Foreign Exchange Operations at Banks and Financial Institutions

135

Circular No. 32 for Banks, also addressed to Financial Institutions

We enclose herewith a copy of the Basic Decision No. 6568 dated 24/04/1997 concerning Foreign Exchange Operations at Banks and Financial Institutions.

Beirut, 24 April 1997 Governor of Banque du Liban Riad Toufic Salamé Old No. 1516

136

Basic Decision No. 6568

Foreign Exchange Operations at Banks and Financial Institutions

Part One: Foreign Exchange Positions

Article 1: Definitions The following terms shall have the meanings set forth opposite each of them:

1. Open Foreign Exchange Position per individual foreign currency: (POSITION OUVERTE - OPEN POSITION) It is the net long (Position Long) or net short (Position Short) position representing the sum of the following: a. On-balance sheet net position: Foreign currency assets (Assets FC) within the balance sheet that are exposed to exchange rate fluctuations based on International Financial Reporting Standards, minus foreign currency liabilities (Liabilities FC) within the balance sheet that are exposed to exchange rate fluctuations based on International Financial Reporting Standards. b. Off-balance sheet net position: Amounts to be received minus amounts to be delivered arising from transactions in financial derivatives linked to currencies.

1 - This item was last amended pursuant to Article 1 of Interim Decision No. 13566 dated 24/07/2023 (Interim Circular No. 675), with this Decision taking effect immediately upon issuance and applying to positions held as of 30/06/2023.

137

2. Structural Foreign Exchange Positions: (POSITION STRUCTURELLE – STRUCTURAL POSITION) These are the foreign currency assets of the bank or financial institution excluded from the calculation of foreign exchange positions at banks and financial institutions, subject to the approval of Banque du Liban, as follows: a. Structural positions established by the bank pursuant to Article 3 of this Decision. b. Branch allocations abroad funded in Lebanese Lira. c. Long-term participations and loans related to shareholdings in banks and financial institutions abroad, purchased or granted with the approval of Banque du Liban, and funded in Lebanese Lira within the limits of liquid Core Tier 1 Capital in Lebanese Lira.

2 - This item was amended at the beginning by Article 1 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356).

3. Trading Foreign Exchange Position per individual foreign currency: (POSITION OPERATIONNELLE - TRADING POSITION) It is the open foreign exchange position per individual foreign currency as defined in item (1) of this Article, after deducting the structural foreign exchange positions as defined in item (2) of this Article for each relevant currency. To calculate the trading position (Position Trading FX), the special long FX position (Position FX Long Special) defined in item (6) of this Article shall also be deducted from the open position (Position Open FX).

3 - This paragraph was added pursuant to Article 1 of Interim Decision No. 13593 dated 17/11/2023 (Interim Circular No. 683).

4. Net Trading Position: (POSITION OPERATIONNELLE NETTE - NET TRADING POSITION) It is the difference between the sum of net short trading positions and the sum of net long trading positions as defined in item (3) of this Article.

5. Global Position: (POSITION GLOBALE - GLOBAL POSITION) It is the greater of the sum of net short trading positions or the sum of net long trading positions, as defined in item (3) of this Article, plus the gold position taken at its absolute value, i.e., disregarding its sign.

6. Special Long FX Position (Position FX Long Special): It represents an acceptable hedge equal to the US Dollar value of Core Tier 1 Capital elements eligible to be denominated in foreign currencies according to International Financial Reporting Standards and/or regulatory and implementation texts.

1 - This paragraph was added pursuant to Article 2 of Interim Decision No. 13593 dated 17/11/2023 (Interim Circular No. 683).

Article 2:

1. Banks are permitted to maintain a net trading position, whether long or short, that does not exceed 1% of the total net Core Tier 1 Capital at any time, provided that their global position at the same time does not exceed 40% of the total net Core Tier 1 Capital, subject to the banks being simultaneously and inextricably bound by the required solvency ratio.
2. Financial institutions are permitted to maintain:

• A net long trading position (Position Long) that does not exceed 100% of liquid Core Tier 1 Capital released in Lebanese Lira (i.e., after deducting participations and strategic shareholdings abroad funded from Lira-denominated Core Tier 1 Capital and elements of Article 153 of the Monetary and Banking Law in Lebanese Lira, excluding amounts subject to Article 152 of the Monetary and Banking Law and non-real tangible fixed assets subject to depreciation).
• A net short trading position (Position Short) that does not exceed 5% of net Core Tier 1 Capital at any time.

2 - This Article was last amended by Article 2 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356). 3 - The application of this item is temporarily suspended pursuant to Article 9 bis of this Decision.

