Consolidated Financial Statements

Text/ Section 1/ Circular No. 34 / Date: 2023-09-30

Basic Circular for Banks No. 34
Also addressed to financial institutions and supervisory auditors

We enclose a copy of Basic Decision No. 6576 dated April 24, 1997, concerning Consolidated Financial Statements.

Beirut, April 24, 1997
Governor of the Central Bank of Lebanon
Riad T. Salamé
Old Codex 1524

Basic Decision No. 6576
Consolidated Financial Statements

In accordance with the provisions of the Monetary and Credit Law, particularly Articles 146 and 174 thereof, and in accordance with the decision of the Central Council adopted during its meeting held on April 23, 1997, it is decided as follows:

Article 1: Banks and financial institutions are subject to the requirement of consolidating their financial statements with those of their affiliated institutions specified below, in accordance with the methods applied to each and detailed as follows:
First: Institutions subject to consolidation:

1. Institutions subject to exclusive control (subsidiary institutions):
   (CONTROLE EXCLUSIF) - (EXCLUSIVE CONTROL)
   These are institutions in which the parent institution (bank or financial institution) exercises authority over their financial and operational policies, which exists when the parent holds voting rights in more than half of them, majority equity ownership, and the right to appoint or dismiss a majority of their board members and majority voting rights at board meetings.
2. Institutions subject to joint control (joint ventures):
   (CONTROLE CONJOINT) - (JOINT CONTROL)
   These are institutions in which the participating parties, including the bank or financial institution, are linked by a partnership agreement to manage their financial and operational policies without any of these parties having exclusive supervisory authority over them.
3. Participating institutions:
   These are institutions in which the bank or financial institution directly or indirectly owns at least 20% of their voting rights.

Text/ Section 1/ Circular No. 34 / Date: 2023-09-30 Second: Consolidation methods:
The financial consolidation methods detailed below are followed, according to the method appropriate for each type of institution concerned, as follows:

1. Full consolidation method:
   (INTEGRATION GLOBALE) - (GLOBAL INTEGRATION)
   The value of the investment recorded in the parent institution's balance sheet (bank or financial institution) is replaced by merging similar items in the balance sheets, income statements, and other financial statements (after necessary adjustments and clearing intercompany transactions). "Minority interests" are recorded separately within equity accounts and consolidated results.
2. Equity method:
   (MISE EN EQUIVALENCE) - (EQUITY)
   The purchase value of investments in the concerned institutions is recorded in the parent institution's balance sheet (bank or financial institution), with these values adjusted to reflect changes occurring after the purchase date regarding the investor's share in the net equity of the said institutions. In application of International Accounting Standards, all these investments, including goodwill, are subject to periodic impairment testing at least annually, and the investor's share of results from invested institutions is recorded in the profit account.

Article 2:

1. Financial-character institutions:
   In addition to banks and financial institutions, institutions in which banks or financial institutions invest are considered financial-character institutions if their subject matter extends the activities of the latter, relates to owning real estate dedicated to their operations, or providing necessary services such as IT companies.
2. Non-financial-character institutions:
   Institutions in which banks or financial institutions participate or invest are considered non-financial-character institutions if their subject matter does not extend the activities of the latter as specified in paragraph (1) of this article (industrial companies, commercial companies, insurance companies...). Footnote 1: This paragraph was amended by Article 1 of Interim Decision No. 9372 dated July 7, 2006 (Interim Circular No. 114).

Article 3: Consolidation of annual financial statements:
Banks and financial institutions must include or attach consolidated financial statements to their annual reports, as follows:

1. Financial and non-financial-character institutions subject to exclusive control:
   The financial statements of these institutions are consolidated into the parent institution's (bank or financial institution) regular financial statements using the full consolidation method.
2. Participating or jointly controlled financial and non-financial-character institutions:
   The financial statements of these institutions are consolidated into the parent institution's (bank or financial institution) financial statements using the equity method.

Article 4: Consolidation of periodic financial statements submitted to the Central Bank of Lebanon and the Banking Control Commission:

1. Financial-character institutions:
   a. Full consolidation method applies to institutions subject to exclusive control. b. Equity method applies to participating or jointly controlled institutions.
2. Non-financial-character institutions:
   The equity method applies whether these institutions are participating, subject to exclusive control, or jointly controlled.
   Footnote 1 (Article 5): To consolidate balance sheets as detailed above, the new accounts specified in Annex No. 1 attached to this decision must be incorporated into the accounting framework of banks and financial institutions. Footnote 2 (Article 6): To consolidate balance sheets as detailed above, the new accounts specified in Annex No. 1 attached to this decision must be incorporated into the accounting framework of banks and financial institutions.

