Banks in Lebanon to Maintain Daily Net Trading Position Against LBP at 1% of Shareholders’ Equity
New Guidelines for Lebanese Banking Sector
The Lebanese banking sector has been issued new guidelines regarding its daily net trading position against the Lebanese Pound (LBP). According to a recent circular from the Banking Control Commission (BCC), banks are now required to maintain their daily net trading position against LBP at no more than 1% of shareholders’ equity.
Global Position Limit
Additionally, the global position, which takes into account either all debit or credit positions of all foreign currency accounts, whichever is bigger, cannot exceed 40% of shareholders’ equity. This measure aims to ensure the stability of the banking sector and prevent excessive exposure to market fluctuations.
Loan Classification and Provisioning
Loan Grading System
Banks in Lebanon are also required to classify their loans into five categories for supervisory purposes: standard, watch, substandard, doubtful, and bad debt. A loan grading system with ten categories, including seven for performing loans and three for non-performing loans (NPLs), is also mandatory.
Provisioning Rules
Provisioning rules are aligned with those defined by the Basel Committee on Banking Supervision. Non-performing loans have their interest income reserved, while provisioning is partial on doubtful debt and integral on bad debt.
Legal Reserve and Provision for General Banking Risk
Provisions Against Doubtful Debts and Bad Debts
The provisions built up against doubtful debts and bad debts, approved by the BCC, are not subject to taxes. Banks must also build up provisions against expected credit losses on financial assets and liabilities involving credit risks, in compliance with International Financial Reporting Standard 9 (IFRS 9).
Types of Provisions
These provisions include:
- Collective provisions of 2% of credit risk-weighted assets for all credit portfolios
- General provisions built up against possible future losses in assets that haven’t witnessed a deterioration indicator
- Special provisions
International Standards
Compliance with International Standards
Banks in Lebanon must comply with international standards for the banking industry, including those related to:
- Regulation and internal audit
- Fighting money laundering and terrorist financing
- Legal compliance
- Tax evasion
- Financial stability
Internal Audit and Control Units
Operative banks in Lebanon are also required to establish:
- Internal audit and control units
- Audit committees
- Risk committees
Cybercrime Policies and Compliance Departments
They must also develop policies against cybercrime and establish compliance departments.
Financial Stability Standards
Recovery Plans and Business Continuity Plans
Banks must develop recovery plans consistent with the Key Attributes of effective Resolution Regimes adopted by the Financial Stability Board. They must also develop business continuity plans to ensure business continuity in case of disaster or any other event that may impede them from doing business normally.
Conclusion
The implementation of these new guidelines is expected to enhance the stability and resilience of the Lebanese banking sector, while also promoting transparency and compliance with international standards.