support, provided that the interest rate on Lebanon Bond Series (LBS) bonds does not exceed 1% for LBP loans, or the 3-month SOFR Term rate plus ISDA Spread Adjustment plus 5% for USD loans, or the 3-month Rate Average Compounded ESTR rate plus ISDA Spread Adjustment plus 5% for EUR loans. Calculated annually from the date of loan disbursement upon implementation. -2 60% of balances for clauses (1) above after the initial two-year support period, provided that the interest rate on LBS bonds does not exceed 3.5% for LBP loans, or the 3-month SOFR Term rate plus ISDA Spread Adjustment plus 1.5% for USD loans, or the 3-month Rate Average Compounded ESTR rate plus ISDA Spread Adjustment plus 1.5% for EUR loans. Calculated annually from the date of loan disbursement upon implementation."
Article Seven: Banks are granted a maximum deadline of June 30, 2023 to amend contracts and subordinate regulations related to the aforementioned interest rates and implement them accordingly, with these amendments taking effect from July 1, 2023.
Article Eight: This decision takes effect upon issuance.
Article Nine: This decision is published in the Official Gazette.
Beirut, September 23, 2022 Governor of the Central Bank of Lebanon Riad Tawfiq Salameh