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Commission in crisis

Banks fear for their international standing as Cabinet squabbles over top auditing appointments

by Emma Cosgrove

 

It is no secret that the backbone of Lebanon’s economy is the banking sector. And right now, the watchdogs of Lebanon’s banking industry are without leadership.

The Banking Control Commission (BCC) of Lebanon is the auditing body housed in the country’s central bank. The Commission is charged with the duty of supervising Lebanon’s banks, financial institutions, money dealers, brokerage firms and leasing companies, to ensure that they are operating within the circulars and regulations of the Central Bank. But, due to sectarian disputes and cabinet deadlock, it is currently without a board of directors.

The cabinet must appoint the five members of the BCC’s board of directors at the end of every five-year period, with the latest term expiring January 31 this year.

 There are no term limits for board members, and as such all five outgoing directors had already served at least a decade at the BCC through reappointments. Despite this tradition of continuity on the commission, the Council of Ministers, Lebanon’s cabinet, has not been able to agree on who will sit at the BCC for the current term.

According to several industry sources, seats on the commission’s board of directors are usually filled without delay. But as Executive went to print, the seats had been empty for almost a month, pushing both banking professionals and government officials to insist on a swift resolution.

Central Bank Governor Riad Salameh has taken over the responsibilities of the board until the members are appointed. On February 2, just days after the previous board expired, Salameh met with the Higher Banking Commission, the body responsible for the enforcement of central bank regulations, to discuss whether there was a legal framework that would allow the Higher Banking Commission to appoint the members, instead of the cabinet. But it was determined that the decision must legally stay within the responsibility of the cabinet.

Prime Minister Saad Hariri announced on February 13 that he hoped the commission would be filled by February 17 or 18, but as Executive went to print, no announcement to that effect had been made.

Who’s the boss?

Under Article 8 of Law 28, enacted in 1967, the president of the BCC must be a university professor or a specialist in banking and finance. A second board member must be recommended by the Association of Banks in Lebanon, and a third recommendation comes from the National Deposit Guarantee Institution. The other two positions have no legal specifications other than clear expertise in the banking field.

Positions on the board of the BCC are full time, thus all appointed members must leave their current positions before they accept the job. Board members are also forbidden from taking a job at any Lebanese bank for two years after they leave the commission.

As some board members come from Lebanese banks, objectivity is an issue of concern. But Marwan Kheireddine, general manger of Al Mawarid Bank, said that appointees have no problem cutting ties with their former places of employment.

“Banks in Lebanon are not tribes: banks are professional institutions, they are for-profit and they think objectively,” he said.

In addition to the board of directors, the BCC has 137 employees, including administrative staff and “examiners” — auditors who perform continuous reviews of Lebanon’s financial institutions through on and off-site examinations. Both BCC Secretary General Souheil Jaafar and banking professionals stressed that the commission is still functioning normally, despite the absent board.

“Middle management is there. It’s just the top management of this commission is now absent or vacant. But the usual work is continuing,” said Elie Achkar, director of research and statistics at the Association of Banks in Lebanon.

And though no expressed legal framework exists to allow Salameh to take over the role of the board in the interim, there have been no public objections to his doing so.

“The importance of any executive anywhere in government at any time is not looking at specifically legal wordings here and there, but filling a vacuum in a process of such imperative importance to the national security of Lebanon and its people,” said opposition Member of Parliament Ali Osseiran.

In fact, Kheireddine said that confidence in Salameh’s management of the commission may have taken pressure off the decision, causing ministers to take even more time, now that they know that the commission is being looked after.

Who’s on board?

The outgoing board members are Walid Alameddine, Farouk Mahfouz, Amine Awad, Kamal Samaha and Abdallah Attieh.

Mahfouz and Awad have been resubmitted for another term without objection, which will bring Mahfouz’s total years on the commission to 25, and Awad’s to 15.

Media reports have suggested that Osama Mikdashi — the former managing director of Citigroup Credit and Risk Management UK and a current board member at BankMed — and Ahmad Safa, the assistant general manager for operations at Lebanese Canadian Bank, are up for appointment.

A Lebanese banker who spoke only on the condition of anonymity but has been highly involved in lobbying for a new commission, said that Fouad Touma — secretary to the board of committees at Byblos Bank — and Mansour Bteich — a member of the board of directors of BLC Bank — are also being considered. This source added that Touma is the only contentious appointment, with some members of cabinet critical of his qualifications. Osseiran confirmed that the appointments are being held up by just one name, but could not disclose which.

Despite the usual speedy confirmation of board members, Kheireddine is not surprised by the delay. “This is very typical of Lebanon. These appointments are political,” said Kheireddine. “Political in the sense that a lot of people that are qualified present their CVs and, typically, there is a lot of pulling and pushing, which happens when such posts are available and politicians or political parties try to push their candidate as opposed to another party’s candidate.”

The government is currently backed up with many of the 79 ‘category one’ appointments for empty senior positions and industry players and politicians have been lobbying to bring the BCC posts to the top of the pile.

“The position of one person on this commission is minor. But having the whole commission is very important. We shouldn’t think in terms of our sects, we should think of who is the best person to have in this position,” said Osseiran.

And since no one project or audit is run by less than two bankers, the BCC’s Jaafar implied that no one board member could harm the entire group.

“This is corporate governance. We don’t have a one-man show,” said Jaafar.

Kheireddine said that the names circulating through the media were proof that the lobbying had paid off and highlighted the appointment of the BCC board members as an issue separate from the other appointments that the cabinet has yet to make.

Who’s watching?

Even with Salameh at the helm, industry outcry for a full board is still going strong due to the damage the delay may cause to Lebanon’s international financial reputation.

“People abroad do not look at political life in Lebanon as much as they look at the organization, the control and the confidence that everybody has in the Lebanese financial system,” said Osseiran.

After a whirlwind year of international recognition for successfully weathering 2009’s financial storm, bankers are worried that this political squabbling may damage the progress that Lebanon’s banking sector has made on the international stage.

“It is critical that we do not have any glitches anywhere that could send the wrong signals both to international organizations and to potential players within the industry and potential depositors or investors,” said Kheireddine. “So it is simply not appropriate not to have a banking control commission.”

 

 

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Emma Cosgrove


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