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French Version

Authorities ‘will not rest’ till Al-Madina settles debts - Troubled bank gains new temporary chief (Daily Star)

The banking authorities will not rest until the depositors of the troubled Al-Madina Bank get their last penny, Walid Alameddin, the chairman of the Banking Control Commission, said Wednesday. “We want to make sure that the owners of the bank pay back all the money they owed to depositors.

We expect the depositors to get their money back in due course,” Alameddin told The Daily Star. He added that the Central Bank has appointed a temporary general manager for the bank to ensure that the money is restored to depositors. Adnan Abu Ayyach and his brother Ibrahim, the owners of Al-Madina Bank, have been summoned by the attorney general’s office after the bank suffered a liquidity crunch of nearly $350 million.

The Banking Control Commission, which supervises the performance of all banks operating in Lebanon, sent a full report to the attorney’s office a few months ago, detailing the numerous violations the owners of Al-Madina Bank committed. But Alameddin declined to disclose further details about the bank.
“Our main concern is to retrieve every penny. If this is done, then there is no need to liquidate the bank,” Alameddin stressed.

But some bankers expressed doubt as to whether the owners of Al-Madina Bank will be able to raise $350 million even if all the properties the family owns are sold.

The assets of the Abu Ayyach family, along with leading investors allegedly involved in the financial scam such as Taha Qulilat and his brother and sister, were seized by the Central Bank. Sources said the Central Bank has already liquidated some $50 million worth of assets in the form of property.

Some leading investors and management questioned by the authorities may find themselves implicated in money laundering, mismanagement of funds and failing to implement basic accounting practices.

Alameddin said the banking commission is already working closely with all banks to implement the Basel II requirements in an attempt to improve risk management. He added that banks are supposed to implement the requirements of Basel II before 2004.

Commercial banks are expected to have a better risk management system as of September this year. “We are trying to protect our banks from any foreseeable risk,” Alameddin said. He added that Basel II may also encourage bank consolidations in the future. “Even some of the small banks will be able to apply the requirements of Basel II if there is a desire to do so.”
Alameddin said that Basel II does not necessarily require increasing the provisions for non-performing loans. “In some cases, the provisions for loans may be lower if the credit risks are not high.”

Basel II calls on the banks to keep all the credit files of their clients, from both the private and public sectors, and urges the banks to apply a unified supervisory system and to update their files at least once a year.

The Swiss-based Basel committee issues recommendations for banks and international financial institutions on how they can tighten supervision and reduce credit risks.

In Lebanon, the Central Bank and the Banking Control Commission have applied several laws to reduce the exposure of possible defaults on the payment of debts.

Included in the measures applied by banks are raising the capital adequacy ratio to 12 percent and allocating more provisions for non-performing loans.

The high provisions for bad loans have affected to some extent the profitability of banks, but have also reduced the risk of default payments. He added that Basel II will help improve the credit ratings of Lebanese banks. “Some of the banks in the Arab states are rated better than their own governments,” Alameddin said.
International rating agencies Standard & Poor and Moody’s believe that the performance of local banks may be affected by the government’s fiscal deficit.

But recently, the rating agencies have given leading banks better credit ratings than they gave the government. Alameddin believes that assets of local banks have the potential to reach over $100 billion if the government passed the draft law on banking consolidation.

He also said that better risk management does not mean that banks will reduce their lending to the private sector. “Banks are required to assess the credit ratings of all their clients and improve the efficiency of their management,” he said.

Alameddin also commented on Paris II and its impact on banks, saying: “There were good results from Paris II as interest rates on deposits fell considerably. But we want banks to lower rates on loans to stimulate the economy.”

Beirut 01-09-2003
Osama Habib
The Daily Star

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