Facilities that may be granted by BDL to banks and financial institutions

67 Text/Section/1 R /23 T /2014-12-31

Basic Circular for Banks No. 23 Also directed to Financial Institutions

We refer you to Basic Decision No. 6116 dated March 7, 1996, concerning the facilities that may be granted by the Central Bank of Lebanon to banks and financial institutions.

Beirut, March 7, 1996 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah Old Number 1408

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Basic Decision No. 6116 The Governor of the Central Bank of Lebanon, Based on the Monetary and Loan Law, particularly Articles 76 (paragraph c), 70, 81, 82, and 99 to 108, and 174 thereof, And based on the decision of the Central Board of the Central Bank of Lebanon taken in its session held on March 6, 1996, Decides as follows:

Article 1: In application of the provisions of Article 104 of the Monetary and Loan Law, the maximum limit for the balance of facilities, including interest and commissions, that may be granted by the Central Bank in any form to any registered bank or financial institution is set at thirty percent (30%) of the basic own funds of each, according to the concept defined in Footnote 1. Transactions for discounting and purchasing commercial bonds under a trust agreement, and current account credits granted in accordance with Articles 102 (paragraphs 1 and 2) of the Monetary and Loan Law, as well as the purchase of private bonds under Article 106 of said Law, are included in calculating the aforementioned ratio. The Central Board determines the facilities limit for the concerned bank or financial institution within the maximum limit above, based on compliance with applicable laws and regulations and sound management. Facilities under this Article are granted solely at the responsibility and guarantee of the concerned bank or financial institution.

¹ Originally "Article 3 of Decision No. 5064", repealed by Basic Decision No. 6938 dated March 25, 1998 (Basic Circular No. 43). ² This decision now defines own funds.

Article 2: The Central Bank sets the interest on discounting commercial bonds and commissions for purchases under a trust agreement, in Lebanese Pounds (LBP) and major foreign currencies.

Article 3: In addition to Articles 100 and 101 of the Monetary and Loan Law, and subject to Article 1 of this Decision, commercial bonds accepted for discount or purchase under a trust agreement must meet the following two conditions:

1. The value of each bond must not be less than one million five hundred thousand (1,500,000) LBP or its equivalent in the foreign currency of issuance.
2. The bonds must be payable to the order of the Central Bank without any reservation regarding recourse to endorsers or guarantors in case of non-payment at maturity.

Article 4: Private bonds that the Central Bank may purchase under paragraph (c) of Article 76 and Article 106 of the Monetary and Loan Law must meet the following conditions:

1. Issued by or with the guarantee of a bank or financial institution registered with the Central Bank, in compliance with Articles 121 and 178 of the Monetary and Loan Law.
2. Value of each bond not less than 1,500,000 LBP or equivalent.
3. Representing principal debt issued by non-financial Lebanese companies, exclusively for financing domestic economic sectors.
4. Interest rate, calculation method, payment schedule, and start date specified in the bond text.
5. Freely tradable and issued under conditions qualifying them for trading on regulated financial markets.
6. Issued in accordance with applicable legal provisions (Articles 122 et seq. of the Commercial Code for debt securities; Articles 453 et seq. for negotiable instruments).
7. Held and cleared by Midclear S.A.L.
8. Subject to Articles 5 and 6 of this Decision.

Article 5: The maximum guarantee value provided by banks/financial institutions for private bonds issued by a single legal entity or related group (per Article 3 of Basic Decision No. 7055 dated August 13, 1998) must not exceed twenty percent (20%) of the basic own funds (per Basic Decision No. 6938 dated March 25, 1998) of the guarantee bank/institution.

Article 6: Banks/financial institutions must observe maximum maturities for bonds submitted to the Central Bank for operations under Articles 81, 100, 101, 102, and 106 of the Monetary and Loan Law. If bonds meet all conditions except statutory maturities, banks/institutions may deposit them with Midclear S.A.L., obtain a freeze certificate, and issue private bonds matching legal maturities upon prior submission to the Central Bank.