138

Article 3: First: Banks are permitted to maintain fixed long positions whose equivalent value in Lebanese Lira does not exceed 60% of the value of Core Tier 1 Capital after deducting elements of Article 153 of the Monetary and Banking Law in Lebanese Lira, including amounts subject to Article 152 of the Monetary and Banking Law and real estate fixed assets. Second: The following shall be deducted from the limits of fixed long positions permitted to be established:

• Elements of Article 153 of the Monetary and Banking Law in foreign currencies, including:
  • Long-term participations and loans related to shareholdings in banks and financial institutions abroad purchased or granted with the approval of Banque du Liban.
  • Branch allocations abroad.
  • Real estate fixed assets.
  • Amounts subject to Article 152 of the Monetary and Banking Law.
• The value of share premium on ordinary shares registered in foreign currencies.
• The value of share premium on preference shares and capital instruments accepted within Core Tier 1 Capital registered in foreign currencies.

2 - This Article was last amended by Article 1 of Interim Decision No. 12688 dated 05/10/2017 (Interim Circular No. 474). 1 - The application of this Article is temporarily suspended pursuant to Article 9 bis of this Decision. 2 - This Article was amended by Article 4 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356).

139

Article 4: All fixed foreign exchange positions and special (exceptional) foreign exchange positions approved for financial institutions on a regular or exceptional basis by the Central Council prior to 01/03/2014 shall be deemed repealed, provided that these positions shall be calculated within the trading foreign exchange positions. Financial institutions whose status is non-compliant with the provisions of item (2) of Article 2 of this Decision shall be granted a maximum deadline of 31/05/2014 to regularize their status. The Central Council of Banque du Liban may, based on a proposal from the Banking Control Commission and in specific defined cases, approve financial institutions to exceed the limits specified in item (2) of Article 2 above.

1 - This Article was last amended by Article 1 of Interim Decision No. 12688 dated 05/10/2017 (Interim Circular No. 474). 1 - The application of this Article is temporarily suspended pursuant to Article 9 bis of this Decision. 2 - This Article was amended by Article 4 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356).

140

Article 5: Banks must obtain prior approval from Banque du Liban to establish the foreign exchange positions referred to in Article 3 of this Decision, specifying the type and quantity of currency intended to be purchased. A maximum deadline of one month shall be set for establishing fixed positions, calculated from the date of Banque du Liban's approval; otherwise, such approval shall be deemed automatically repealed.

Article 6: The modification of currencies constituting the fixed positions referred to in Article 3 of this Decision is subject to prior approval from Banque du Liban, and the bank must notify Banque du Liban and the Banking Control Commission upon the liquidation of any fixed position.

Article 7: The reconstitution of the foreign exchange positions referred to in Article 3 of this Decision is subject to prior approval from Banque du Liban.

Article 8:

1. Banks that exceed the specified limit for the net trading position (1%) must deposit a special reserve in Lebanese Lira with Banque du Liban amounting to three times the excess, calculated based on the exchange rate applied in Banque du Liban's transactions with banks, for a period of one month for each day of excess. They must also, when exceeding the specified limit for the global position (40%), deposit a special reserve with Banque du Liban in US Dollars equivalent to three times this excess on the date it occurs, after deducting the value of the excess, if any, on the net trading position, for a period of one month for each day of excess.
2. Financial institutions that exceed the specified limit for the net trading long position (100%) or short position (5%) must deposit a special reserve in Lebanese Lira with Banque du Liban amounting to three times the excess, calculated based on the exchange rate applied in Banque du Liban's transactions with banks, for a period of one month for each day of excess.

1 - This Article was amended by Article 5 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356). 2 - This Article was amended by Article 6 of Interim Decision No. 11708 dated 28/02/2014 (Interim Circular No. 356). 3 - This Article was last amended by Article 3 of Interim Decision No. 13593 dated 17/11/2023 (Interim Circular No. 683). 4 - The application of this item is temporarily suspended pursuant to Article 9 bis of this Decision. 5 - Calculation of excess on foreign exchange positions begins as of 31/12/2023 pursuant to Article 7 of Interim Decision No. 13593 dated 17/11/2023 (Interim Circular No. 683).

141

Article 9: Banque du Liban shall collect from banks and financial institutions that fail to comply with the special reserve deposit stipulated in Article 8 above a penalty interest calculated in accordance with the provisions of Article 77 of the Monetary and Banking Law, at the interest rate applied on loans granted by Banque du Liban against commercial paper.

