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; what’s your take on this?
I don’t really think that the banking sector in Lebanon was affected by the crisis. There is only one way that the banking sector can be affected by the crisis, which is remittances. For the time being, this indicator is doing well.
E How will the parliamentary elections in June affect the banking sector?
Let’s be optimistic! What can go wrong with the elections? The system has shown its resiliency to all kind of crises. The key parameter of this macroeconomic setting is the stability of deposits and deposits in Lebanon represent more than 300 percent of GDP.
E Some believe that by lending the government money, Lebanese banks are actually helping to perpetuate the country’s debt problem. How much longer can the banks carry Lebanon’s debt?
The Association of Banks in Lebanon has issued statements saying that the government has to be more aware. The government has to take more critical measures to restructure the debt such as privatizing what needs to be privatized in order to decrease the debt. This not only applies to the nominal value of the debt, you can decrease the ratio of public debt over GDP, which is a more significant indicator than nominal value. Lastly, the state cannot manage Électricité du Liban; it’s not its role.
E If you were to prepare a list of requests for the new government, what would they entail?
Public sector reform in its broadest meaning in terms of less red tape, greater efficiency, introduction and strict implementation of accountability at all levels, combating corruption, budgeting according to international principles, rationalization of public spending, computerization of public administration, registers, supplemented by an in-depth reform of the judicial system.
There should also be a privatization of key sectors such as the mobile networks, public transportation, and possibly the management of water and power networks.
E Do you expect to see mergers and acquisitions in the Lebanese banking sector?
Yes, the banking sector is very small compared to the region. Our capitalization is still low for each bank. The small banks should consolidate. It’s definitely something that has to happen somehow.
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 and SMEs. What is your take on this?
The private sector has to be more structured to come and ask for loans. They also have to be more capitalized.
E Seeing as Lebanese banks are heavily exposed to government paper and thus largely dependent on government debt, is geographic expansion the solution to reducing dependency and strengthen the sector overall?
Definitely, because we’re a small economy.
E What are the top issues and concerns for Lebanese banks in 2009?
The risk factor is always the greatest concern, because as long as Lebanon’s risk is perceived as stable, or better still, improved, the stress in the money market is limited and banks are comfortable with doing business. Should elements of instability interfere, higher market stress will mean more expensive money and reduced or more expensive lending, which would penalize the domestic economy.
The international financial crisis and its direct impact on Lebanon has, until now, been basically limited to the return of human resources from Europe and the Gulf, as well as by a weaker appetite for real estate. The effects of the crisis will continue to be felt in the West and in the Gulf for several months, and the wave is bound to reach Lebanon, albeit indirectly, through a slowdown in the real economy. For banks, this means a slower dynamic and a shortfall in transfers, thus a slowdown in consumption as well.