69 Text/Section/1 R /23 T -6-30/2019 Article 7: Commercial, debt, and other securities accepted as collateral for current account loans to registered banks/financial institutions must meet the conditions of previous articles.

Article 8: Banks purchasing bonds issued by the Central Bank may benefit from exemptions in paragraph (2) if conditions in paragraph (1) are met:

1. Bonds must have a maturity between three and five years, related to housing, agricultural, industrial, tourism, or handicraft financing granted after this decision.
2. Exemptions: a. Maximum foreign currency lending limit (if bonds are in foreign currency, equivalent to purchase price). b. Mandatory reserve on bank liabilities (if bonds are in LBP, equivalent to purchase price).

71 Text/Section/1 R /23 T /2014-12-31 Article 8 bis (Repeated): For application of this article, "Company" or "Companies" means:

1. Start-ups (Companies Startup).
2. Business incubators and accelerators, whose scope is limited to supporting development, success, and growth of start-ups in Lebanon through administrative support, public relations/networks, guidance, training, knowledge transfer, and logistical resources. ¹ Added by Interim Decision No. 11512 dated August 22, 2013 (Interim Circular No. 331).

72 3. Capital Venture companies, whose scope is limited to participating in the capital of Lebanese start-ups with growth/profit potential. Banks may benefit from interest-free USD loans up to seven years for equity participation in "Companies", without requiring guarantees, as follows: First: Participation in "Companies":

1. Central Board approval for loans to banks against participation, provided: a. "Company" is a Lebanese joint-stock company with named shares. b. Not financial or offshore companies. c. Shareholders are not subject to Articles 158 of Commercial Code and Article 152(4) of Monetary Law. Bank verifies this at its own responsibility. d. Bank commits to disposing of shares within seven years (Central Board may extend for justified reasons). ¹ Amended by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452). ² Amended by Interim Decision No. 12715 dated November 7, 2017 (Interim Circular No. 477).

72 bis 1 Text/Section/1 R /23 T /2023-12-31

1. Management fees do not exceed 2.5% max of: approved loan values for the first five years; invested amounts in start-ups for remaining years.
2. Central Board conditions approval on project impact (economic/social growth, job creation, national wealth, knowledge economy, intellectual capital).
3. Exceptions: Multiple banks can participate; loans to collective investment entities in Lebanon for financing "Companies".
4. Banks' participation max 80% of one company's capital (exceedable with stock options for project owners). ¹ Added by Interim Decision No. 12231 dated April 6, 2016 (Interim Circular No. 416). ² Amended by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452).

72 bis 2 5. Total bank participation max 4% of own funds (max 20% for Capital Venture, 10% for others). Central Board may exceed limits for justified reasons. 6. Banks must play an active role in developing, supporting growth, and managing "Companies". 7. Incubators/Accelerators can invest in start-ups only as compensation for support, up to 5% of each supported start-up's capital. 8. Managers of Incubators/Accelerators cannot directly/indirectly invest in supported start-ups. ¹ Amended by Interim Decision No. 12248 dated April 27, 2016 (Interim Circular No. 419), requiring non-compliant banks to regularize within three months. ² Amended by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452). ³ Added by Interim Decision No. 12134 dated November 20, 2015 (Interim Circular No. 408).

72 bis 3 Text/Section/1 R /23 T /2023-12-31 9. Banks/Capital Venture companies cannot use/accept funds from facilities outside Lebanon (except necessary services/equipment) or for loans to start-ups (except bridge financing max 6 months; convertible interest-free loans converted within 1 year). Central Board may grant exceptions for marketing/selling products/services abroad. 10. Banks/Capital Venture companies investing in holding companies must ensure: funds exclusively for start-ups meeting conditions; holding companies comply with all rules. ¹ Added by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452), then amended by Interim Decision No. 12490 dated March 17, 2017 (Interim Circular No. 454). ² Added by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452), with Article 7 requiring non-compliant banks to regularize within one year.

