Key Prudential Regulation

In order to preserve the stability of the banking system, the monetary authority has imposed on banks a number of prudential banking measures, the most of which are as follows:

1- Lending to related parties (e.g. shareholders, chairman and members of the board of directors, top management and their families) can not exceed 15% of shareholders' equity and needs to be secured. 

2- As required reserves on Lebanese Pound (LBP) accounts, banks have to hold with the Central Bank of Lebanon the sum of 25% of their demand liabilities in LBP and 15% of their term and other liabilities in LBP. These reserves pay a zero interest rate but certain deductions are allowed under a number of special lending schemes to some productive sectors and activities.

3- Banks have to hold with the Central Bank 15% of all their liabilities denominated in foreign currencies (FC). These deposits are remunerated on the basis of prevailing market interest rates and according to their maturities. In addition, banks must maintain at least 10% of their liabilities denominated in foreign currencies as net liquid assets.

4- Banks are required to meet a solvency ratio of total capital to risk weighted assets of at least 12% (much above the the minimum 8% required by the Basle Committee). It is worth noting that Lebanese banks are also getting prepared to meet the challenging requirements of Basel II agreement once it is finalized) 

5- Banks can only lend a single entity (be it a customer or a group owned by the same customer) 20% of a bank's shareholders' equity. Credits termed 'big risk' (credits exceeding 15% of shareholders' equity) should not exceed 8 times a bank shareholders' equity.

6- For foreign exchange exposure, banks are allowed to hold a daily maximum net trading position on all foreign currency accounts, not exceeding 1% of the bank's core capital, while the global position can not exceed 40% of the bank's core capital. The global position takes the sum of either all debit or credit positions of all foreign currency accounts, whichever bigger, added to it the absolute value of gold position. A structural position of 60% of the core capital is authorized to hedge the capital denominated in LBP against changes in the exchange rate.

7- Minimum capital for new banks is LBP 10 billion (approximately USD 6.6 million) for head office and LBP 250 million for each additional branch.

8- Accounting practices standards are in conformity with international standards, namely IAS 1-32, 37 and 39.

9- Rules for Loan Classification and Provisioning are in conformity with those defined by the Basle Committee on Banking Supervision.

10-Banks have to develop Internal Control Policies and Procedures in accordance with the principles for the Assessment of Internal Control System issued by the Basle Committee on Banking Supervision.