Circular 2010/6: Rules and Standards for Debt Write-Offs by Banks

No Democracy Without Popular Conferences

Central Bank of Libya P.O. Box 1103 Tripoli - The Great Socialist People's Libyan Arab Jamahiriya Telegram Address: Central Bank of Libya - Tripoli

Reference: ARM N 852 Circular No. ARM N (2010/6) Date: 7 Nawar Corresponding: 22 Rabie 1378 A.H. {2010 C.E.}

To the Brothers/ General Managers of Commercial Banks To the Brother/ General Manager / Libyan External Bank

Greetings,

Subject: Rules and Standards to be Observed Before Taking Debt Write-Off Decisions at Banks

Based on the provisions of Law No. (1) of the year (2005 C.E.), issued on 1373/1/12 A.H. (2005), concerning Banks. And with reference to Circular ARM N No. (2006/15) dated 1374/7/27 A.H. (2006 C.E.), by which the decision of the Board of Directors of the Central Bank of Libya No. (32) of the year 1324 A.H. (2006 C.E.), issued on 2006/7/6 C.E., amending the conditions for exemption from accrued and calculated interest was referred.

We inform you that the Board of Directors of the Central Bank of Libya, in its first meeting of the year 1378 A.H. (2010 C.E.) held on 1378/2/21 A.H. (2010 C.E.), issued Decision No. (7) of the year 1378 A.H. (2010 C.E.), concerning the Rules and Standards to be Observed Before Taking Debt Write-Off Decisions at Banks.

And as we refer to you the aforementioned Decision, it is hoped that the necessary measures will be taken to comply with its provisions and to put its contents into effect.

Peace, mercy, and blessings of God be upon you.

Dr. Muhammad Abdul Jalil Abusnina Director of Banking and Currency Supervision Department

Copies to:

• The Brothers/ Banks
• The Brothers/ Deputy Banks
• The Brothers/ Secretary of the Board of Directors - Central Bank of Libya
• Analysis and Regulatory Review Department
• Banking Follow-up and Compliance Monitoring Department ======================================== 1378 A.H. / 2010 C.E. / Circular 8

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No Democracy Without Popular Conferences

Central Bank of Libya P.O. Box 1103 Tripoli - The Great Socialist People's Libyan Arab Jamahiriya Telegram Address: Central Bank of Libya - Tripoli

Board of Directors

Decision of the Board of Directors of the Central Bank of Libya, No. (7) of the year 1378 A.H. (2010 C.E.), Concerning the Rules and Standards to be Observed Before Taking Debt Write-Off Decisions at Banks

The Board of Directors of the Central Bank of Libya, Having reviewed Law No. (1) of the year 1373 A.H. (2005 C.E.), concerning Banks. And having reviewed the Decision of the Board of Directors of the Central Bank of Libya, No. (35) of the year 1376 A.H. (2008 C.E.), concerning the authorization to establish the Credit Information Office at the Central Bank of Libya. And having reviewed the Decision of the Governor of the Central Bank of Libya No. (48) of the year 1377 A.H. (2009 C.E.), establishing the Libyan Credit Information Center and organizing it, and approving the manual of tasks and responsibilities of its departments and units. And having reviewed the memorandum submitted by the Banking and Currency Supervision Department, concerning the Rules and Standards to be Observed Before Taking Debt Write-Off Decisions at Banks. And having reviewed what the Board of Directors concluded, in its first meeting of the year 1378 A.H. (2010 C.E.), held on 1378/02/21 A.H. (2010 C.E.).

Decided

Chapter One General Provisions on Debt Write-Off and Write-Down

Article (1) Debt Eligible for Write-Off or Write-Down The debt eligible for write-off or write-down is the debt for which a period of not less than five years has elapsed since its classification into the category of (doubtful debts) or (bad debts), according to the instructions issued by the Central Bank of Libya in this regard, without any positive development in its collection.

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Central Bank of Libya P.O. Box 1103 Tripoli - The Great Socialist People's Libyan Arab Jamahiriya Telegram Address: Central Bank of Libya - Tripoli

Board of Directors -2-

Article (2) Special Exception for Debts Of Small Value As an exception to the ruling stipulated in the previous article, the debt is eligible for write-off or write-down if its value does not exceed the amount of (3,000.000 L.D.) three thousand Dinars, after three years have elapsed since its classification into the category of (doubtful debts) or (bad debts), if the bank's management determines that collection is impossible, or that collection requires costs exceeding its value.

