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:
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:
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:
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 2nd, 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:
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.
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.