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French Version


Lebanese banks'immune' to worldwide crisis?

Industry players credit central bank for laying down the law on risky instruments

Low investments in the American market, abundant liquidity and tough Central Bank regulations have allowed Lebanese banks and financial institutions to remain immune to the fallout of the global financial crisis, leading bankers and investors said on Tuesday. Local bankers interviewed by The Daily Star all expressed confidence that Lebanon's financial sector would continue to grow and prosper both locally and regionally despite the troubles in the US and European markets.

All of these bankers gave credit to the conservative lending policies of most banks and to the tough regulations of the Central Bank - which literally prohibits institutions from making any investments in US subprime papers.

"We simply don't have any subprime paper in the US," said Makram Sader, the secretary general of the Association of Banks in Lebanon (ABL).

"What is more important is that Lebanese banks are very liquid and most of this cash is in foreign currencies," Sader said.

Nearly 50 percent of bank assets in Lebanon are in cash, a ratio is considered very high by international standards, according to the Central Bank.

Governor Riad Salameh recently instructed Lebanese banks to finance only 60 percent of any real estate loan while the rest of the money should be paid up front by the investors.

This step was adopted to avoid any subprime real estate crisis similar to the one which took place in the US.

"We can't take unforeseen risks with the deposits of our customers and for this reason we study carefully any big loan proposal," Sader said.

He added that because Lebanon does not have a last resort such as oil, local banks prefer to keep large amounts of cash to weather any crisis.

"The Gulf countries peg their currencies to the US dollar and use their massive oil reserves as a last resort. But in Lebanon we do not have such minerals and for this reason we count on prudent lending policies," he said.

He added that in the Gulf banks invest nearly 90 percent of the depositors' money while in Lebanon the banks only use 50 percent of the deposits to make any investments.

Citing an example, Sader said that total retail bank lending, including housing, car and personal loans, does not exceed $5.6 billion. He added that 40 percent of the retail lending goes to housing.

"According to the calculations of the ABL, total housing loans are close to $1.7 billion and this covers 36,000 clients," Sader said.

Francois Bassil, the chairman of the ABL and the president of Byblos Bank, told reporters after meeting Finance Minister Mohammad Shatah on Tuesday that local banks ask any investor seeking a loan for a real estate project to provide collateral worth twice the amount of the desired loan.

Jean Riachi, the chairman of FFA Private Bank, told The Daily Star that Salameh prohibits any financial institution and banks to make investments in risky instruments.

"What history has proved is that even the biggest banks around the world have made wrong assumptions despite their high rankings among some rating agencies," Riachi said.

He added that some of the banks which suffered setbacks in the recent crisis used to preach the Lebanese banks about prudent lending and investment policies.

"Now this attitude is no longer acceptable by the Lebanese banks. This is not a question of the banks being big or small because what matters now is the leverage ratio [i.e. solvency ratio] of the banks," Riachi said.

He added that many Lebanese banks and private banks have much better leverage ratios than banks with billions of dollars in capital.

"Now the investors feel more confident in the Lebanese banking system and this will probably pay off in the long run," Riachi said.

Other bankers stressed that the biggest challenge still facing the local banks is the public debt, currently worth more than $45 billion. But most believe that this issue could be resolved if the government implemented fiscal reforms and speeded up the privatization of the telecom sector.

Beirut 17-09-2008
Redaction
The Daily Star



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