E Marwan Iskandar recently said that it is not realistic to think that Lebanon has not been affected by the global financial crisis, especially considering the public debt. He said that one way to deal with the public debt from worsening would be through government reforms; what’s your take on this?
We shouldn’t kid ourselves. Because of globalization, I doubt that any part of the world or any living creature has not been affected by the crisis. We have been hit a little bit less than other economies. We can feel effects on the real estate sector — prices were booming, now they have stabilized or are receding. What Iskandar said, to a certain extent, is true. As far as the banking sector goes, it is helping the government financially. We are making life easier for the politicians. In my view, we should apply many more conditions when we lend to the government.
It’s true we are giving a lot of money to the government. In return we should ask them to be keen on having an economy that grows much faster than the current one. The fact is most Lebanese production is done abroad. We are the only country in the world where our gross national product is much higher than our gross domestic product. I wish we could measure our debt to our GNP — the GNP is very difficult to measure, but with some effort from the government we should be able to measure this amount.
E Due to the slower pace of lending to the private sector compared to public sector lending, many feel that banks in Lebanon should increase their lending and are pressuring the central bank to lower interest rates in order to stimulate investment in the private sector. What is your take on this?
The central bank recently issued a new financial plan, which would help the private sector get money at a much lower rate, especially in Lebanese lira. They need to nationalize the economy and this is one way of doing it. I don’t think the economy in Lebanon needs much more money than it is already getting from the banks. On the other hand, the total deposits in Lebanese banks are much higher than what the economy needs. Deposits in Lebanon, which are over $800 billion, are almost three and a half times our GDP last year.
E The central bank governor, Riad Salameh, believes that if elections go smoothly, economic growth could exceed 6 percent, with the summer months accounting for 65 percent of Lebanon’s economic activity. How will the upcoming parliamentary elections in June affect the banking sector?
History has proved that Riad Salameh was right, while the International Monetary Fund was wrong for the last 13 years with respect to Lebanon. This is why he was applauded in Washington. I would say that if we have a smooth election, with summer coming and the inflow of tourists and the Lebanese diaspora, I wouldn’t be surprised to have a much higher growth [rate], especially considering that the Lebanese banking sector has proved resilient.
E Seeing as Lebanese banks are heavily exposed to government paper and thus largely dependent on government debt, is geographic expansion the solution to reduce dependency and strengthen the sector overall?
It is a necessity. Salameh is encouraging all banks to go abroad for many reasons. The first being that the resources the banking sector has are bigger than what the Lebanese economy needs.
E If the central bank had not prevented local banks from investing in structured products, derivatives and toxic assets, do you think they would have invested in them?
Lebanese banks are relatively very conservative. Nevertheless, there would have been much more losses than what they have incurred, which happened to be meaningless versus their equity.
E What will happen to foreign remittances into Lebanese banks this year? Will they beat last year’s record of over $6 billion?
Up till now, we haven’t felt a slowdown in remittances. Many people are afraid that many Lebanese employees from overseas would come back to Lebanon. I think that is overstated.
