On August 27, 2020, the Central Bank issued basic circular n˚154 pertaining to exceptional measures to reactivate the activities of banks operating in Lebanon.

Here are the main provisions of the circular:

FAIR VALUE ASSESSMENT

According to the Circular, each Bank is required to carry out a fair value assessment of assets and liabilities that will enable it to set up a plan in accordance with basic decision No. 6939 of 25/25/1998.

The plan will allow Banks to:

• Gradually comply with all legal and regulatory banking requirements, especially with those that relate to liquidity and solvency.

• Increase the level of activities and services provided to their clients to the pre-October 2019 level.

INCITING CLIENTS TO DEPOSIT A PERCENTAGE OF TRANSFERRED FUNDS

The Circular compels Banks to incentivize certain clients to deposit in a special term deposit account a percentage of funds that were transferred abroad.

The circular provides that:

• Clients who have transferred abroad at least 500 000 USD or its equivalent in foreign currencies between July 1, 2017 and August 27, 2020 are encouraged to deposit an amount that is equivalent to 15% of the transferred amounts  in a special term deposit account for a period of five years.

• Importers are encouraged to transfer back to Lebanon an amount that is equivalent to 15% of the value of documentary letter of credits granted 2017, 2018 or 2019. The transferred amount is to be deposited in a special term deposit account for a period of five years.

• Bank CEOs, members of the Board of Directors, large shareholders, executive managers, and Politically Exposed Persons (PEPs) who have transferred abroad at least 500 000 USD or its equivalent in foreign currencies between July 1, 2017 and August 27, 2020 are encouraged to deposit an amount that is equivalent to 30% of the transferred amounts in a special term deposit account for a period of five years.

The Circular exempts banks from reserve requirements on these special accounts and states that the deposited funds will be used by banks to facilitate foreign operations that stimulate the national economy.

To incentivize Clients to comply with the request of the Banks, the Circular provides that:

• Interest that may be paid on the special term deposit accounts will not be subject to the limits set in basic decision No. 13100.

• Banks are required to adopt a legal framework that will restore the confidence of the clients in getting their deposits back under any circumstances at the end of the term.

• Banks are required to provide their clients with a certificate of compliance with the provisions of the Circular.

CREATION OF AN EXTERNAL ACCOUNT

Banks are required to constitute an external account with their foreign correspondents that amounts to 3% of all foreign currency deposits as of July 31, 2020.

This account must remain open until February 2^nd, 2021.

RECONSTITUTION OF CAPITAL

In accordance with the provisions of the Circular, Banks must submit to the Central Council at the BDL a request to reconstitute/raise their capital to the required levels by the end of the first quarter of the year 2021.

Banks must offer their depositors the option to convert their deposits into shares or into redeemable, tradable and convertible bonds (not subject to the capping limits on interest rates set in basic decision number 13100) with a priority to subscribe to any future capital increase, subject to the following conditions:

• Banks must provide depositors with a detailed and clear explanation of the terms and conditions of the operation.

• Banks must provide depositors who are planning to convert their deposits into shares with an updated report showing the fair value of the shares.

• Banks must list all their shares on the Beirut Stock Exchange.

• Banks must separate the duties of the Chairman of the Board of Directors from the duties of Managers pursuant to article 153 of the code of commerce.

In case the offered shares and redeemable, tradable & convertible bonds are sold in fresh money terms, the sale amount can be transferred abroad in accordance with Basic decision No. 13217.  

SANCTIONS

Banks that fail to comply with the provisions of the Circular will be referred to the Higher Banking Commission and will be subject to penalties pursuant to the provisions of the Code of Money and Credit.  

It should be noted that the Circular provides that anyone who fails to abide by its provisions shall be subject to sanctions pursuant to Law No. 44 of November 23, 2015 on fighting Money Laundering and Terrorist Financing.