72 bis 4 Holding companies own >2/3 capital of invested companies, dispose shares after BDL approval, focus on one project, own all IP rights. Not applicable to Capital Venture companies structured as holding companies. 11. Banks withdrawing funds for participation must prove usage complies with conditions. 12. Banks ensure all benefiting companies deposit funds in special accounts under BDL/BCBS supervision.

Second: Loans granted by the Central Bank: 14. Banks deploy loans in US dollar securities (treasury bills, CDs...) or accounts offered by BDL. ¹ Amended by Interim Decision No. 12490 dated March 17, 2017 (Interim Circular No. 454). ² Added by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452). ³ Added by Interim Decision No. 12804 dated May 11, 2018 (Interim Circular No. 491). ⁴ Amended by Interim Decision No. 12715 dated November 7, 2017 (Interim Circular No. 477).

72 bis 5 Text/Section/1 R /23 T /2023-12-31 2. Margin calculation ensures 75% coverage of equity participation. Loan value set so net revenues equal 75% of participation value (Central Board may exceed for justified reasons). 3. Loans repaid upon maturity, early discount of deployed bonds, or share disposal. 4. Other loan terms (especially maturity) defined in contracts with banks. 5. Loan value can increase for subscribing to new shares, subject to all conditions.

Third: Disposal of "Company" shares & BDL rights:

1. Before disposal, bank notifies BDL and provides audit report on share value. Central Bank appoints expert(s) at bank's expense for valuation (arbitration per Article 155 if disputed).

72 bis 6 2. Upon disposal, proceeds used first to: a. Recover bank's own funds contribution. b. Repay Central Bank loan (max participation value). Excess can be reinvested within 6 months. c. Pay Central Bank 50% of remaining amounts/profits (after deducting profits related to bank's own funds). 3. If "Company" distributes annual profits, each participating bank pays 50% to Central Bank (after deducting own-fund-related profits). 4. Profits/amounts due to Central Bank (after admin fees/costs) are paid upon: a. Disposal of Capital Venture shares (not when they dispose start-up shares, as long as compliant). b. Disposal by Incubators/Accelerators of supported start-up participations. ¹ Amended by Interim Decision No. 11822 dated August 11, 2014 (Interim Circular No. 367). ² Added by Interim Decision No. 11822 dated August 11, 2014 (Interim Circular No. 367), then amended by Interim Decision No. 12134 dated November 20, 2015 (Interim Circular No. 408). ³ Amended by Interim Decision No. 12463 dated February 22, 2017 (Interim Circular No. 452).

72 bis 7 Text/Section/1 R /23 T /2023-12-31 Fourth: BDL Approval Conditions & Required Documents:

1. Banks submit application to Governor's office (3 copies, 1 original) with: a. ID of shareholders/founders/subscribers/executives (extract, passport, or commercial register copy). b. Signed profiles of specified persons (education, experience, financial evaluations, participation types/relationships). c. Criminal record extract (<3 months old). d. Participation ratio statement. e. Bylaws/admin structure (must be supervised by BDL/BCBS; Capital Venture bylaws must specify supervision). f. Economic feasibility study (3 years, budgets, P&L, cash flow, job creation). g. 3-year financial statements (for existing companies). h. Employee count/expected hires. i. Corporate governance procedures. j. Management agreement/fee schedule for Capital Venture companies. k. Other documents deemed necessary by BDL.

72 bis 8

• Provide BDL/BCBS with requested information on start-up participations (balances, shareholders, equity holders).
• Obtain prior Central Board approval for any bylaw amendments, subscriptions, or share transfers.

2. Banks provide BDL (2 copies) and BCBS (1 copy): a. Annually, before end of April: financial statements, shareholders list, board/executives/auditors list, company report (legal form, activity, sector, team, markets, investment value/ratio, expenses), annual auditor report on fund usage. b. Quarterly, within 1 month after quarter end: company activity, fund usage, KPIs, profitability, action plan, all investments (direct/capital increase/share purchase/bridge financing/convertible loans, ratio, expenses), next quarter forecasts. Any changes to information must be reported promptly.

72 bis 9 Text/Section/1 R /23 T /2023-12-31