Article (3) Evaluation and Monitoring of Collateral Banks must evaluate the legal status of the collateral provided to them against the debts granted, and ensure the integrity of the documents and papers related to it, and their sufficiency to cover the value of the debt and accrued interest, and their liquidity, and the expenses, time, and effort required to liquidate the collateral. They must re-evaluate these collaterals and update their status and positions periodically, both in terms of sufficiency and liquidity, and the expenses, time, and effort resulting therefrom. And the Bank's Board of Directors may, in cases it deems appropriate, decide to instruct the bank's management to request the debtor to provide additional collateral, whether in kind or of another nature, which it deems sufficient to secure the bank's rights, according to the ruling stipulated in Article (79 / second / 2) of the Banks Law.

Chapter Two Conditions for Debt Write-Off and Write-Down

Article (4) Fulfillment of Necessary Procedures For Debt Collection The bank shall not write off or write down any debt except after fulfilling the administrative and legal procedures prescribed for debt collection and recovery, including administrative seizure procedures, for banks authorized to take this measure. If debt collection is impossible despite taking the necessary measures, the bank may write off or write down the debt, according to the controls and conditions stipulated in this Decision.

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Central Bank of Libya P.O. Box 1103 Tripoli - The Great Socialist People's Libyan Arab Jamahiriya Telegram Address: Central Bank of Libya - Tripoli

Board of Directors -3-

Article (5) Establishment of Necessary Provisions The bank shall not write off or write down any debt except after establishing a provision for this debt, at a rate equivalent to (100%) one hundred percent, of the value of the debt and the accrued interest.

Article (6) Review of Debts Before Write-Off or Write-Down The bank shall not write off or write down any debt except after entrusting its external auditors to review it. Each of them must indicate, in their report, the debts required to be written off or written down, stating their opinion clearly, and the reasons supporting this opinion, after verifying the integrity of the accounting treatment followed in writing off and writing down debts, the volume and ratio of debts, and the provisions established for them during the financial year.

Article (7) Notification of the Central Bank of Libya Except for small debts, stipulated in Article (2) of this Decision, the bank shall not write off or write down any debt except after notifying the Banking and Currency Supervision Department at the Central Bank of Libya of the debts it intends to write off or write down, and the administrative and legal procedures it has taken in an attempt to collect or recover them, and the opinion of each of the external auditors, according to the ruling stipulated in the previous article. If the bank receives the approval of the aforementioned department, or if a period of one month elapses without receiving an objection from it, the bank may proceed with the debt write-off or write-down procedures.

Article (8) Mechanism for Debt Write-Off and Write-Down The write-off or write-down of a debt shall be by a decision of the Bank's Board of Directors, based on a proposal from the General Manager, accompanied by a study prepared by the Risk Management and Legal Affairs Departments, and after the approval of the Banking and Currency Supervision Department at the Central Bank of Libya, as indicated in the previous article. This decision shall not be effective until approved by the Bank's General Assembly.

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Central Bank of Libya P.O. Box 1103 Tripoli - The Great Socialist People's Libyan Arab Jamahiriya Telegram Address: Central Bank of Libya - Tripoli

Board of Directors -4-

Chapter Three Regulatory Controls

Article (9) Submission of Data on Written-Off Debts Each bank is obliged to submit detailed data to the Central Bank of Libya regarding what it has written off or written down, and regarding the customers whose debts were written off, to be documented in accordance with the provisions stipulated in Articles (63) and (80) of the Banks Law.

Article (10) Adherence to Accounting Standards Each bank must adhere to sound accounting principles and established international standards in the accounting entries in its records related to debt write-off and write-down operations, by writing them off as expenses within the Profit and Loss account, and processing the provisions established against these debts, and working to utilize the provisions that are released to cover any shortfall in required provisions, while considering all of this in relation to tax obligations.

Article (11) Retention of Data On Written-Off Debts and Their Files The write-off or write-down of a debt does not mean the discharge of the debtor's liability. The bank must retain the data and files related to the debts that are written off, and prepare side registers, including the balances of these debts and their details, and the accrued interest, so that they can be referred to and reviewed when needed, thereby enabling the pursuit of debtors if positive developments occur in subsequent periods after the write-off of debts, allowing for the recovery of the bank's rights.

Article (12) This Decision shall be implemented from the date of its issuance, and the Banking and Currency Supervision Department shall take the necessary measures to put it into effect.

Farhat Omar Bin Qadara Governor and Chairman of the Board of Directors

Issued in: 21 Nawar 1378 A.H. (2010 C.E.).