Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

LEBANON

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of February 28, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: July 1, 1993.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Lebanon is the Lebanese pound.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementExchange rates are market determined, but the authorities may announce buying or selling rates for certain currencies and intervene when necessary in order to maintain orderly conditions in the exchange market. In practice, the exchange rate remains within a very narrow band vis-à-vis the dollar. Banks are allowed to engage in spot transactions in any currency except Israeli new sheqalim.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks are permitted to engage in forward operations for their own account for hedging purposes only. Forward operations for the accounts of clients are allowed, provided a minimum margin deposit of 20% is made by the client for each speculative operation.
References to legal instruments and hyperlinksCirculars issued by the Banque du Liban (BDL) and the Banking Control Commission; Code of Money and Credit; www.bdl.gov.lb.
Arrangements for Payments and Receipts
Prescription of currency requirementsBanks and financial institutions are prohibited from opening debit or credit accounts in pounds for nonresident financial entities.
Controls on the use of domestic currency
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsThese are prohibited for banks for their own accounts, except for hedging purposes.
Credit operationsYes.
Payments arrangements
Regional arrangementsLebanon applies the GAFTA and the Lebanese-Syrian Trade Agreement.
Administration of controlNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
References to legal instruments and hyperlinksCirculars issued by the BDL; www.bdl.gov.lb; www.economy.gov.lb.
Resident Accounts
Foreign exchange accounts permittedAll accounts are subject to the Law on Fighting Money Laundering (dealing also with terrorism financing).
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNonfinancial entities are permitted to hold these accounts abroad.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksFighting Money Laundering Law No. 318 amended by Law 547 to include terrorism financing; www.bdl.gov.lb/circ/en/Law318e.htm.
Nonresident Accounts
Foreign exchange accounts permittedAll accounts are subject to the Law on Fighting Money Laundering (dealing also with terrorism financing).
Domestic currency accountsNonresident individuals, nonbanks, and nonfinancial entities may freely hold onshore accounts in pounds. Nonresident banks and financial entities are not allowed to have debit or credit accounts in pounds (including fiduciary accounts) with resident banks and financial institutions, except for (1) purchasing treasury bills and BDL certificates of deposit in pounds, after obtaining approval from the BDL and on the condition that the funds used for this purpose were originally foreign currency deposits converted to pounds specifically for this purpose; and (2) guarantees issued by nonresident banks against loans in pounds that are for commercial or investment activities in Lebanon. All accounts are subject to the Law on Fighting Money Laundering.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksCirculars issued by the BDL and the Banking Control Commission; Code of Money and Credit; Fighting Money Laundering Law No. 318; www.bdl.gov.lb.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance import depositsImporters are required to deposit with a bank a margin equivalent to 15% of an LC value and in the same currency as the LC.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listIn general, import licenses are issued mainly for health, security, and fraud-prevention reasons and apply to about 3% (in value terms) of all goods imported into Lebanon. Licenses generally apply to imports of certain animal and plant products, medically hazardous substances, arms, ammunition, explosive materials, and certain telecommunications equipment and petroleum products, as well as a group of industrial products.
Other nontariff measuresImport prohibitions apply to a list of products for the protection of health and the environment, as well as for safety and security reasons. All imports from Israel are prohibited. In addition, certain commercial entities listed under the Arab Boycott List are banned from trading with Lebanon.
Import taxes and/or tariffsEffective January 1, 2007, Lebanon started using the Harmonized System Tariff, 2007 version. Previously, Lebanon used the Harmonized System Tariff, 2002 version. Customs valuation is on the basis of c.i.f. value; customs duties are generally ad valorem. The WTO valuation principle is also applied. The ad valorem rates vary between zero and 70%. There are preferential duty rates for goods imported for industrial, agricultural, or public use. In addition to ad valorem duties, which apply to about 93% of products, the following other methods are used: (1) the bracket-based calculation in the case of cars, in which the value of a car is divided into two brackets and the total duty is the sum of the duties applied at each rate; (2) duties calculated on the basis of units of measure, such as weight or volume (e.g., gasoline); and (3) a combined duty calculated on an ad valorem and specific basis, so that the higher amount is collected (e.g., tropical fruits and chickens). In addition, excise duties are collected on alcoholic and nonalcoholic beverages, cars, cement, and fuels.
Lebanon applies the Arab Free Trade Area Convention and has bilateral free trade agreements with Egypt, Iraq, Jordan, Kuwait, Saudi Arabia, the Syrian Arab Republic, and the United Arab Emirates. In addition, Lebanon signed an interim agreement with the EU on trade and commercial issues on March 1, 2003, which formally triggered the start of the 12-year transition period to free trade. On April 1, 2006, the government of Lebanon and the EU announced the entry into force of the formal association agreement, which replaced the interim agreement.
