| COUNTRY PERSPECTIVES
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LEBANON |
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Finance & banking system |
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The financial sector is bank-centric, generally acknowledged to be exceptionally large and relatively stable. Lebanon has liberal codes for capital and money market transactions, with no restrictions on either inflows or outflows. The country has an open foreign exchange market, full currency convertibility, and unrestricted repatriation of capital. |
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Finance & banking system |
The financial sector is bank-centric, generally acknowledged to be exceptionally large and relatively stable. Lebanon has liberal codes for capital and money market transactions, with no restrictions on either inflows or outflows. The country has an open foreign exchange market, full currency convertibility, and unrestricted repatriation of capital. A 1956 law introducing absolute bank secrecy to protect depositors and investors and law n°318 of 2001 outlining anti money laundering measures have been promulgated.
The Central Bank supervises and regulates the banking system. Since 1998, commercial banks have been required to meet a minimum capital adequacy ratio of 12 percent, obligatory reserves corresponding to 10 percent of annual profits, and systematic recourse to the provisioning of non-performing loans in line with the Basle II Agreement. Banking capital has increased substantially and by the end of 2001, the average capital adequacy ratio of commercial banks came to about 16.18 percent. Banks are required to draw up financial statements and auditors must publish consolidated and audited financial statements annually.
As of February 2004, the sector consisted of 63 active commercial banks. Lebanon’s 63 banks in fact have greater means at their disposal than the national economy, with assets three times higher than GDP. Activity is strongly concentrated at 16 banks, which control 80 percent of the market.
By the end of September 2005, total assets at Lebanon’s five largest commercial banks amounted to some US$ 39.8 billion, 58 percent of total banking assets. The country counts 10 specialised medium and long-term loan institutions, 28 financial institutions, 8 financial intermediaries, and 3 leasing companies. The financial intermediation level is equivalent to around 240-250 percent of GDP, reflecting the considerable weight of the banking sector. The Bank of Lebanon (the country’s Central Bank), however, encourages bank mergers to boost regional competition. It intends to push for consolidation of the sector, which is considered to be too fragmented. Over 25 bank mergers have taken place in the past decade and additional mergers are expected following Parliament’s approval of revised legislation governing bank mergers.
Islamic banks were recently authorised in Lebanon, under a law dated 11 February 2004, supplemented by two circulars from the Central Bank of Lebanon dated 30 August 2004, which grant certain incentives. This opening to Islamic banks is mainly dictated by the already considerable flow of Arab capital to Lebanon. The Crédit Libanais set up a subsidiary in 2005 specialised in Islamic banking services. This new entity has capital amounting to US$ 20 million.
Nearly 10 foreign banks are active in Lebanon, notably Banque Audi (Swiss), Commerzbank, Crédit Suisse, Dresner Bank, HSBC, Intesa S.P.A, the Bank of New York, JP Morgan Chase, and the Arab Banking Corporation. Subsidiary companies of French banks - BNPI (BNP Paribas), the Lebanese-French Bank and Fransabank (Calyon), SGBL (General Company) - play an important role. In addition, banks have promoted a strategy for regional expansion by opening branches in Syria, Jordan, Sudan and Algeria. BLOM (Lebanon's largest bank) has recently acquired 99 percent of Egypt’s MISR Romanian Bank (MRB).
Insurance activities are regulated by the 1968 Insurance Law, which sets up a specialised Insurance Department with supervisory responsibilities at the Ministry of Economy. Amendments to this law in 1999 introduced an increase in minimum capital required, the introduction of a solvency margin corresponding to 10 percent of gross premiums and an increase in the minimum technical provisions required per line of business. Newly licensed companies must specialise in either life or general insurance.
The Beirut Stock Exchange (BSE) is quite dynamic, with market capitalisation amounting to US$ 3.45 billion at the end of 2004, compared to US$ 1.24 billion in 2001. This is 86.7 percent growth in three years, sustained by the introduction of 12 sovereign Eurobond issues (eleven in US$ and one in EUR). There are 16 traded companies and about three quarters of operations involve Solidere shares. This is one of the largest publicly held companies in the region, in charge of rebuilding downtown Beirut. The Beirut Stock Exchange plans to set up a securities and exchange commission and in 2005 launched around-the-clock trading and electronic transactions.
The government attaches great importance to development of the financial market and reforms are under study to increase its contribution to financing of the economy, in particular the possibility of quoting privatised company shares on the stock market, development of the insurance sector and life insurance products, and other institutional investors who could play a major role in making the capital market more dynamic. |
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