Liquidation of Real Estate Properties, Shares, and Participations Acquired in Recovery of Bad or Doubtful Debts pursuant to Article 154 of the Code of Money and Credit

Text / Section 1 / Circular No. 78 / Date: 2022-7-31

Basic Circular for Banks No. 78
(Also addressed to Supervision Commissioners)

We submit for your attention the Basic Decision No. 7740 dated 21/12/2000 concerning the liquidation of real estate properties, shares, and partnership participations acquired in recovery of bad or doubtful debts pursuant to the provisions of Article 154 of the Code of Money and Credit. Beirut, December 21, 2000 Governor of the Central Bank of Lebanon Riad T. Salamé

1 - Addressed to Supervision Commissioners pursuant to Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).

Basic Decision No. 7740
Liquidation of Real Estate Properties, Shares, and Partnership Participations Acquired in Recovery of Bad or Doubtful Debts Pursuant to the Provisions of Article 154 of the Code of Money and Credit

The Governor of the Central Bank of Lebanon,
Having regard to the Code of Money and Credit, particularly Articles 154 and 174 thereof; Having regard to the Executive Law by Decree No. 11614 dated 4/1/1969 concerning the acquisition of real estate rights in Lebanon by non-Lebanese; Having regard to the decision of the Central Council of the Central Bank of Lebanon taken in its meeting held on 20/12/2000; Decides as follows:

Article 1: Banks licensed by the Banks Supervision Committee, pursuant to the provisions of Article 154 of the Code of Money and Credit for the temporary acquisition of real estate in recovery of bad or doubtful debts, must provide a copy of a comprehensive real estate certificate to both the Legal Affairs Department at the Central Bank of Lebanon and the Banks Supervision Committee, indicating the temporary acquisition of real estate purchased in accordance with Article 154 of the Code of Money and Credit, immediately upon registration under the name of the concerned bank.
In case final registration of the temporarily acquired real estate is not possible, a copy of the notarized sale contract, authenticated according to legal procedures and recorded with the assistant real estate registrar or the real estate judge, shall suffice.

1 - This Article was amended by Article 1 of Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).

Article 2: Banks must exert their utmost effort to liquidate the real estate properties, shares, or partnership participations temporarily acquired pursuant to Article 154 of the Code of Money and Credit.
To sell real estate properties, shares, or partnership participations temporarily acquired pursuant to Article 154 of the Code of Money and Credit, such sales must be conducted in US Dollars (Fresh Dollars) or its equivalent in Lebanese Lira based on the daily announced exchange rate of the Lebanese Lira against the US Dollar for transactions executed on the electronic foreign exchange platform "Sayrafa" on the day preceding the sale date.

Article 3: The Central Council may impose upon the concerned bank any procedure it deems necessary for the liquidation of real estate properties, shares, or partnership participations temporarily acquired pursuant to Article 154 of the Code of Money and Credit.

Article 4: Each bank that has liquidated real estate properties, shares, or partnership participations acquired pursuant to Article 154 of the Code of Money and Credit must provide a copy of the documents proving the liquidation process to both the Legal Affairs Department at the Central Bank of Lebanon and the Banks Supervision Committee.

Article 5:
1 - Each bank that fails to liquidate the real estate properties, shares, or partnership participations acquired by it pursuant to Article 154 of the Code of Money and Credit within the two-year period stipulated in said Article must establish a "Real Estate Liquidation Reserve" or a "Shares and Partnership Participations Liquidation Reserve" in Lebanese Lira equivalent to the value of the corresponding debts, regardless of the currency of these debts.

1 - This Article was amended by Article 1 of Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).
2 - This paragraph was added by Article 2 of Interim Decision No. 13465 dated 27/7/2022 (Interim Circular No. 637).

2 - The reserve referred to in paragraph (1) of this Article shall be established over a period of five years at a rate of one-fifth (1/5) of the value of these debts annually.
The value of each installment shall be calculated upon establishment according to the average exchange rate as per the Central Bank of Lebanon bulletin, without resulting in the refund of any amounts deposited as a reserve according to a higher rate than the aforementioned rate, starting from:

• a) The financial year 1998 regarding real estate whose liquidation period expired before and during said year and remains unliquidated.
• b) The financial year 1999 and each subsequent year during which the liquidation period of real estate expires.
• c) The financial year 1999 regarding shares and partnership participations whose liquidation period expired before and during said year and remains unliquidated.
• d) The financial year 2000 and each subsequent year during which the liquidation period of shares and partnership participations expires.

3 - The reserve referred to in paragraph (1) of this Article may be established over a period of twenty years at an annual rate of one-twentieth (1/20) against unliquidated real estate, shares, or partnership participations acquired in recovery of debts subject to the "first" paragraph of clause (c) of point (4) of Article 2 of Basic Decision No. 7694 dated 18/10/2000.

