ISSUED BY THE CENTRAL BANK OF LIBYA Address: P.O. Box 1103, Tripoli, Libya

Administrative Number: M/N/ Consultation | No. (2023/ 05) Date: 12 Jumaada al-Akhir 1444 AH Corresponding to: 05 January 2023 AD

To: Chairmen of the Boards of Directors of Banks To: General Managers of Banks

Subject: Disclosure Requirements in Periodic and Annual Reports under Basel III Requirements

Greetings ...

Based on Law No. (1) of 2005 and its amendments, and relying on Article (56), Paragraph 2-1, and the commitment to disclosure requirements specified in International Accounting Standards and State Financial Reporting Standards, in addition to Standard No. (7) of the International Financial Reporting Standards, and in harmony with the disclosure requirements contained in Pillar 3 of the Basel III regulations issued by the Basel Committee on Banking Supervision, and in line with the Central Bank of Libya's strategy to raise disclosure and transparency rates.

Therefore, if "Disclosure Requirements in Periodic and Annual Reports under Basel III Requirements" is taken as a reference, you are requested to review the information attached to this circular when preparing reports submitted to the Central Bank of Libya, or published in the securities market, as well as annual reports, so that the bank's external auditor builds his opinion clearly and frankly regarding the information created by the bank in these reports.

Peace be upon you ...

Naji Muhammad Issa Director of Banking and Currency Supervision Department

Copy to:

• Mr. / The Auditor
• Mr. / Deputy Director of the Banking and Currency Supervision Department
• Mr. / Deputy Director of the Banking and Currency Supervision Department for Supervision and Compliance Affairs
• Mr. / Deputy Director of the Banking and Currency Supervision Department for Regulatory Affairs
• Mr. / Deputy Director of the Banking and Currency Supervision Department for Formulation Affairs
• Ms. / Banking Supervision Enhancement
• Gentlemen / Heads of Compliance Units in Banks
• Gentlemen / Heads of Basel Committee Implementation Requirements Monitoring Units in Banks

www.cbl.gov.ly . swift code:CBLJLYLX , Fax: +218 21 444 1488 , Phone: +218 21 333 3591

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Banking and Currency Supervision Department

Guide to Disclosure Requirements in Periodic and Annual Reports under Basel III Requirements

1. Complexity in disclosures required by the application of any International Accounting Standard or State Financial Reporting Standard.
2. Publication of financial data according to forms prepared by the Central Bank of Libya for this purpose, which include: the Balance Sheet, Income Statement, Cash Flow Statement, in addition to the Statement of Changes in Shareholders' Equity.
3. Disclosure of the parent company's shares, or the holding company, names of sister banks, institutions affiliated with the bank, as well as disclosure of agreements and contracts concluded for the exchange of financial, banking, or logistical services.
4. Disclosure of names of major shareholders, their ownership percentage, as well as names of the Chairman and members of the Board of Directors, and their ownership percentage in the bank's capital, their term of appointment and assigned tasks, in addition to disclosure of names and titles of senior management individuals in the bank and the necessity to disclose any changes, appointments, or dismissals that may have occurred during the year.
5. Disclosure of policies and procedures followed by the bank to establish sound governance in the bank.
6. Necessity to disclose requirements contained in Standard No. (7) of the International Financial Reporting Standards, with respect to financial instruments recorded according to International Accounting Standards, and disclosure of risks arising from these instruments, highlighting their impact on the bank's financial position, which includes the following matters: (a) Maximum exposure to credit risks recorded at fair value through the Income Statement. (b) The value of the change in fair value of credit risks recorded through the Income Statement and the result for the issuing entity of the financial instruments or the affected party, which also includes this disclosure the accumulated change since the emergence of credit risks until the date of report preparation. (c) The change in fair value of collateral received from credit risks, with respect to the current period, in addition to the accumulated change in this value.
7. When the bank reclassifies a financial asset recorded at cost or amortized cost to fair value, or vice versa, reclassified to cost or amortized cost, the bank must in this case disclose the amount reclassified from and to each category, and explain the reasons for this reclassification.
8. Disclosure of provisions forming financial instruments by the type of each instrument and disclosure of the change that occurred in these provisions since the previous period.
9. When selling financial assets, where part or all of them are not pledged for full repayment, such as selling assets with a right to repurchase at a later date, the bank must in this case disclose the following matters: (a) The nature and type of these assets.