Text/ Section 1/ Circular No. 34 / Date: 2023-09-30
Article 7:

1. In derogation of any regulation issued by the Central Bank of Lebanon, banks and financial institutions, each regarding its own scope, must comply with the following ratios calculated on a consolidated basis:
   a. Capital adequacy ratio (Basic Decision No. 6939 dated March 25, 1998). b. Banking facilities ceiling (Basic Decision No. 7055 dated August 13, 1998).
   c. Provisions of Articles 152 and 153 of the Monetary and Credit Law.
2. The calculation of ratios and other banking standards remains based on the individual financial statements of banks and financial institutions.

Article 8: Banks and financial institutions are required, in addition to the individual financial statements requested by the Central Bank of Lebanon and the Banking Control Commission, to prepare periodic consolidated financial statements in accordance with the principles and rules set forth in Article 4 of this decision, as follows:

1. Consolidated financial statements submitted to the Central Bank of Lebanon:
   a. Headquarters and branches within Lebanon, plus other affiliated banks within Lebanon. b. Headquarters and branches within Lebanon, plus other affiliated banks and financial institutions within Lebanon.
2. Consolidated financial statements submitted to the Central Bank of Lebanon and the Banking Control Commission:
   Headquarters and branches within and outside Lebanon, plus other financial and non-financial-character institutions within and outside Lebanon subject to consolidation under this decision. The Central Bank of Lebanon and the Banking Control Commission are provided with the consolidated financial statements referred to in this article within the deadlines specified for individual statements.

Article 9: Banks and financial institutions are required to publish annual consolidated financial statements audited by their own supervisory auditor, for each of the following:

1. Headquarters and branches within Lebanon.
2. Headquarters and branches within Lebanon and abroad.
3. Headquarters and branches within Lebanon and abroad, plus institutions subject to financial statement consolidation as specified in this decision.
   As a transitional measure, banks and financial institutions may publish the aforementioned financial statements for the fiscal year 1996 audited by an external auditor rather than their own supervisory auditor.

Article 10: In all matters not inconsistent with the content of this decision, banks and financial institutions and supervisory auditors must adhere to the accounting standards adopted in Lebanon and the International Accounting Standards adopted therein, particularly Rules 21, 22, 27, 28, and 31.

Article 11: Circular No. 1116 of the Central Bank of Lebanon dated August 20, 1992, is repealed.

Article 12: This decision takes effect as of July 1, 1997.

Article 13: This decision is published in the Official Gazette.

Beirut, April 24, 1997
Governor of the Central Bank of Lebanon
Riad T. Salamé
Footnote 1: This number follows the old numbering system.

Text/ Section 1/ Circular No. 34 / Date: 2023-09-30
Annex No. 1
Amendments and new accounts required to be incorporated into balance sheet and income statement accounts

1. In the "Consolidated" banks status - Form 2010, the code for automated sorting and the published status (Form 2010 status)
   On the assets side:
   Under the heading of fixed financial investments 12400 of which: investments and shares in banks and financial institutions recorded under the equity method 12414 of which: investments and shares in other institutions recorded under the equity method 12415 Under the heading of intercompany and clearing accounts 12200

• valuation differences of structural exchange centers 12290
  of which: valuation differences of fixed exchange centers 12291 of which: valuation differences of foreign currency investments in banks and financial institutions abroad 12292 Goodwill 12700 On the liabilities side:
  Under the heading of intercompany and clearing accounts 21400
• valuation differences of foreign currency investments in banks and financial institutions abroad 21499
  Under the heading of revaluation differences 21600 of which: group's share of consolidated revaluation differences 21640 of which: minority interests' share of consolidated revaluation differences 21650 Under the heading of reserves and premiums 21900
• group's share of reserves, premiums, and net equity differences - positive or (negative) 21950
• minority interests' share of reserves, premiums, and net equity differences - positive or (negative) 21960
  Under the heading of carried forward results - profits or (losses) 22100
• group's share - positive or (negative) 22110
• minority interests' share - positive or (negative) 22120
  Under the heading of current financial year result - profits or (losses) 22200
• group's share - positive or (negative) 22210
• minority interests' share - positive or (negative) 22220
  Under the heading of expense and revenue accounts 22300
• group's share - positive or (negative) 22340
• minority interests' share - positive or (negative) 22350

2. In the consolidated income statement status prepared for publication
   The following items are added to the consolidated income statement classification:

• our share in results of institutions consolidated by the equity method - positive or (negative)
• non-financial-character institutions - positive or (negative)
• financial-character institutions - positive or (negative)
• current financial year result - positive or (negative)
• group's share - positive or (negative)
• minority interests' share - positive or (negative)

Annex No. 2 -
Annex No. 2 is repealed by virtue of Article 5 of Interim Decision No. 8183 dated July 12, 2002 (Interim Circular No. 22).