4 - Banks may request the Central Council of the Central Bank of Lebanon to approve the application of paragraph (3) above to all unliquidated real estate, shares, or partnership participations acquired in recovery of bad or doubtful debts, provided that the concerned bank has applied the provisions of paragraph (4) of Article 2 of Basic Decision No. 7694 dated 18/10/2000 to at least 50% of its total portfolio of non-performing debts specified in the aforementioned paragraph before December 31, 2007.

1 - The latest amendment to this paragraph was introduced by Article 4 of Interim Decision No. 9330 dated 15/5/2006 (Interim Circular No. 109).
2 - This date was amended by Article 4 of Interim Decision No. 9457 dated 9/11/2006 (Interim Circular No. 127), originally reading: December 31, 2006 (Interim Circular No. 109).

5 - The reserve referred to in paragraph (1) of this Article may be established over a period of twenty years at an annual rate of one-twentieth (1/20) within the limits of customer debts whose settlement is carried out under the provisions of "Article 2 repeated" affected by Basic Decision No. 7694 dated 18/10/2000.

6 - Contrary to the provisions of paragraph (2) of this Article, the reserve referred to in paragraph (1) thereof shall be established over a period of twenty years at an annual rate of one-twentieth (1/20) against unliquidated real estate, shares, or partnership participations whose liquidation period expires after July 20, 2018.

Article 6: The reserve mentioned in "Article 5" above shall remain valid as long as the real estate, shares, or partnership participations acquired have not been actually liquidated.

Article 7: The concerned banks must consult the Central Council of the Central Bank of Lebanon regarding real estate, shares, or partnership participations acquired pursuant to Article 154 of the Code of Money and Credit that have not been liquidated, after the expiration of the period granted to fully establish the required reserve according to the cases stipulated in "Article 5" above.

Article 8: Banks are prohibited from distributing profits resulting from the sale of real estate, shares, or partnership participations acquired in recovery. Profits resulting from this sale shall be automatically transferred to the "Undistributable General Reserve" item:

• Profits resulting from this sale.
• Real estate and partnership participations reserve released as a result of this process.

1 - This point was added by Article 5 of Interim Decision No. 9457 dated 9/11/2006 (Interim Circular No. 127).
2 - This point was added by Interim Decision No. 12843 dated 20/7/2018 (Interim Circular No. 499).
3 - The latest amendment to this Article was introduced by Article 1 of Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).
4 - This Article was amended by Article 1 of Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).
5 - The latest amendment to this Article was introduced by Article 13 of Interim Decision No. 13259 dated 26/8/2020 (Interim Circular No. 567).

Article 9: Shares and partnership participations acquired by banks in recovery of bad or doubtful debts in the capital of certain companies shall be subject to the provisions of Article 153 of the Code of Money and Credit throughout the period of establishing the "Shares and Partnership Participations Liquidation Reserve" mentioned in Article 5 above.

Article 10:
1 - The Supervision Commissioner appointed at the concerned bank must periodically verify the proper application of the provisions of this Decision and inform the Governor of the Central Bank of Lebanon immediately upon discovering any violations.
2 - The Banks Supervision Committee is tasked with periodically verifying the compliance of concerned banks with the provisions of this Decision.

Article 11: Any bank violating the provisions of this Decision shall be referred to the High Banking Authority and shall be subject to the administrative penalties stipulated in Article 208 of the Code of Money and Credit.
Furthermore, such bank and its responsible officials shall also be subject to criminal prosecution based on the provisions of Article 16 of the Executive Law by Decree No. 11614 dated 4/1/1969.

Article 12: The following regulatory provisions issued by the Central Bank of Lebanon are hereby repealed:

• Decision No. 6909 dated 26/2/1998 attached to Circular for Banks No. 1602 dated 26/2/1998.
• Decision No. 7295 dated 21/5/1999 attached to Circular for Banks No. 1728 dated 21/5/1999.
• Decision No. 7535 dated 2/3/2000 attached to Circular for Banks No. 1803 dated 2/3/2000.
• Decision No. 7695 dated 18/10/2000 attached to Circular for Banks No. 1858 dated 18/10/2000.

1 - This Article was amended by Article 1 of Interim Decision No. 8687 dated 3/4/2004 (Interim Circular No. 53).
2 - The circular numbers are according to the old numbering system.

508 bis
Text / Section 1 / Circular No. 78 / Date: 2022-7-31

Article 13: This Decision shall enter into force upon its issuance.

Article 14: This Decision shall be published in the Official Gazette.
Beirut, December 21, 2000
Governor of the Central Bank of Lebanon
Riad T. Salamé

(Pages 509 and 510 have been cancelled)