A VAT of 10% is levied on all goods and services, whether imported or produced domestically, except for some exempted goods and services.
State import monopolyImports of some goods are reserved for the government.
References to legal instruments and hyperlinkswww.customs.gov.lb; www.finance.gov.lb; www.economy.gov.lb; www.dellbn.cec.eu.int/en/eu_and_lebanon/06/index.htm.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesExports of a limited number of products are prohibited for reasons of biodiversity conservation, forest conservation, ecology, security, and health.
Without quotasYes.
Export taxesNo.
References to legal instruments and hyperlinkswww.customs.gov.lb; www.finance.gov.lb; www.economy.gov.lb.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersAll accounts are subject to the Law on Fighting Money Laundering (dealing also with terrorism financing).
References to legal instruments and hyperlinksFighting Money Laundering Law No. 318, dated April 20, 2001.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsLimits are imposed on the acquisition of shares in companies, depending on the nature of the company. No limitations apply to banks and financial institutions.
Sale or issue abroad by residentsBanks and financial institutions require prior BDL approval to issue shares locally or abroad.
Bonds or other debt securities
Purchase locally by nonresidentsNonresident financial entities must obtain approval from the BDL when purchasing treasury securities or BDL certificates of deposit denominated in pounds, dollars, or euros. Funds used to purchase treasury securities or certificates of deposit in pounds must originally have been deposits in foreign currencies that are converted to pounds specifically for this purpose.
Sale or issue locally by nonresidentsPrior BDL approval is required.
Purchase abroad by residentsThe purchase of sovereign bonds (except from G-10 countries) with at least a BBB rating by Standard and Poor’s or an equivalent rating of another internationally recognized rating agency is limited to 50% of Tier I capital of banks and financial institutions. This limitation applies also to the purchase of corporate bonds, which should be issued by corporations supervised by a country rated at least BBB. The total value of corporate bonds and structured financial instruments with one issuer may not exceed 10% of Tier I capital.
Sale or issue abroad by residentsPrior BDL approval is required by banks and financial institutions to issue bonds locally or abroad.
On money market instrumentsThe regulations governing bonds or other debt securities apply.
On collective investment securities
Purchase locally by nonresidentsThe acquisition by residents or nonresidents of more than 10% of the shares of a collective investment company is subject to prior BDL approval. Mutual fund managers are required to report the acquisition of more than 10% of the total value of a mutual fund to the BDL and the Banking Control Commission.
Sale or issue locally by nonresidentsThe promotion of and trading in foreign collective investment securities are subject to prior BDL approval.
Purchase abroad by residentsThe limit for banks to purchase parts or stocks in collective investments securities is set by Article 153 of the Code of Money and Credit.
Sale or issue abroad by residentsThe regulations governing bonds or other debt securities apply.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsThe regulations governing bonds or other debt securities apply.
Purchase abroad by residentsThere are no controls on purchases of derivatives or any financial instruments from abroad. However banks, unlike other financial institutions and brokerage firms, may engage, for their own accounts, in derivative transactions locally or abroad for hedging purposes only. Banks and financial institutions are prohibited from carrying out for their own account, with nonresident sectors and in any currency, operations on structured financial instruments, except for capital-guaranteed structured financial instruments rated A and above, provided their total nominal value does not exceed 25% of Tier I capital of the concerned banks and financial institutions. When the structured financial products are issued by companies, the latter should be supervised by countries rated at least BBB. Moreover, the total value of corporate bonds and structured financial instruments carried out with one issuer should not exceed 10% of Tier I capital.
Sale or issue abroad by residentsThe regulations governing purchase abroad by residents apply.
Controls on credit operationsBanks and financial institutions are prohibited from extending credit in pounds to nonresident financial entities.
Commercial credits
By residents to nonresidentsEffective March 2, 2006, credit extended in foreign currencies to nonresidents must be limited to 5% of the bank’s Tier I capital to each borrower or group of related borrowers. Moreover, the overall limit of credit extended to nonresidents and to residents for use abroad is 25% of Tier I capital. Effective November 9, 2006, credit to a single nonresident, or to a resident for use abroad, must be limited to 20% of the bank’s Tier I capital for countries with a sovereign rating of A+, and 10% for countries with a sovereign rating of A or lower. Total credit to countries with sovereign ratings of A through BBB cannot exceed 200% of Tier I capital and 50% for any one of these countries. For countries with sovereign ratings below BBB, these limits are, respectively, 100% and 25%. Total credit facilities to an individual, legal entity, or related group of resident or nonresident borrowers may not exceed 20% of the bank’s Tier I capital, regardless of whether the funds are for use in Lebanon or other countries.
