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French Version

Central Bank urges fin. institutions to liberalize (Daily Star)

Central Bank urges financial institutions to liberalize - Provisions for nonperforming loans to be cut by issuing securities.
The Central Bank called on all commercial banks Tuesday to liberalize, either totally or partially, their provisions for nonperformance loans in an attempt to increase the private equities.

According to a memo issued by the Central Bank this month, the banks can reduce the provisions through a deal with clients who failed to settle their loans with the banks. The memo added that clients with bad loans will be able to repay the banks by issuing securities against the value of properties that they own and are held by the banks.

Analysts estimated the property values that were foreclosed by the banks at more than $3 billion. Banks were forced to make provisions for most of the bad loans of their clients.

This procedure affected to a certain extent the profitability of banks. “The banks will give some of the clients with bad loans a chance to repay all the money they owe,” one banker said. He added that the new procedure will help banks to improve their credit ratings before the 2007 deadline that was set be the Basel Committee for international settlements.

The memo stressed that banks have until the end of 2004 to liberalize, totally or partially, their provisions for bad loans. “The most important thing about this new procedure is that the banks will free themselves from all the properties that they’ve possessed from their clients,” the banker said.

He added that if the banks tried to sell these properties in the market, they might get low prices, which would affect the real estate market in Lebanon.

The memo said that the commercial securities that will be issued by the clients with bad loans will have a maturity between five to 10 years.
The clients will pay the interest to the banks biannually. The banks will still maintain the right to retrieve the properties of the clients if they fail to pay the first three installments.

Lebanon has taken several measures to combat money laundering in the past year. The Financial Action Task Force issued a list of countries which were not cooperating with efforts to fight money laundering. Lebanon was on that list, but as a result of Lebanon’s recent actions, it has been removed from the list.

The Central Bank is streamlining the commercial banks to make them both more competitive and efficient. The Lebanese banks continued to maintain good profits over the past few years, despite the recession and political squabbling.

Beirut 12-10-2003
Osama Habib
The Daily Star

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