Article 9 bis: First: The application of the provisions of item (1) of "Article 2", the provisions of "Article 3", and the provisions of item (1) of "Article 8" of this Decision is temporarily suspended. Second: All regular and exceptional approvals granted by Banque du Liban to banks concerning fixed foreign exchange positions, other structural foreign exchange positions, and any other exceptional approvals related to foreign exchange positions are deemed repealed. Third: If the open position is long (Position Open FX Long), the bank is considered in excess if it holds a net long trading position exceeding 1% of the total net Core Tier 1 Capital elements. Banks shall be granted a maximum deadline of 31/12/2026 to liquidate any excess in net long trading positions, under penalty of being required to deposit a special reserve in Lebanese Lira with Banque du Liban amounting to three times the excess, calculated based on the exchange rate announced on the platform approved by Banque du Liban, for a period of one month for each day of excess after 31/12/2026. Fourth: If the open position is short (Position Open FX Short), the bank is automatically considered in excess and must liquidate this excess within a maximum deadline of 31/12/2026, under penalty of being required to deposit a special reserve in Lebanese Lira with Banque du Liban amounting to three times the excess on the limits specified in this "Fourth" paragraph, calculated based on the exchange rate announced on the platform approved by Banque du Liban, for a period of one month for each day of excess after 31/12/2026.

3 - This paragraph was deleted pursuant to Article 2 of Interim Decision No. 13816 dated 08/05/2026 (Interim Circular No. 762).

Sixth: Exceeding banks may submit a reasoned request to Banque du Liban to obtain approval for an additional special long foreign exchange position according to the "Third" paragraph of this Article. Seventh: The application of the provisions of Articles 8 and 9 of this Decision shall not preclude the adoption of appropriate administrative measures against the non-compliant bank.

Article 10: The Banking Control Commission shall issue an implementation circular for the provisions of Part One of this Decision.

Part Two: Conditions regarding Officers of Foreign Exchange Operations and Procedures for Executing These Operations

Article 11: Banks and financial institutions operating in Lebanon are requested to: a. Appoint a "responsible person" who shall exclusively represent each of them in foreign exchange operations conducted with Banque du Liban. b. Appoint a deputy to the foreign exchange operations officer to replace them in their absence. c. Notify the Directorate of Foreign Exchange and External Operations at Banque du Liban in writing of:

• The name and title of each of the two responsible persons.
• The telephone and telex numbers of the locations from which operations are conducted.
• Any changes thereto. This shall not prevent the application of regulatory texts issued by Banque du Liban, the bylaws of each bank, its operational regulations, and its approved signature procedures regarding transaction confirmation notifications.

Article 12: Banks and financial institutions, when conducting direct foreign exchange purchase or sale operations with Banque du Liban, must confirm these operations at the end of each day via telex or SWIFT. No instructions shall be accepted in this regard via fax.

Article 12 bis:

1 - This Article was added pursuant to Article 1 of Interim Decision No. 13528 dated 20/01/2023 (Interim Circular No. 659), and Article 5 of Interim Decision No. 13593 dated 17/11/2023 (Interim Circular No. 683) was subsequently repealed.

142

Part Three: Data, Records and Ledgers Related to Foreign Exchange Positions

Article 13: All banks and financial institutions are required to provide the Economics Department at Banque du Liban with a monthly statement of their foreign exchange position status, including the elements shown in the attached form (Annex No. 1). The form prepared for this purpose can be obtained from the Services Directorate at Banque du Liban. This statement must be submitted within a deadline of five working days from the cutoff date. Banks and financial institutions must ensure complete accuracy in using this statement. Currencies mentioned in this form shall be declared according to the figures issued (i.e., without converting them to their equivalent in Lebanese Lira). Foreign currencies not included in the form shall be converted to Lebanese Lira and aggregated under the classification "Equivalent of other foreign currencies in Lebanese Lira". Only fractional units of each currency shall be excluded from the form figures. Banks and financial institutions must comply with the regulations and general instructions issued by Banque du Liban concerning residents and non-residents in this statement.

Article 14: Banks and financial institutions operating in Lebanon are requested to:

1. Organize their records and ledgers at their foreign exchange department to show, in an immediate and sequential manner, all foreign exchange transactions between Lebanese Lira and various foreign currencies upon completion, and the details of all such transactions conducted with residents, non-residents, and Banque du Liban.
2. Prepare a table - according to the attached form (Annex No. 2) - summarizing foreign exchange transactions against the Lebanese Lira at the end of each working day. It must be signed by the responsible persons and shall necessarily include the signature of the foreign exchange department officer or their deputy. It shall be sent to the Directorate of Foreign Exchange and External Operations at Banque du Liban before 10:30 AM on the working day following the day on which the foreign exchange operations were conducted.