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(b) The risks the bank remains exposed to or the benefits it remains entitled to.

(c) If the bank continues to recognize all these assets, it must in this case disclose the amounts recorded for assets and liabilities related to them, whereas if it recognizes part of these assets, it must disclose this part and recognize the liabilities related to it and the benefits obtained from it.

10. When pledging financial assets as collateral for obligations due or contingent, disclosure must be made of the value of these assets and the terms and details of the pledge contract related to them.

11. When recording a financial liability at fair value through the Income Statement, the bank must disclose the following matters:

(a) The change occurring in this liability during the period and the amount of the accumulated change in the fair value of this financial liability resulting from the change in credit risk.

(b) The difference between the recorded value of the financial liability and the amount payable by the bank to the beneficiary of this liability upon its maturity.

12. Disclosure of the fair value of financial or non-financial collateral used by the bank and disclosure of the terms governing its use of this collateral.

13. Disclosure of any amounts owed by the bank and failed to pay, as well as disclosure of accumulated interest fixed on these amounts, and updates related to them in case of negotiation with lending entities regarding their repayment terms.

Disclosure of Maturities of Assets and Liabilities:

14. The quarterly and annual report must include a table showing how the main elements of assets and liabilities are distributed according to the classification of balance sheet elements, showing gaps in each period and the extent of the bank's exposure to risks accompanying maturity gaps and how it manages assets and liabilities, according to the following periods:

• Total for each element of the balance sheet and the general total of these elements.
• Maturity less than one month.
• Maturity between one and three months.
• Maturity between three and six months.
• Maturity between six months and one year.
• Maturity between one and five years.
• Maturity over five years.
• Elements without maturities.

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Disclosure of Expenses and Revenues:

15. The financial report must include this presentation disclosing the following elements:

• Total interest revenues.
• Total interest expenses.
• Commission revenues.
• Commission expenses.
• Losses or profits of financial instruments with accrued returns and recorded at fair value through the Income Statement.
• Losses or profits of financial instruments with contractual interest recorded at fair value through the Income Statement.
• Losses or profits of financial instruments available for sale with accrued returns or revenues.
• Losses or profits of financial instruments with contractual interest available for sale.
• Losses or profits of financial instruments with contractual interest held to maturity.
• Losses or profits of financial liabilities recorded at amortized cost.
• Impairment of financial assets.

Credit Risk Disclosures (Credit Risks):

16. Disclosure of credit risks and potential losses is required, as well as disclosure of the policy followed to mitigate these risks, such as collateral accepted against these risks and how they are evaluated, and description of assets held as collateral against credit risks, in addition to disclosure of information regarding non-performing credit risks, which are due but not yet paid, including the following:

• Analysis of the age of the financial asset due and unpaid.
• Description of collateral received against this type of assets and how their fair value is evaluated and estimated.
• Analysis of the financial asset whose value has declined permanently with an explanation of the reasons the bank relied on to reach this conclusion.

17. Disclosure of the credit risk management policy and the plan the bank should implement to execute this policy, in addition to disclosure of the accounting policies it applies to recognize these risks, how non-performing credit risks are considered, its policies in calculating provisions against them and how accumulated interest is recorded on them, which must include at least the following information:

(a) Categories of debts not regulated according to Central Bank of Libya Circular No. (2/2007).

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(b) Changes occurring in provisions formed against non-performing debts, which includes balances of these provisions at the beginning of the period added to any provisions formed during the period and subtracting recovered provisions, in addition to provisions extinguished during the period.

(c) Changes in balances of accrued interest against non-performing debts, which includes the balance of non-performing interest at the beginning of the period added to interest recorded on those debts during the period subtracting accrued interest extinguished, in addition to accrued interest transferred to revenue accounts in the Income Statement due to reclassification of these debts, and transferring them from the category of non-performing debts to the category of normal debts.

(d) Distribution of credit risks by regions.

(e) Distribution of credit risks by economic sectors.

(f) Number of credit application accounts or financing and their total which exceed 20% of the bank's own funds.

(g) At credit application accounts or financing and their total which exceed 10% of the bank's own funds compared to eight times these funds.

