The Banking Industry in Lebanon: Challenges and Policies

Paul Salem, Wassim Shaheen, Khater Abi Habib, Saad Azhari May 14, 2012 Beirut
Summary
The Lebanese financial sector plays a vital role in the country’s economy and has encountered many changes and challenges in the past decade.
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The Lebanese banking sector’s relatively high level of success in recent years has garnered international attention. International business media outlets have praised Lebanon for being one of very few countries continuing to report growth since the financial crash of 2008.  The high global regard of Lebanon’s financial sector also lies in its active cooperation with international institutions and implementation of anti-money laundering measures.

The Carnegie Middle East Center hosted a discussion with Lebanese banking sector representatives Khater Abi Habib, Saad Azhari, and Wassim Shahin to address the sector’s responses to various financial and regulatory challenges and its role within the Lebanese economy.  Carnegie’s Paul Salem moderated the discussion.
 

Accustomed to Risk

The Lebanese banking sector proved largely immune from the 2008 financial meltdown that caused the collapse of many financial institutions around the world. This is because Lebanese banks have years of experience operating in an unstable and risky political environment, the panellists explained. As a result, Lebanese banks have long embraced conservative banking policies. For example, banks must have at least 30 percent of their assets in cash, said Shahin. 

The Expat Factor

  • Active Diaspora: The large number of Lebanese expatriates living abroad plays a very important role in the financial heartbeat of the country. There is a vibrant Gulf Diaspora, African Diaspora, and Latin American Diaspora. The Lebanese also have a significant presence in North America, Europe, and Australia.  These expats inject almost 7 billion dollars back into Lebanon’s economy annually.
  • Diaspora Investment: This huge community of Lebanese abroad offers a possible explanation for why Lebanese banks saw a 23 percent increase in deposits in 2008, when other banks were facing being downgraded, suggested Abi Habib. When the West looked risky, Lebanese expatriates shifted many of their liquid assets back to their home country.
     

International Openness

The participants emphasized that the Lebanese banking sector’s strong international openness also contributed to its success. They cited a number of examples, including:

  • the lack of foreign exchange or capital controls;
  • the presence of twelve foreign-owned banks operating in Lebanon;
  • fifteen locally-owned banks having major stakes in banks outside Lebanon.

International Cooperation

  • Financial Action Task Force (FATF): The banking sector continues to comply with international standards and sanctions, the participants explained. In 1995, Lebanon signed the Vienna convention on traffic in narcotic drugs and since 2000, the legislators, regulators and banks have addressed, supported and implemented FATF criteria. In June 2002, FATF announced that Lebanon was a member in fighting global money laundering, and Lebanon was again absent from the FATF’s recently released list of countries that have not effectively dealt with money laundering problems.   When a particular problem has arisen, such as the accusations against the Lebanese Canadian Bank by the US Treasury last year, the Lebanese Central Bank took swift, decisive and satisfactory action.
  • Iran and Syria: Azhari said that Lebanon is in compliance with all international sanctions against Iran; in any case, trade and banking relations between Lebanon and Iran were quite low to start with.  With regard to Syria, Lebanese banks comply with US sanctions because they have strong partnerships with corresponding banks in the US and do not want to jeopardize those relationships.  He added that Lebanese banks that had opened branches in Syria have suffered losses, but that these losses were limited and manageable. 

Banks and the Economy

Panellists responded to audience comments that conservative banking policies have maintained high interest rates, slowed job creation, and maintained a poor distribution of wealth in the country.  They replied that interest rates have been coming down steadily and that the banks lend the equivalent of 100% of GDP to private sector enterprises of all sizes in order to stimulate growth and job creation.  They averred that more could be done in general economic, fiscal, and monetary policy to spur growth and close the gap between rich and poor.

Source http://carnegie-mec.org/2012/05/14/banking-industry-in-lebanon-challenges-and-policies/c725

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