Bank of Lebanon: The private funds will not be retracted in the face of any temporary negative shock in profits


The Bank of Lebanon announced in a statement that: “The Bank of Lebanon, like the European Central Bank and many other central banks, has adopted new accounting standards since 2007. The IFRS was originally prepared for commercial entities, so it cannot be applied directly to Central banks (Sarmon, 2005). This was the main reason behind the creation of separate accounting standards defined in the guidelines issued by the European Central Bank on the legal framework for accounting and financial reporting within the European Central Bank apparatus.

He added: “The Bank of Lebanon, like many central banks, partially adopted the criteria related to the presentation and disclosure of reports, as their full application is inconsistent with the disclosure of activities affecting the market. From here, the Bank of Lebanon chose, as many other central banks , Excluding some accounting standards and treatments in the context of its partial application of IFRS standards. The Banque du Liban is not obligated to implement international accounting standards specifically, it is legally recognized and according to Resolution No. 9172 of October 24, 2005 as “a legal public entity with independence”, its mission is to maintain For the safety of th The latter may act as a lender. ”

Retained losses

He continued: “The losses may last for several years. One of the available means to cover them is the use of accumulated reserves, and in the event that those reserves are exhausted, offset offset losses rounded in future profits, until these losses are liquidated. According to a study prepared by the European Central Bank on the rules for the distribution of profits and cover losses at Central banks, the two treatments are defined below within a sample that included 131 banks: recycled losses, that is, the (residual) losses recorded in a specific year, which cannot be covered by specific or general reserves, are rotated to the subsequent year (s) with the possibility of their trade-off. In you For or part of future annual profits, which may cause negative private funds pending the completion of the process (28 banks); o liabilities versus future profits, and this is similar to handling recycled losses, with a difference in the presentation within the budget so that losses are recorded as liabilities on the state, so it is not So record any negative private funds (9 banks). ”

He added: “The US Federal Reserve, the British Central Bank, the European Central Bank and the national central banks in Europe have all faced a series of financial crises, albeit of different origin. These central banks have also resorted to unconventional measures that are broader and financially more dangerous than any measures previously taken.” During the financial crisis, most of the central banks all over the world undertook non-standard operations and an unprecedented size. As a result, the budget of many central banks expanded significantly, and the characteristics and characteristics of their risks have changed dramatically. T published by the central banks available to the public and to raise questions about their financial viability. ”

He explained: “In Lebanon, the volatile political circumstances, accompanied by regional tension and the burdens of the Syrian crisis, have weakened and exhausted the Lebanese economy for many years. However, Lebanon is still characterized by its unique ability to withstand and continue in light of social, political and economic pressures characterized by exceptional difficulty.”

The Bank of Lebanon extinguished the cost of monetary policy

He indicated in his statement: “Throughout the year, the interest cost on financial instruments is circulated and recorded as assets in temporary accounts; part of it is offset at the end of the year and amortization of the remainder with future profits from several sources of income recognized by the Bank of Lebanon, such as the voucher value for minting, printing, currency, and operations An example of cases where losses were recorded as negative assets or liabilities and not as cuts in private funds, we mention the country of Costa Rica in the early eighties and Peru in the eighties also, and Thailand in the aftermath of the crisis of 1997, and Hungary in the nineties. who is she In these cases, future income was not insured. Often these private assets have turned into basic components of the budget (more than 50% in Costa Rica and 25% in Peru; whereas in Hungary, the nominal liabilities on the state exceeded the capital by 20 times). The treatments on the path of analyzing the economic conditions and contributed directly to the financial crisis of the central banks, as they allowed the distributions to continue to the country despite the exacerbated financial weakness.

He continued: “The US Federal Reserve recently clarified that losses that lead to a shortage of reserves (surplus) relative to their required level, will be recorded as assets representing the value of future low transfers to the treasury needed to reconfigure the reserves. Thanks to this practice permitted by GAAP. (Assuming that future profits are definitely sufficient to achieve the required value for these assets), private funds will not retreat in the face of any temporary negative shock in profits. Other central banks have used this treatment, such as the German Central Bank in the seventies of the century. Zi. ”

He concluded: “The BDL does not consider these amounts to be losses. They are rounded amounts and amortized with future incomes. The Bank of Lebanon is entrusted with preserving the national currency with the aim of securing a permanent basis for social and economic growth (Article 70 of the Monetary and Credit Law).”

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