Disclosures Related to Transactions with Related Parties to the Bank:

18. Necessity to disclose transactions with related parties to the bank such as the parent company, sister banks, and affiliated companies, and those parties linked to major shareholders and members of the Board of Directors or any other entity specified by the Central Bank of Libya as a related party to the bank, which must include this disclosure, the following:

• Amounts granted to them and their terms and maturities.
• Collateral received in exchange for these amounts and their values.
• Their classification degree.

Concentrations in Assets and Liabilities and Off-Balance Sheet Items:

19. Disclosure of significant concentrations in asset and liability elements, including: (a) Distribution of assets and liabilities according to major currencies, and according to the following major currencies: Libyan Dinar – US Dollar – Euro, either by currencies listed in the foreign currency column. (b) Total deposits and placements, including off-balance sheet items with the parent bank, sister banks, and affiliates. (c) Total deposits and placements with foreign correspondents according to instructions issued by the Central Bank of Libya. (d) Amounts of financial investments and their percentages to own funds according to instructions issued by the Central Bank of Libya.

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(e) Size of fixed assets and their percentage to own funds.

(f) Distribution of deposits by regions.

(g) Deposits for more than (20) depositors, and value of certificates of deposit, and percentage of these deposits to the general total of total deposits, as well as percentage of total amounts of certificates of deposit to the general total of deposits.

(h) Size of participations in the capital of other companies included, not exceeding 10% of own funds.

Other Disclosures:

20. In addition to the previous disclosures, disclosure of accounting policies and how fair value of financial assets and liabilities is calculated is required, in addition to disclosure of hedge accounting:

(a) Accounting Policies:

• Disclosure of accounting policies and methods adopted to measure and evaluate assets at the end of each period, in addition to disclosure of the method the bank relies on to recognize revenues and expenses.

(b) Fair Value:

• Disclosure of how fair value is calculated for each category of financial assets and liabilities and compared to their recorded values, whereas if it participates in shares of companies whose shares are not traded in active financial markets, it must indicate the inability to disclose them due to inability to measure them reliably, but it must describe these investments and present them and describe any information related to them.

(c) Hedge Accounting:

• Disclosure of each type of hedge, including the nature of risks being hedged and details of specific financial instruments considered hedging instruments, and declaration of their fair value on the report date.
• Description of each type of hedging instrument such as cash flow hedging and hedging investments in foreign affiliates.

(d) Financial Instruments and Risks Arising from Them:

Necessity to disclose quantitative and qualitative risks arising from financial instruments the bank is exposed to according to their balances on the date of report preparation, which includes the following:

D-1: Quantitative Disclosures: Disclosure of amounts of losses and expected expenses resulting from risks the bank is exposed to and the size of concentration in each type of these risks.

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D-2: Qualitative Disclosures:

Disclosure of each type of financial instrument risks and their quantity of emergence and policies and procedures the bank follows to measure and manage these risks, with reference to changes that occurred since the previous period.

(e) Liquidity Risks:

• Disclosure of policies and procedures followed in managing liquidity risks and plans and strategies the bank relies on to implement this policy and those procedures. This requires presentation of liquidity maturities and obligations imposed on the bank on the report date according to forms attached by the Central Bank of Libya for this purpose.

(f) Market Risks:

• Disclosure of policies and procedures the bank relies on to manage market risks and losses it may suffer due to these risks. This requires presentation of tables showing the bank's sensitivity to each type of market risk (foreign exchange risk, interest rate risk, equity risk, commodity risk) and their impact on the bank's results and its own funds. If this matter occurs, this also requires disclosure of methods and assumptions the bank relied on to analyze sensitivity to market risks and presentation of achieved results by comparing the previous period and the current period.

(g) Operational Risks:

• Disclosure of risk management policies, procedures, and strategies on the report date and explanation of plans and procedures the bank relies on to mitigate these risks, and what are the burdens or provisions formed against operational risks.

(h) Own Funds:

• Disclosure of basic own funds and supplementary own funds, and the adequacy ratio of these funds (capital adequacy) according to the Central Bank of Libya circular issued for this purpose.
• Disclosure of the ratio of return on average own funds and return on average own funds on the report date compared to these two ratios in the previous period.

20. Disclosure of any events subsequent to the date of report preparation and the impact of these events on the bank's results and its own funds.
21. Banks must commit to not publishing any report except after obtaining prior approval from the Banking and Currency Supervision Department.
22. Banks operating in Libya must comply with what is stated in this circular starting from 2023/03/31.

End ...

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