Distribution of Main Credit Portfolios

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Basic Circular for Banks No. 115

We enclose herewith a copy of Basic Decision No. 9794 dated 14/12/2007 concerning the distribution of main credit portfolios.

Beirut, on 14 December 2007 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah

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Basic Decision No. 9794 Distribution of Main Credit Portfolios

The Governor of the Central Bank of Lebanon, Based on the Monetary and Discount Law, particularly Articles 174 and 70 thereof, And based on Basic Decision No. 9302 dated 1/4/2006 concerning the implementation of the Basel II Agreement on Capital Adequacy, And based on the decision of the Central Council of the Central Bank of Lebanon taken in its session held on 12/12/2007, Decides as follows:

Article One: All banks operating in Lebanon must distribute loans and advances according to the following main portfolios:

1. Retail Loans Portfolio (Portfolio Retail) First: The retail loans portfolio includes: 1 - All consumer loans (including car loans, student loans, education loans, and other consumer loans). 2 - Revolving Credits (including credit cards and loans granted for purely consumer or personal purposes and not related to professional or commercial objectives). Second: The following two conditions must be met in these loans:

• a. They must be granted to one person or to several related persons.
• b. The volume of these loans granted to one person or to several related persons must not exceed the equivalent of 100,000 USD. Related persons are defined as several debtors whose debt is repaid from accounts belonging directly or indirectly to one person.

1 - This paragraph was amended by Article One of Intermediary Decision No. 12068 dated 8/9/2015 (Intermediary Circular No. 396).

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1 - Small & Medium Entities Portfolio The Small & Medium Entities portfolio includes:

• a. Loans granted to self-employed professionals such as doctors, engineers, and lawyers to finance their professional activities.
• b. Loans granted to sole proprietorships or to companies (partnerships, limited partnerships, limited liability companies, or closed companies including holding companies, or joint stock companies, or limited liability companies, or offshore companies) that meet at least one of the following conditions:
  • Their annual business volume does not exceed the equivalent of 10 million USD.
  • Their asset volume does not exceed the equivalent of 10 million USD.
  • Their number of employees does not exceed 60 employees.
• c. Loans granted to individuals to finance their private investments, where the sources of repayment are through the revenues of companies they own that meet at least one of the conditions specified in paragraph (b) of item 2.

1 - This item was amended by Article Two of Intermediary Decision No. 12068 dated 8/9/2015 (Intermediary Circular No. 396).

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3 - Corporate Loans Portfolio (Portfolio Corporate) The Corporate Loans Portfolio includes:

• a. Loans granted to sole proprietorships or to companies (partnerships, limited partnerships, limited liability companies, or closed companies including holding companies, or joint stock companies, or limited liability companies, or offshore companies) that do not meet any of the conditions specified in paragraph (b) of item 2 of this Article.
• b. Loans granted to insurance companies, regardless of the size of their business.
• c. Loans granted to individuals to finance their private investments, where the sources of repayment are through the revenues of companies they own, and which do not meet any of the conditions specified in paragraph (b) of item 2 of this Article.

4 - Housing Loans Portfolio (Portfolio Housing) The Housing Loans Portfolio includes:

• a. Loans granted to persons who own houses with the intention of using them for their own residence.
• b. Loans granted to persons who own houses with the intention of renting them out.

5 - Public Sector Entities Loans Portfolio (Public Sector Entities portfolio) This portfolio includes loans granted to public sector entities that enjoy independent legal personality and are allowed by public law, their establishment law, or any special law to borrow from banks. Accordingly, two types of public sector entities can be distinguished:

• a. The central state and local authorities (such as municipalities) and their affiliated institutions, which have the ability to collect revenues or income on a periodic and continuous basis and cannot be declared bankrupt due to their special legal form.
• b. Public institutions with a commercial and industrial character that operate in competitive commercial or service markets.

6 - Claims Secured by Commercial Real Estate Portfolio (Claims secured by commercial real estate) This portfolio includes loans secured by properties used for commercial purposes, such as land or commercial buildings, where the primary source for loan repayment is the cash flows generated from the revenues of this real estate collateral. Cash flows are defined as any revenue resulting from sales, leasing, investment, financial leasing, partnership, participation, or the creation of real estate investment funds, or any type of investment activity on the property provided to the bank as collateral.

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Article Two: For the purpose of calculating credit risks as referred to in Article Three of the Standardized Approach of Basic Decision No. 9302 dated 1/4/2006, it is assumed that the Regulatory Retail Portfolio (Portfolio Retail Regulatory), which includes both the retail loans portfolio and the small and medium entities portfolio, meets the following conditions collectively:

1. The loan must be eligible within both the retail loans portfolio and the small and medium entities portfolio according to items (1) and (2) of Article One above.

2. The Regulatory Retail Portfolio must exhibit a sufficient degree of granularity (Granularity), such that the total of retail loans and small and medium entities loans granted to one actual person, legal person, or to a related group as defined in the regulatory texts issued by the Central Bank of Lebanon, does not exceed 0.2% of the total of this portfolio. This is after excluding non-performing loans as defined in Article Three below, such that all debts exceeding 0.2% of the total portfolio are excluded from the calculation of the total debt ratio of the new total, until reaching a regulatory retail portfolio diversified to a sufficient degree that does not include any debt exceeding 0.2% of the debts constituting this portfolio.

3. The maximum total of facilities (on and off-balance sheet) granted to one actual person, legal person, or to a related group must not exceed the equivalent of 750,000 USD, before taking into account any acceptable collateral or guarantees. In the case of the existence of several institutions or several subsidiaries of a small group, the maximum limit applies to the total balance of these facilities granted to the group as a whole.

4. The loans must not be granted specifically to persons or small and medium institutions to finance the purchase of financial instruments (such as bonds and shares...), whether listed or unlisted on the stock exchange.

5. Loans that meet the definition specified in item (6) of Article One above must not be included in this portfolio.

Article Three: For the purpose of applying the provisions of this decision, a borrower is considered in default within any of the aforementioned portfolios in each of the following two cases:

1. If it is established that the borrower has become unable to meet any of his obligations towards the bank, even if the bank has not resorted to pursuing the client by exercising his legal right to take possession, liquidate, or execute the collateral, guarantees, or commitments provided by the borrower when granting the loan.

2. If the borrower delays for a period exceeding 90 days from the due date of his obligations towards the bank.

In addition to the two cases mentioned above, a borrower is considered in default in the current account (Overdraft) merely upon the passage of 90 days after exceeding the facility limit granted to him and specified in the original, renewed, and authenticated account opening contract according to the rules. This applies to credit accounts that accidentally become debited and whose balance has not been settled after 90 days.

Article Four: This decision shall be implemented upon its issuance.

Article Five: This decision shall be published in the Official Gazette.

Beirut, on 14 December 2007 Governor of the Central Bank of Lebanon Riad Tawfiq Salamah