Central Bank of Lebanon Decision No. 13593 Clarifying the Application of Decisions 6568 and 6576

Circular No. 683

To Banks, Financial Institutions, and Supervisory Commissioners

We submit herewith a copy of Intermediary Decision No. 13593 dated 17/11/2023 regarding the amendment of:

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

Beirut, November 17, 2023

Governor of the Central Bank of Lebanon By Proxy

Dr. Wissam Mansouri

Intermediary Decision No. 13593

Clarification of the mechanism for applying Basic Decisions No. 6568 and No. 6576

Based on the Law of Currency and Credit, particularly Articles 17 and 70 thereof, Based on Basic Decision No. 6568 dated 24/4/1997 and its amendments concerning FX operations at Banks and Financial Institutions, Based on Basic Decision No. 6576 dated 24/4/1997 and its amendments concerning Consolidated Financial Statements, And to clarify the application mechanism of the aforementioned two Basic Decisions, Based on the decision taken by the Central Council of the Central Bank of Lebanon in its session held on 17/11/2023,

It is 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: "For the purpose of calculating the Net Trading FX Position, the Special Long FX Position (Position FX Long Special) specified in Paragraph (6) of this Article is also deducted from the Open FX Position (Position Open FX)."

Article Two: The following paragraph is added to "Article" 1 of Basic Decision No. 6568 dated 24/4/1997, Paragraph (6): "6- Special Long FX Position (Position FX Long Special): Represents the acceptable Hedge which equals the value in US Dollars of the basic eligible private money market instruments denominated in foreign currencies according to International Financial Reporting Standards / or regulatory and implementation texts."

Article Three: The text of "Article" 8 of Basic Decision No. 6568 dated 24/4/1997 is repealed and replaced with the following text: "1- Banks that exceed the defined cap for Net Trading FX Position (%1) must deposit an example of the excess calculated as a special reserve in Lebanese Lira at the Central Bank of Lebanon amounting to three times this excess based on the exchange rate accepted in transactions between the Central Bank of Lebanon and Banks, for a period of one month for each day of excess. They must also, when exceeding the defined cap for Total FX Position (%40), deposit a special reserve at the Central Bank of Lebanon in US Dollars equal to three times this excess upon occurrence, after deducting the value of the excess, if any, from the Net Trading FX Position, for a period of one month for each day of excess. ../..

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2- Financial Institutions that exceed the defined caps for Net Trading FX Positions (Long %100 or Short %5) must deposit a special reserve in Lebanese Lira at the Central Bank of Lebanon amounting to three times the excess based on the exchange rate accepted in transactions between the Central Bank of Lebanon and Banks, for a period of one month for each 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, the provisions of "Article" 3, and the provisions of Paragraph (1) of "Article" 8 of this Decision are applied temporarily.

Second: All ordinary and exceptional approvals granted by the Central Bank of Lebanon to Banks regarding Fixed FX Positions and other Structural FX Positions, and any other exceptional approvals related to FX Positions, are considered null and void.

Third: In case the Open FX Position is Long (Position Open FX Long), the Bank is considered to have exceeded the limit if it has a Net Long Trading FX Position exceeding %1 of the total basic net private money market elements. Banks are granted a maximum deadline of December 31, 2024, to liquidate any excess in Net Long Trading FX Positions calculated as of December 31, 2023, under threat of being obliged to 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 accepted in transactions between the Central Bank of Lebanon and Banks, for a period of one month for each day of excess after December 31, 2024.

Fourth: In case the Open FX Position is Short (Position Open FX Short), the Bank is deemed to be gradually exceeding the limit and must liquidate this excess such that:

• If it exceeds, at the end of the year 2024, a maximum of %50 of the value of the excess calculated as of December 31, 2023.
• The entire excess must be liquidated within a maximum deadline of the end of the year 2025. The non-compliant Bank is subject to depositing a special reserve in Lebanese Lira at the Central Bank of Lebanon amounting to three times the excess occurring at the specified percentages, calculated in the "Fourth" paragraph, based on the exchange rate accepted in transactions between the Central Bank of Lebanon and Banks, for a period of one month for each day of excess after the deadlines specified above.

Fifth: Banks that cannot regularize their status within the deadlines specified in the "Third" and "Fourth" paragraphs of this Article may refer to the Central Council regarding this matter before the end of these deadlines.

Sixth: Banks exceeding the maximum allowed limit for Net Long Trading FX Position according to the "Third" paragraph of this Article may submit a reasoned request to the Central Bank of Lebanon to obtain approval for an additional Special Long FX Position or to exceed the allowed maximum limit.

Seventh: The application of the provisions of Article 8 and Article 9 of this Decision does not prevent taking appropriate administrative measures against the non-compliant Bank."

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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: Calculation of excess on FX positions effective as of December 31, 2023.

Article Eight: This Decision shall enter into force upon its issuance.

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

Beirut, November 17, 2023

Governor of the Central Bank of Lebanon By Proxy

Dr. Wissam Mansouri