Lebanese Banks Must Comply with International Standards for Foreign Currency Accounts

New Regulations Aim to Ensure Stability in the Lebanese Banking Sector

In a move to ensure stability in the Lebanese banking sector, the country’s regulatory authorities have introduced new rules governing foreign currency accounts. The regulations are aimed at protecting the capital of Lebanese banks and ensuring their stability in the face of currency volatility.

Key Requirements

• Banks must maintain a structural position of at least 60% of shareholders’ equity in foreign currencies to hedge against exchange rate fluctuations.
• This means that for every dollar of shareholder equity, banks must hold at least 60 cents in foreign currencies.
• Loans must be classified into five categories:
  • Standard
  • Watch
  • Substandard
  • Doubtful
  • Bad debt
• Banks must adopt a loan grading system with ten categories for performing and non-performing loans.

Provisioning Requirements

• Banks must provision for potential losses on their foreign currency accounts, with the amount of provisioning regulated by the monetary authorities.
• Provisions must be built up in accordance with International Financial Reporting Standard 9 (IFRS 9), which requires banks to classify financial assets into three categories:
  • Performing
  • Non-performing
  • Expected to default

Additional Requirements

• Banks must maintain a legal reserve and provision for general banking risk.
• Banks must comply with international standards for fighting money laundering and terrorist financing.
• Banks must implement policies to prevent cybercrime and establish a compliance department to ensure that they are in compliance with all relevant laws and regulations.

International Financial Reporting Standards

• Lebanese banks must comply with international financial reporting standards, including IFRS 9, which requires them to classify financial assets into three categories:
  • Performing
  • Non-performing
  • Expected to default
• Banks must develop a recovery plan consistent with the Key Attributes of effective Resolution Regimes adopted by the Financial Stability Board.

Conclusion

The new regulations are aimed at ensuring the stability and resilience of the Lebanese banking sector, as well as compliance with international standards and best practices. By implementing these measures, Lebanese banks can better withstand currency volatility and maintain confidence in the financial system.