The Lebanese banking sector has shown strong resilience to economic and political shocks and has demonstrated a commitment to continuously support the Lebanese government in its arduous rehabilitation journey.
With a rating equivalent to that of the Lebanese government (“B-” and a stable outlook), total assets in excess of $91.7 billion as of end of September 2008, customer deposits nearing $76 billion for the same period and a branch network exceeding 825 branches, the Lebanese banking sector has responded rapidly and efficiently to the financing needs of the domestic economy and continues to provide a wide range of conventional as well as high quality modern financial services for resident and non- resident clients.
The Lebanese banking sector continues to be the backbone of the economy, characterized by an efficient banking secrecy law, a free exchange system and free movement and repatriation of capital. In the past couple of years, the banking sector witnessed a significant improvement in investing in human capital, the latest information and communication technologies, internal auditing, risk management and control systems, and money laundering compliance units.
It has and will continue to play a pivotal role in smoothing government public finances and alleviating internal public debt service through its sustained investments in Republic of Lebanon Eurobonds and other government instruments instigated during the many reform phases engineered by the Lebanese Ministry of
Finance. This includes, among other things, the banking sector’s full support to roll over maturing government securities at lower yields and its participation in the exchange (swap) transactions of Republic of Lebanon Eurobonds that emerged in 2005.
One cannot forget the role of the Lebanese banking sector in fueling Banque du Liban’s (BdL) foreign currency reserves to record highs, thanks to the banks’ historical investments in BdL’s financial instruments that helped mitigate the risk of any imminent currency devaluation and added an influx of foreign capital from Lebanese expatriates, who continue to prosper on the back of a more relaxed political and investment environment. It is also worth highlighting the role of foreign donors’ support for Lebanon during the Paris II and Paris III meetings, raising some $4.4 billion and $7.6 billion, respectively, in foreign currency denominated funds. In this perspective, gross foreign currency reserves soared to an astounding $18.96 billion in the first half of November 2008, registering an unprecedented 51.33% annual appreciation.
Concurrently, in 2008 the Lebanese banking sector has witnessed a unique inflow of foreign remittances from Lebanese expatriates, especially those living in the Gulf, with some 43.1% reported annual expansion in foreign inflows to $5.65 billion through July 2008, up from $3.95 billion in the same period in 2007. In the second half of 2008, notwithstanding the global financial turmoil that struck financial institutions worldwide, the Lebanese banking sector preserved its solid standing with a reported $500 million influx during the one-week period that followed the bankruptcy filing of Lehman Brothers.
Renowned international credit rating agencies continue to praise the role of the banking sector in stabilizing the economy, to a certain extent, by being the primary source of public financing in both foreign and domestic currencies. In addition, recent reports by international rating agencies (e.g. Moody’s Credit Opinion report November 2008) hailed the resilience of the Lebanese banking sector to the prevailing global financial chaos and went further to indicate that the Lebanese banking sector actually benefited from the crisis. The immunity to the global economic and financial crisis can be attributed to the sound regulatory framework set forth by the BdL coupled with close supervision by the Banking Control Commission
Nevertheless, today the Lebanese banking sector is unquestionably experiencing a transitional stage into a new era characterized by a reduced exposure to government securities, narrowing interest spreads, harsh cut-throat competition, political tensions and economic instability.
I am confident the Lebanese banking sector has and will always be a major contributor to Lebanon’s economic resurrection. This owes to the banking sector’s eagerness to provide continuous financial support to the government if and when needed, its proven ability to create job opportunities both domestically and regionally as banks expand abroad, its credibility in the eyes of international donors and rating agencies that increase foreign and domestic investors’ level of confidence in the economy, that attract foreign direct investment and that add to its thrust to provide continuous financing to the various economic sectors upon which economic growth depends.
Fadlo I. Choueiri, CFA, is the head of corporate finance & economic research at Credit Libanais Investment Bank