Financial credits
By residents to nonresidentsThe net debtor interbank position between a Lebanese bank and its affiliates (subsidiaries and sister companies) abroad may not exceed 25% of Tier I capital. This restriction applies to credit facilities granted by banks operating in Lebanon to affiliated nonfinancial entities abroad.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsThe regulations governing commercial credits apply.
To residents from nonresidentsNonresident financial entities may issue guarantees against loans made in pounds if the loans are related to investment or commercial activities carried out in Lebanon.
Controls on direct investment
Outward direct investmentDirect investments abroad by banks require prior BDL approval and are subject to the limit set by Article 153 of the Code of Money and Credit.
Inward direct investmentForeign investments in some sectors are subject to specified ceilings and, in some cases, to prior authorization.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsThe limit for banks is set by Article 153 of the Code of Money and Credit.
Purchase locally by nonresidentsAll foreigners must obtain a license from the Council of Ministers to acquire real estate exceeding a certain maximum area. In addition, a ceiling is imposed on the total area that may be acquired in the capital city as well as in various Lebanese districts.
Controls on personal capital transactionsThese transactions are permitted without limitation, provided anti-money laundering and terrorism financing regulations are followed.
References to legal instruments and hyperlinksFighting Money Laundering Law No. 318, dated April 20, 2001; Legislative Decree No. 11614; Law No. 296, dated April 2001; BDL circulars; Article 153 of the Code of Money and Credit; www.bdl.gov.lb.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadPrior BDL approval is required for resident banks and financial institutions to issue bonds locally or abroad.
Maintenance of accounts abroadFinancial entities are prohibited from maintaining accounts abroad in pounds.
Lending to nonresidents (financial or commercial credits)The purchase of sovereign bonds, except from G-10 countries, with at least a BBB rating by Standard and Poor’s or an equivalent rating of another internationally recognized rating agency, is limited to 50% of Tier I capital of banks and financial institutions. This limitation applies also to the purchase of corporate bonds, which should be issued by corporations supervised by a country rated at least BBB. The total value of corporate bonds and structured financial instruments with one issuer may not exceed 10% of Tier I capital. Effective March 2, 2006, credit extended in foreign currencies to nonresidents must be limited to 5% of Tier I capital to each borrower or group of related borrowers. Moreover, the overall limit of credit extended to nonresidents and to residents for use abroad is 25% of Tier I capital. Effective November 9, 2006, credit to a single nonresident, or to a resident for use abroad, must be limited to 20% of the bank’s Tier I capital for countries with a sovereign rating of A+ or higher, and 10% for countries with a sovereign rating of A or lower. Total credit to countries with sovereign ratings of A through BBB cannot exceed 200% of the bank’s Tier I capital and 50% for any one of these countries. For countries with sovereign ratings below BBB, these limits are, respectively, 100% and 25%. Total credit facilities to an individual, legal entity, or related group of resident or nonresident borrowers may not exceed 20% of the bank’s Tier I capital, regardless of whether the funds are for use in Lebanon or other countries.
Purchase of locally issued securities denominated in foreign exchangeBanks are allowed to purchase these securities stocks within limits set by Article 153 of the Code of Money and Credit and to purchase nonlisted corporate bonds issued locally within the limit of 20% of Tier I capital. Effective February 6, 2007, banks are allowed to repurchase their own securities and GDRs issued against their shares within the limit of 10% of their total shares and with prior BDL approval.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThe reserve requirements on Lebanese pound deposits are 25% for demand and 15% for term deposits. Banks are subject to a 15% reserve requirement for all foreign currency deposits at BDL.
Liquid asset requirementsNet liquid assets must not be less than 10% of all foreign-exchange-denominated deposits, certificates of deposit, bonds, and loans contracted from the financial sector and whose remaining maturity is one year or less.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsNonresidents’ deposits in foreign currencies satisfying the conditions of the Banking Free Zone are not subject to taxes, fees, or reserve requirements.
Investment regulations
Abroad by banksPrior BDL approval is required for banks to acquire shares in financial entities abroad within the limit set by Article 153 of the Code of Money and Credit.
In banks by nonresidentsAcquisition by a resident or nonresident of shares in a bank is subject to prior authorization from the Central Council of the BDL in the following cases: (1) the shares to be acquired represent more than 5% of total shares or voting rights; (2) the purchaser already holds more than 5% of total shares or voting rights; (3) the purchaser or seller of the shares is a member of the senior management of the bank involved; or (4) effective November 9, 2006, the purchaser or seller of the shares is a member of senior management or an employee of the bank involved and holds more than 1% of total shares. Prior authorization and regulations apply also to the ascendants and descendants of the bank employee. Foreign banks may establish fully owned branches, subject to BDL approval. Banks and financial institutions require prior BDL approval to issue shares locally or abroad.