1 - The name of this directorate was changed to "Economics Department" instead of "Directorate of Statistics and Economic Research" pursuant to Decision No. 137779 dated 28/11/2025.

To facilitate timely submission of the tables, the required information may be sent classified according to the attached form via SWIFT or telex, provided that the bank or financial institution sends a copy of the properly signed telex within a period not exceeding 24 hours. 3. In the event that no foreign exchange transactions against the Lebanese Lira occurred, this must be explicitly stated in the table, telex, or SWIFT sent to Banque du Liban.

Article 15: Banks and financial institutions are responsible for the accuracy of information sent to Banque du Liban and the Banking Control Commission. In case of violation, the procedures and penalties stipulated in the applicable laws and regulations shall be applied against them.

Part Four: Miscellaneous Provisions

Article 16: The following regulatory texts issued by Banque du Liban are repealed: Circulars No. 115 dated 25/01/1973, 149 dated 27/03/1975, 168 dated 12/03/1977, 171 dated 14/05/1977, 297 dated 12/05/1981, 504 dated 02/10/1984, 507 dated 04/10/1984, 512 dated 22/10/1984, 513 dated 22/10/1984, 545 dated 01/03/1985, 581 dated 18/07/1985, 661 dated 02/07/1986, 671 dated 23/08/1986, 761 dated 21/10/1987, 1206 dated 05/11/1993, Decision No. 5274 dated 05/11/1993 attached to it, 1375 dated 26/10/1995, and Decision No. 6038 dated 26/10/1995 attached to it.

Article 17: This Decision shall take effect upon its issuance, provided that Part One thereof shall not be implemented until the implementation circular is issued by the Banking Control Commission.

1 - Circular numbers are according to the old numbering. 2 - Review:

• Banking Control Commission Circulars to Banks: No. 197 dated 05/05/1997, 207 dated 03/09/1998, 210 dated 07/01/1999.
• Banking Control Commission Circular to Financial Institutions: No. 1 dated 04/03/1999.

143

Article 18: This Decision shall be published in the Official Gazette.

Beirut, 24 April 1997 Governor of Banque du Liban Riad Toufic Salamé

144

Annex No. 1: Foreign Exchange Positions as of [Date]

Item	Lebanese Lira	US Dollar	British Pound	German Mark	Swiss Franc
A. Assets with maturity ≤ 1 year
1. At non-resident banks
2. Loans to non-resident clients (excluding banks)
3. Commercial paper discounted abroad
4. Foreign banknotes and stamps in vault
5. Gold in vault (1)
6. Foreign securities portfolio
7. Other assets abroad
Total
B. Assets with maturity > 1 year
1. At non-resident banks
2. Loans to non-resident clients (excluding banks)
3. Commercial paper discounted abroad
4. Foreign securities portfolio
5. Other assets abroad
Total
C. Liabilities with maturity ≤ 1 year
1. To non-resident banks
2. To non-resident clients (excluding banks)
Total
D. Liabilities with maturity > 1 year
1. To non-resident banks
2. To non-resident clients (excluding banks)
Total
E. Domestic Assets
1. Loans to resident private sector
2. Loans to Lebanese public sector
3. Balance of other asset accounts
Total
F. Domestic Liabilities
1. To resident private sector
2. To Lebanese public sector
3. Balance of other liability accounts
Total
G. Forward FX Operations: Currencies to be Received
1. From non-resident banks and financial institutions
2. From resident banks
3. From resident clients (excluding banks)
Total
H. Forward FX Operations: Currencies to be Delivered
1. To non-resident banks and financial institutions
2. To resident banks
3. To resident clients (excluding banks)
Total

(1) Banks must allocate the necessary columns for currencies they hold individually, which are not listed in this table. (2) Gold value is calculated at US $42.222 per ounce.

145

Annex No. 2

To: Banque du Liban Directorate of Foreign Exchange and External Operations

From: (Name of Commercial Bank or Financial Institution)

Bank List Number: (....)

Summary Table of Foreign Exchange Operations in (US Dollar) For the day of (............)

Amounts Purchased in (US Dollar) From	Amounts Sold in (US Dollar) To
Residents	Non-Residents
Banks	Financial Institutions & Companies
1	2
Total 1 + 2	Total 3 - 4

Note: All foreign exchange transactions between banks conducted via Lebanon Financial Company or any other intermediary shall be included under the "Banks" item.

146