E What is the main reason you believe that Lebanon’s banks have weathered the worst effects of the global financial crisis?
The year 2008 confirmed to us that what characterizes the Lebanese economy is its resilience to the aftermath of the global crisis that affected many wealthy and strong countries. In my opinion, the main reason behind such resilience lies in the strength and breadth of the Lebanese diaspora, which derives an annual value added almost as large as the entire Lebanese GDP. This translates into sizable incoming foreign remittances that reached around $5.6 billion last year, and which have been instrumental in equilibrating the country’s balance of payments, hence contributing to reviving the economic cycle and to supporting the domestic currency.
E Even so, hasn’t the financial crisis affected Lebanese banks to some extent?
The Lebanese banking sector has long proved its resistance in the face of the various crises that our country faced during the last decades, including the latest global financial crisis. It goes without saying that such resilience is not a result of chance; but is instead a combination of several factors such as the personal skills and talent of Lebanese bankers whose competency has long been confirmed whether in Lebanon or in several other countries. Another factor is the leadership and vision of the monetary authorities represented by the governor of the Central Bank of Lebanon, which led to a stable monetary and banking environment as well as strict regulations that are being enforced thanks to the effective contribution of the Banking Control Commission.
The biggest concern of the banking sector remains tied to any disruption in the country’s political stability, which exerts considerable influence on the economic stability so that we can say that there is no financial soundness in the presence of political shakiness. Banks, as funds takers, are accountable for the deposits of their customers, and such responsibility requires an active participation to preserve the financial stability and the high liquidity of the banking system.
E What have you learned from the global financial crisis?
The main lesson learned by banks is that they should strictly apply the principles of risk management on all their investments, control the levels of financing in terms of leverage and avoid investing in complex financial structures that are not backed by real securities.
As for the most important lesson, it is undoubtedly that, in the long run, the best investments are in real estate, since other types of investments could evaporate rapidly while fixed assets’ value will always subsist.
E What is the current liquidity status of banks in Lebanon?
Another characteristic of the Lebanese banking sector lies in the strong balance sheet liquidity which, at around 30 percent, is one of the highest in the world. Such levels have been attained via the combination of the prudent policies of the Central Bank of Lebanon as well as the conservative management of the Lebanese banks, which learned from previous experience and kept high levels of liquidity to face any contingency. Liquidity is a “safety cushion” for Lebanese banks as it enabled them, in times where their capitalization dropped to extremely low levels, to continue operating as usual because they had liquidity, without which their role would have been over. This lesson cannot be forgotten by Lebanese banks.
E What is your opinion on the central bank’s policies from a historical perspective? Have they always been as prudent as you say?
The central bank is the far-sighted safety valve of our banking system. The central bank has always had a very effective role in providing monetary stability since 1993, which was not the case previously. Just as a reminder, the central bank was founded in 1964 and in 1966 the Intra Bank crisis took place; its repercussions continued until 1975, when the war began, and the price of the dollar jumped from 2.5 Lebanese lira to 2,800 Lebanese lira.
Ever since the year 1994, the central bank’s governorship has pursued a policy of stabilizing the exchange rate, which has been maintained at around 1,500 Lebanese lira for several years. This has allowed investments and projects to be undertaken continuously, despite all the volatility and uncertainties encountered by Lebanon, the most important of which being the assassination of [former] Prime Minister Rafiq Hariri.
