Consolidated Financial Statements and Exchange Operations at Banks and Financial Institutions

Central Bank Circular No. 683

To Banks, Financial Institutions, and Supervisory Commissioners

Enclosed is a copy of Central Bank Decision No. 13593 dated 17/11/2023 regarding the amendment of:

• Basic Decision No. 6568 dated 24/4/1997 (Exchange Operations at Banks and Financial Institutions) attached to Basic Circular No. 32.
• Basic Decision No. 6576 dated 24/4/1997 (Consolidated Financial Statements) attached to Basic Circular No. 34.

Beirut, on 17 November 2023

Acting Governor of the Central Bank of Lebanon Dr. Wissam Al Mansouri

Central Bank Decision No. 13593 Clarification of the Application Mechanism of Basic Decisions No. 6568 and No. 6576

Whereas the Acting Governor of the Central Bank of Lebanon, Pursuant to the Monetary and Banking Law, particularly Articles 70 and 174 thereof, Based on Basic Decision No. 6568 dated 24/4/1997 and its amendments regarding Exchange Operations at Banks and Financial Institutions, Based on Basic Decision No. 6576 dated 24/4/1997 and its amendments regarding Consolidated Financial Statements, And to clarify the application mechanism of the aforementioned two basic decisions, Based on a decision by the Central Council of the Central Bank of Lebanon taken in its meeting held on 17/11/2023,

It is hereby decided as follows:

Article One: The following text is added to Paragraph (3) of "Article 1" of Basic Decision No. 6568 dated 24/4/1997: "The calculation of the Net Trading FX Position (Position Trading FX) shall also be deducted from the Open FX Position (Position Open FX), specifically the Special Long FX Position (Position FX Long Special) specified in Paragraph (6) of this Article."

Article Two: Paragraph (6) is added to "Article 1" of Basic Decision No. 6568 dated 24/4/1997, reading as follows: "6. Special Long FX Position (Position FX Long Special): Represents the acceptable Hedge, which equals the US Dollar value of the basic eligible private fund elements that can be held in foreign currencies according to International Financial Reporting Standards and/or regulatory and applicable provisions."

Article Three: The text of "Article 8" of Basic Decision No. 6568 dated 24/4/1997 is repealed and replaced with the following text: "1. Banks that exceed the specified ceiling for Net Trading FX Position (%1) shall deposit a special reserve in Lebanese Lira at the Central Bank of Lebanon amounting to three times the excess, calculated based on the exchange rate approved in transactions between the Central Bank and banks, for one month per day of excess. Furthermore, when they exceed the specified ceiling for Total FX Position (%40), they shall deposit a special reserve at the Central Bank in US Dollars equal to three times this excess on the date it occurs, after deducting the value of the excess, if any, from the Net Trading FX Position, for one month per day of excess. 2. Financial institutions that exceed the specified ceiling for Net Trading FX Position (Special Long %100 or Short %5) shall deposit a special reserve in Lebanese Lira at the Central Bank of Lebanon amounting to three times the excess, calculated based on the exchange rate approved in transactions between the Central Bank and banks, for one month per day of excess."

Article Four: The text of "Article 9 bis" of Basic Decision No. 6568 dated 24/4/1997 is repealed and replaced with the following text: "First: The provisions of Paragraph (1) of 'Article 2' and the provisions of 'Article 3' and the provisions of Paragraph (1) of 'Article 8' of this Decision shall apply, temporarily. Second: All normal and exceptional approvals granted to banks by the Central Bank of Lebanon regarding fixed FX positions and other structural FX positions, as well as any other exceptional approvals related to FX positions, are considered repealed. Third: If the Open FX Position is long (Position Open FX Long), any bank holding a Net Trading FX Position that exceeds %1 of the total basic eligible private fund elements is considered in excess. Banks are granted a maximum deadline of 31/12/2024 to liquidate any excess in Net Trading FX Long Positions calculated as of 31/12/2023, under penalty of being required to deposit a special reserve in Lebanese Lira at the Central Bank amounting to three times the excess, calculated based on the exchange rate approved in transactions between the Central Bank and banks, for one month per day of excess after 31/12/2024. Fourth: If the Open FX Position is short (Position Open FX Short), the bank is deemed to be gradually liquidating this excess as follows:

• If it exceeds, by a maximum of %50, the value of the excess calculated as of 31/12/2023 at the end of 2024.
• The entire excess shall be liquidated within a maximum deadline by the end of 2025. The non-compliant bank is subject to depositing a special reserve in Lebanese Lira at the Central Bank, calculated in 'Fourth' as three times the excess occurring at the specified percentages, based on the exchange rate approved in transactions between the Central Bank and banks, for one month per day of excess after the specified deadlines. Fifth: Banks that cannot settle their status within the deadlines specified in 'Third' and 'Fourth' of this Article may request the Central Council to review this matter before the end of these deadlines. Sixth: Banks exceeding the maximum allowed limit for Net Trading FX Position (Long) under 'Third' of this Article may submit a reasoned request to the Central Bank for approval of an additional Special Long FX Position or to exceed the maximum allowed limit. Seventh: The application of the provisions of Article 8 and Article 9 bis of this Decision does not preclude taking appropriate administrative measures against the non-compliant bank."

Article Five: "Article 12 bis" of Basic Decision No. 6568 dated 24/4/1997 is repealed.

Article Six: The text of "Article 5" of Basic Decision No. 6576 dated 24/4/1997 is repealed.

Article Seven: The calculation of excess on FX positions shall be effective as of 31/12/2023.

Article Eight: This Decision shall take effect upon its issuance.

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

Beirut, on 17 November 2023 Acting Governor of the Central Bank of Lebanon Dr. Wissam Al Mansouri