Credits against pledged securities amended

Less guarantees from foreign markets

The Central Bank (BDL) issued a decision amending the rules for banks, financial institutions, and brokerage firms to offer credits against pledged securities.

The decision specified that these institutions cannot offer their clients credits against pledged securities unless they are guaranteed by cash collateral or by the securities themselves. The BDL specified the following conditions for the securities to be used as a guarantee:
•The securities should be Lebanese treasury notes in local or foreign currency (T-bills or Eurobonds), or treasury notes issued by another State as long as it has a sovereign rating of at least ‘BBB’

•The securities could be listed in the local financial markets if they comprise:
- Company stocks or shares of group investment schemes approved by the BDL
- Debt notes or certificates of deposits, as long as they are issued by an entity with a rating higher than the Lebanese government’s
- Composite financial derivatives, as long as they are fully guaranteed by foreign institutions with a credit rating equal or higher than Lebanon’s

•The securities could be listed in the financial markets of a country rated 'BBB' or higher if they comprise:
-Stocks, as long as the market price of each stock is higher than $1 if the issuer is not within the upper 50 percent of listed companies in terms of market capitalization
-Stocks and shares issued by group investment schemes
-Debt notes or certificates of deposits, as long as they are issued by an entity with a rating of at least 'BBB'
-Composite financial derivatives as long as they are fully-guaranteed by foreign institutions with a credit rating equal or higher than 'BBB'

•The securities could be listed in the financial markets of a country rated lower than 'BBB' if two conditions were met:
-The issuer has a rating of at least 'BBB'
- The market price of each stock is at least $1 if the issuer is not within the upper 50 percent of listed companies in terms of market capitalization

Prior to the amendment, stocks traded in foreign markets of market value less than $5 per share could not qualify as credit guarantor pledged securities.

The decision stipulated that the credits offered shall not exceed (at the date of opening):
-75 percent of market value of the portfolio, when the securities are in the form of locally-issued T-bills and Eurobonds
-50 percent of market value of the portfolio, when the securities are shares in foreign markets where the value of each stock is equivalent to $5 or more
-50 percent of market value of the portfolio, when the securities are shares in foreign markets where the issuer is among the upper 50 percent listed companies in market capitalization
-30 percent of market value of the portfolio, when the securities are shares in foreign markets where the value of each share is between $1 and $5 and where the issuer is not among the upper 50 percent listed companies in market capitalization
-50 percent of market value of the portfolio, when the securities are stocks and shares issued by group investment schemes, debt notes or certificates of deposits, and composite financial derivatives

Prior to this amendment, the credits offered were bound to 50 percent of market value for all securities, except for Lebanese treasury notes which were capped at 75 percent.