The Association of Banks in Lebanon (ABL) released its Circular No. 027/2020 in which it spotted the light on the most important issues raised during the monthly meeting held on January 29, 2020 between Banque Du Liban (BDL), the Banking Control Commission (BCCL), and the ABL. In detail, the Central Bank Governor notified the ABL about issuing a circular encompassing all the measures taken by the ABL to protect the economy, shield the Lebanese Pound, and manage liquidity. Said measures include the following:

1-    Ability to freely use inward fresh money coming from outside Lebanon after the 17^th of October, 2019.

2-    Transfers abroad (excluding fresh money) will be strictly limited to covering urgent personal expenses and will be capped at $50,000 per year. As far as financing the imports of agricultural & industrial raw materials, a ceiling of 0.5% of deposits will be applied every year.

3-    All monetary transactions in foreign currency inside Lebanon, including transfers, checks, or cards will not be subject to any restrictions.

4-    Cash withdrawals in Lebanese Pound will be capped at 25 million LBP per depositor per month, while implementing anti-money laundering and counter terrorism financing measures.

5-    Card usage outside Lebanon will be subject to some limitations.

6-    Deposited checks will be paid in a bank account, and not in cash or on a teller’s counter.

The issue of fresh money was also discussed during the meeting, considering it as a serious gateway to restoring depositor confidence instead of approaching exchange dealers, noting that foreign transfers to Lebanon still exceed the $4 billion mark per year. The Central Bank Governor hinted that ongoing calls are being conducted with international monetary institutions willing to cooperate with banks to provide funding to the Lebanese economy through a tri-party agreement involving the local banks, the international institutions, and the Lebanese private sector.

The minutes of the meeting also stipulate that the Central Bank will issue 2 regulatory circulars about the implementation of IFRS 9. The ABL’s working team’s comments on said circulars came as follows:

1-    With regard to the increase in the risk weights on banks’ placements with BDL in foreign currency from 50% to 150%, the ABL’s delegated team requested to adopt a 100% risk weight instead in order to differentiate from the sovereign risk. The Governor’s feedback was to reconsider the risk weights to be applied on deposits that mature in less than one year.

2-    The ABL delegation did not have any objections on the new capital adequacy ratios (CAR) of 10.5% for total CAR, 8.5% for Tier 1 CAR, and 7% for Common Equity Tier 1 CAR. The delegated team however objected tying dividend distribution to higher thresholds of 12% for total CAR, 10% for Tier 1 CAR, and 7% for Common Equity Tier 1 CAR as they do not conform to Basel’s profit distribution method.

3-    The new circular will require increasing the Regulatory Expected Credit Loss on the loans portfolio by five folds. The ABL’s team had some reservations on this issue as it considers all the loan portfolio as Stage 2, regardless of the risk classifications applied based on circular 143 and BCCL circular 293.

4-    The ABL team requested that all provisions constituted on placements with BDL and with the government be classified under Tier 2 capital in the respective currency.

The Governor promised to take into consideration the remarks of the ABL delegation in conjunction with the BCCL before issuing the circular.

In this vein, the BDL issued intermediate circular 541 on January 30, 2020 requesting Lebanese lenders to settle their debt securities and their Certificate of Deposit in bank client accounts operating in Lebanon.