Regulatory Alerts1998-03-25 | 6941Discount Rates and Interest Rates on Loans Granted by BDL
The Central Bank of Lebanon issued Central Decision No. 6941 to establish precise discount and interest rate formulas for commercial bills, treasury bonds, and various loan categories based on USD deposit rates, certificate of deposit yields, and treasury bill actual yields plus specified margins. The regulation standardizes rate calculations across short-to-long maturities (30 days to 5 years) for both US Dollar and Lebanese Pound operations, while mandating a minimum floor of two percentage points above original rates for treasury-backed transactions. It further empowers the Governor to adjust these rates during periods of necessity, repeals prior circulars and decisions, and takes immediate effect upon publication in the Official Gazette.
Central Bank Circular No. 45 Also addressed to Financial Institutions
We hereby issue, in conjunction with Central Decision No. 6941 dated 25/3/1998, concerning the determination of discount rates and interest rates on Lebanon Central Bank loans.
Beirut, 25 March 1998 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah Old Number: 1614
Central Decision No. 6941 Determination of Discount Rates and Interest Rates on Lebanon Central Bank Loans
The Governor of the Central Bank of Lebanon, Pursuant to the provisions of the Monetary and Credit Law, particularly paragraph 3 of Article 33, paragraph (a) of Article 76, and Article 103 thereof, And based on the resolution adopted by the Central Council in its meeting held on 18/3/1998, Decrees as follows:
Article 1: Discount Rates First: Commercial Bills Discounting The discount rate for commercial bills (as stipulated in Article 100 of the Monetary and Credit Law) is determined as follows:
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Interest rate on 45-day certificates of deposit issued by BDL; if none, then 60-day CDs; if neither exists, the actual yield rate of the latest three-month treasury bill issuance, plus a margin determined by BDL. |
| 60 days | USD: Interest rate paid by BDL on two-month USD deposits plus a margin determined by BDL.<br>LBP: Interest rate on 60-day CDs issued by BDL; if none, the actual yield rate of the latest three-month treasury bill issuance, plus a margin determined by BDL. |
| 90 days | USD: Interest rate paid by BDL on three-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 180 days | USD: Interest rate paid by BDL on six-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest six-month treasury bill issuance plus a margin determined by BDL. |
Second: Treasury Bills Discounting The discount rate for treasury bills (as stipulated in paragraph 1 of Article 105 and Article 108 of the Monetary and Credit Law) is determined as follows:
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 60 days | USD: Interest rate paid by BDL on two-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 90 days | USD: Interest rate paid by BDL on three-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 180 days | USD: Interest rate paid by BDL on six-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest six-month treasury bill issuance plus a margin determined by BDL. |
Note: In all cases, the discount interest rate on treasury bills must not be less than the original interest rate paid on these bonds plus at least two percentage points (2% or 200 basis points).
Third: Long-Term Treasury Bills Discounting The discount rate for long-term treasury bills (as stipulated in paragraph 2 of Article 105 of the Monetary and Credit Law) is determined as follows:
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| < 180 days | USD: Discount rate as specified in "Second" of Article 1.<br>LBP: Discount rate as specified in "Second" of Article 1. |
| 1 year | USD: Interest rate paid by BDL on one-year USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest one-year treasury bill issuance plus a margin determined by BDL. |
| 2 years | USD: Actual yield rate on two-year US treasury bills plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest two-year treasury bill issuance plus a margin determined by BDL. |
| 3 years | USD: Actual yield rate on three-year US treasury bills plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest two-year treasury bill issuance plus a margin determined by BDL (unless the Treasury issues three-year bonds). |
| 4 years | USD: Actual yield rate on four-year US treasury bills plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest two-year treasury bill issuance plus a margin determined by BDL (unless the Treasury issues longer-term or specifically four-year bonds). |
| 5 years | USD: Actual yield rate on five-year US treasury bills plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest two-year treasury bill issuance plus a margin determined by BDL (unless the Treasury issues longer-term or specifically five-year bonds). |
Article 2: Interest Rates on Bond Purchases under the Trust Agreement System First: Commercial Bills The interest rate on purchasing commercial bills under the trust agreement system (as stipulated in Article 101 of the Monetary and Credit Law) is determined as follows:
| Remaining Maturity (Renewable once) | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Interest rate on 45-day CDs issued by BDL; if none, then 60-day CDs; if neither exists, the actual yield rate of the latest three-month treasury bill issuance, plus a margin determined by BDL. |
Second: Treasury Bills The interest rate on purchasing treasury bills under the trust agreement system (as stipulated in Articles 105 and 108 of the Monetary and Credit Law) is determined as follows:
