Capital Adequacy Regulatory Framework for Banks Operating in Lebanon and Exchange Operations at the Banks and Financial Institutions

Intermediary Circular No. 659 For Banks and Financial Institutions

Copy of Intermediary Decision No. 13528 dated January 20, 2023 regarding the amendment of:

• Basic Decision No. 6568 dated April 24, 1997 (Foreign Exchange Operations for Banks and Financial Institutions) attached to Basic Circular No. 32;
• Basic Decision No. 6939 dated March 25, 1998 (Other Regulatory Frameworks for the Central Bank's Banks and Financial Institutions).

Beirut, January 20, 2023 Governor of the Central Bank of Lebanon Riad T. Salamé

Issuance of Intermediary Decision 13528 Interplay between Basic Decisions No. 6568 dated April 24, 1997 and Basic Decision No. 6939 dated March 25, 1998

We, the Central Bank, Based on our powers stipulated in the Monetary and Loans Law, And based on Basic Decisions No. 6568 dated April 24, 1997 and their interplay regarding the foreign exchange capacity of banks and financial institutions, And based on No. 6939 dated March 25, 1998 and its interplay regarding the capacity of other regulatory frameworks for the Central Bank's Basic Decision on banks and financial institutions, To take effect, And considering the harmony between the provisions in the country, And based on the summary adopted in our meeting held on January 18, 2023 under the following considerations:

Article 1: Subject to Decision No. 6568 dated April 24, 1997 "Article 12" applies as follows: »Article 12 states that the Central Bank has determined the foreign exchange capacity of banks and financial institutions as of December 31, 2022, which is implemented based on the following percentages:

• Year 2023: 80%, implemented.
• Year 2024: 60%, implemented.
• Year 2025: 40%, implemented.
• Year 2026: 20%, implemented.
• Year 2027: 0%.«

Article 2: Amends the definition of "Basic Capital" in Article 1 of Basic Decision No. 6939 dated March 25, 1998, and replaces it as follows: »Basic Capital is calculated based on the shareholders' equity of banks and financial institutions for the years 2019, 2020, 2021, and 2022.«

Article 3: Amends "Article 3" of Basic Decision No. 6939 dated March 25, 1998, and replaces it as follows: »Article 3 states that up to 50% of the improvement profit resulting from the revaluation of the bank's real estate assets (land and buildings) owned by it in full, and real estate assets fully owned by real estate companies that are subject to Article 153 of the Monetary and Loans Law, in which this bank holds shares and has a financial interest, are accepted within the core private funds. This applies to banks operating under the Fresh Dollar regime or those that have transitioned to it, within the following two cumulative conditions:

1. The Central Bank Council verifies the validity of the revaluation process at the expense of the concerned bank and approves it.
2. Completion of the revaluation process by no later than December 31, 2023.«

Article 4: Subject to Basic Decision No. 6939 dated March 25, 1998 "Article 3, paragraph 2" applies as follows: »Article 3, paragraph 2 states that the required capital is calculated based on the following components:

1. The valuation of assets and liabilities in Fresh Dollars.
2. The calculation of the required capital is based on the bank's exposure to the Central Bank's foreign exchange reserves, which are held in "Sayrafa" as of January 31, and includes:

• Its assets subject to the provisions of Article 153 of the Monetary and Loans Law.
• Its financial interests in real estate fully owned by real estate companies subject to Article 153, operating under the Fresh Dollar regime or having transitioned to it.«

Article 5: This decision is effective from the date of its issuance. Article 6: This decision is registered and published.

Beirut, on January 20, 2023 Governor of the Central Bank of Lebanon Riad T. Salamé