Open foreign exchange position limitsThe net open foreign exchange position is limited to 1% of the net Tier I capital, and the global position is limited to 40% of net Tier I capital. Overall, banks and financial institutions are allowed to hold a structural position in foreign currencies up to 60% of their net Tier I capital denominated in pounds.
Provisions specific to institutional investors
Insurance companiesThese limits are applicable to insurance companies in covering technical and mathematical reserves by admitted assets.
Limits (max.) on securities issued by nonresidentsFor life insurance, a maximum of 50% of mathematical reserve is allowed as admitted assets, whereas for non-life insurance, it is not allowed.
Limits (max.) on investment portfolio held abroadFor life insurance, a maximum of 50% of mathematical reserve is allowed as admitted assets, whereas for non-life insurance, it is not allowed.
Limits (min.) on investment portfolio held locallyFor life and non-life insurance companies, there are different minimum limits for cash investments as well as different maximums on other investments for admitted assets purposes.
Currency-matching regulations on assets/liabilities compositionFor life insurance, in covering mathematical reserves, the 50% maximum investment as admitted assets should be in the currency of issued policies.
Pension fundsn.a.
Investment firms and collective investment funds
Limits (max.) on securities issued by nonresidentsIn general, no limits are imposed, but prior BDL approval is required for promoting and selling foreign collective investment schemes. In some cases, to grant its approval, the BDL may require financial guarantees to be submitted by the representative in Lebanon. In case the latter is a bank, the value of financial guarantees should not exceed 7% of its Tier I capital.
Limits (max.) on investment portfolio held abroadManagers of a collective investment scheme are prohibited from owning more than 15% of the securities issued by a single issuer, except for Lebanese treasury bills and bonds issued by the G-10 countries.
Limits (min.) on investment portfolio held locallyManagers of a collective investment scheme are prohibited from owning more than 15% of the securities issued by a single issuer, except for Lebanese treasury bills. Moreover, at least 65% of the investments must reflect the scheme’s declared investment policy, in terms of bonds’ quality, geographic distribution, and risk ratio.
Currency-matching regulations on assets/liabilities compositionEighty five percent of total investments of an open-end company must be in liquid financial instruments.
References to legal instruments and hyperlinksCirculars issued by the BDL; Code of Money and Credit; Law No. 706, dated December 9, 2005; www.bdl.gov.lb; www.economy.gov.lb; Decree No. 13144, dated August 24, 2004; Decree No. 29 of February 5, 1977.
Changes during 2006
Imports and import paymentsApril 1. The formal association agreement replaced the interim agreement with the EU.
Capital transactions
Controls on credit operationsMarch 2. Credit extended in foreign currencies to nonresidents was limited to 5% of the bank’s Tier I capital to each borrower or group of related borrowers. Moreover, the overall limit of credit extended to nonresidents and to residents for use abroad was limited to 25% of Tier I capital.
November 9. Credit to a single nonresident, or to a resident for use abroad, was limited to 20% of the bank’s Tier I capital for countries with a sovereign rating of A+ and 10% for countries with a sovereign rating of A or lower. Total credit to countries with sovereign ratings of A through BBB was limited to 200% of the bank’s Tier I capital and 50% for any one of these countries. For countries with sovereign ratings below BBB, these limits were set at, respectively, 100% and 25%. Total credit facilities to an individual, legal entity, or related group of resident or nonresident borrowers was limited to 20% of the bank’s Tier I capital regardless of whether the funds were for use in Lebanon or other countries.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsMarch 2. Credit extended in foreign currencies to nonresidents was limited to 5% of the bank’s Tier I capital to each borrower or group of related borrowers. Moreover, the overall limit of credit extended to nonresidents and to residents for use abroad was limited to 25% of Tier I capital.
November 9. Credit to a single nonresident, or to a resident for use abroad, was limited to 20% of the bank’s Tier I capital for countries with a sovereign rating of A+ or higher and 10% for countries with a sovereign rating of A or lower. Total credit to countries with sovereign ratings of A through BBB was limited to 200% of the bank’s Tier I capital and 50% for any one of these countries. For countries with sovereign ratings below BBB, these limits were set at, respectively, 100% and 25%. Total credit facilities to an individual, legal entity, or related group of resident or nonresident borrowers was limited to 20% of the bank’s Tier I capital regardless of whether the funds were for use in Lebanon or other countries.
Provisions specific to institutional investorsNovember 9. Prior authorization from the Central Council of the BDL was required if the purchaser or seller of bank shares is a member of senior management or an employee of the bank involved and holds more than 1% of total shares. Prior authorization and regulations apply also to the ascendants and descendants of the employee.
Changes during 2007
Imports and import paymentsJanuary 1. The Harmonized System Tariff, 2007 version, came into effect, replacing the 2002 version.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsFebruary 6. Banks were allowed to repurchase their own securities and GDRs issued against their shares with prior BDL approval and within the limit of 10% of their total shares.

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