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 60 days | USD: Interest rate paid by BDL on two-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 90 days | USD: Interest rate paid by BDL on three-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 180 days | USD: Interest rate paid by BDL on six-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest six-month treasury bill issuance plus a margin determined by BDL. |
Article 3: Interest Rates on Loans First: Loans Secured by Commercial Bills The interest rate on current account loans (as stipulated in paragraphs 1 and 2 of Article 102 of the Monetary and Credit Law) secured by commercial bills is determined as follows:
| Maximum Loan Maturity | Currency Granted (USD / LBP) |
|---|---|
| 1 year (renewable for another year) | USD: Interest rate paid by BDL on one-year USD deposits plus a margin determined by BDL.<br>LBP: 15% |
Second: Loans Secured by Gold, Foreign Currencies, or Securities The interest rate on current account loans (as stipulated in paragraph 1 of Article 102) secured by gold, foreign currencies, or securities is determined as follows:
| Maximum Loan Maturity | Currency Granted (USD / LBP) |
|---|---|
| 1 year (renewable for another year) | USD: Interest rate paid by BDL on one-year USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest one-year treasury bill issuance plus a margin determined by BDL. |
Third: Loans Secured by Treasury Bills The interest rate on loans (as stipulated in paragraph 2 of Article 105) secured by treasury bills is determined as follows:
| Maximum Loan Maturity | Currency Granted (USD / LBP) |
|---|---|
| 1 year (renewable for another year) | USD: Interest rate paid by BDL on one-year USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest one-year treasury bill issuance plus a margin determined by BDL. |
Note: In all cases, the interest rate on loans secured by treasury bills must not be less than the original interest rate paid on these bonds plus at least two percentage points (2% or 200 basis points).
Fourth: Exceptional Advances The interest rate on loans (as stipulated in paragraph 3 of Article 102) is determined on a case-by-case basis.
Article 4: Declared Commission on Each Special Bond Purchase under Article 106 of the Monetary and Credit Law First: Special Bonds
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Commission equivalent to the interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Commission equivalent to the interest rate on 45-day CDs issued by BDL; if none, then 60-day CDs; if neither exists, the actual yield rate of the latest three-month treasury bill issuance, plus a margin determined by BDL. |
| 60 days | USD: Commission equivalent to the interest rate paid by BDL on 60-day USD deposits plus a margin determined by BDL.<br>LBP: Commission equivalent to the interest rate on 60-day CDs issued by BDL; if none, the actual yield rate of the latest three-month treasury bill issuance, plus a margin determined by BDL. |
| 90 days | USD: Commission equivalent to the interest rate paid by BDL on three-month USD deposits plus a margin determined by BDL.<br>LBP: Commission equivalent to the actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 180 days | USD: Commission equivalent to the interest rate paid by BDL on six-month USD deposits plus a margin determined by BDL.<br>LBP: Commission equivalent to the actual yield rate of the latest six-month treasury bill issuance plus a margin determined by BDL. |
Second: Government Bonds or Bonds Issued with Government Guarantee
| Remaining Maturity | Currency Issued (USD / LBP) |
|---|---|
| 30 days | USD: Interest rate paid by BDL on one-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 60 days | USD: Interest rate paid by BDL on two-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 90 days | USD: Interest rate paid by BDL on three-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest three-month treasury bill issuance plus a margin determined by BDL. |
| 180 days | USD: Interest rate paid by BDL on six-month USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest six-month treasury bill issuance plus a margin determined by BDL. |
| 1 year | USD: Interest rate paid by BDL on one-year USD deposits plus a margin determined by BDL.<br>LBP: Actual yield rate of the latest one-year treasury bill issuance plus a margin determined by BDL. |
Article 5: Declared Interest or Commission on Bond Sales and Repurchase (REPO)
| Currency Issued (USD / LBP) |
|---|
| USD: Interest or commission on the sale and repurchase of USD bonds as determined by BDL.<br>LBP: Interest or commission on the sale and repurchase of LBP bonds as practiced by BDL. |
Article 6: Operations specified in this decision may be conducted in major foreign currencies with deposit accounts open at BDL, provided that the same method for calculating interest, commissions, and margins applies to these operations as specified for USD operations.
Article 7: In case of necessity or urgent circumstances, the Governor of BDL retains the right to adjust the rates, interest, or commissions stipulated in this decision. Such adjustments shall be announced through any suitable media and communicated to the Central Council of BDL at its next subsequent session.
Article 8: Circulars to Banks No. 33 dated 29/11/1967, No. 569 dated 7/6/1985, and Decision No. 6135 dated 28/3/1996, as well as the implementation circular to Banks and Financial Institutions No. 1418 dated 28/3/1996, are hereby repealed. (Note: Circular numbers follow the old numbering system.)
Article 9: This decision takes effect upon its issuance. Article 10: This decision shall be published in the Official Gazette.
Beirut, 25 March 1998 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah