The Lebanese Economy: Developments and Prospects
2Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
New Paradigm for Financial Services : Where does Islamic Finance fit ?
Raed H. Charafeddine Banque du Liban
I
II
III
IV
Outline
General Institutional Framework
Lebanon’s Macroeconomic Prospects
Lebanon’s Macroeconomic Developments
Conclusion
The Lebanese Economy: Developments and Prospects
3Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Role and Functions of Banque du Liban
According to the article 70 in the Code of Money and Credit, the central bank is in charge of safeguarding the Lebanese currency in order to ensure the basis for sustained social and economic growth.
Its core functions include:
– Safeguarding the Lebanese currency,
– Safeguarding economic stability,
– Development of the money markets and financial markets,
– Safeguarding the soundness of the banking system.
According to the Law No 133/99 dated October 26, 1999 , the central bank is responsible of :
– Developing and regulating payment systems especially with regard to ATMs and payment Cards,
– Developing and regulating transfer payments, including electronic payments,
– Developing and regulating clearing and settlement operations related to payment systems and financial instruments
The Lebanese Economy: Developments and Prospects
4Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
BDL’s Monetary Policy : Objectives, Targets and Instruments
Objectives Targets Instruments
•Stabilize the
Exchange Rate
•Low Inflation rates
• Reduce
Unemployment and
Promote Growth
Operational Targets
BDL’s Foreign Reserves
Intermediate Targets
Money Aggregates
Interest Rates
Intervention in the FX
market
Changes in reserve
requirements
Open Market Operations
Central Bank Lending
policies (Repo
operations)
The Lebanese Economy: Developments and Prospects
5Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
BDL’s Organizational Arrangements
The Open Market Committee monitors Money and Capital markets’
developments and recommend appropriate actions.
The Central Council, headed by the Governor and regrouping the four
vice governors, the Director General of the MOF and the Director General
of MOE, sets the monetary and credit policies of the Central Bank,
including reserve requirements, discount and lending rates at BDL.
The Lebanese Economy: Developments and Prospects
6Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
General Institutional Framework
• The Lebanese banking and financial sectors enjoy the benefits
of a modern legal and regulatory environment, particularly with
respect to :
• Banking secrecy,
• The Free Banking Zone,
• Fiduciary activities,
• Opening Joint Accounts and
• Anti-money laundering measures.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
7Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Banking Secrecy Law
Enacted on September 3, 1956
It subjects all banks operating in Lebanon to banking secrecy.
Bank managers and employees engaged in banking activities
are bound to banking secrecy concerning customers’ names and assets.
No disclosure to third parties unless:
• the customer or his/her legatees has given written authorization, or
• a written request has been presented by the judicial authorities in cases of bankruptcy, suspected money laundering, litigation between the bank and the customer, suspected illicit accumulation of wealth.
Allows banks to exchange information on the debtor accounts of their customers through the Credit Risk Office established at BDL.
Raed H. Charafeddine
Banque du Liban
The Lebanese Economy: Developments and Prospects
8Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
The Free Banking Zone
• On the first of April 1975, decree No. 29 established a free
banking zone by granting the Lebanese government the right to
exempt non residents' deposits and liabilities in foreign
currency from :
– the income tax on interest earned,
– the required reserves imposed by the Banque Du Liban by
virtue of article 76 of the Code of Money and Credit,
– the premium of deposit guarantee imposed on bank
deposits to the profit of the National Deposit Guarantee
Institution
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
9Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Tax Exemptions
• Both article 16 of law No. 282 dated December 30, 1993 and
article 12 of decree No. 5451 dated August 26. 1994, offer
exemptions from income tax on all interest and revenues
earned on all types of accounts opened in Lebanese banks.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
10Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
The Fiduciary Operations Law
• Enacted on June 6, 1996
• Allows Banks and Financial Institutions to carry out off-balance
sheet business.
• Fiduciary operations with trustees and beneficiaries.
• Banks are also required to ensure transparency and
creditworthiness with respect to these operations which have
to be conducted under qualified management.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
11Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Opening Joint Accounts
• The law of December 1961 allows for the opening of joint
accounts.
• These accounts are opened in the name of several persons and
can be used by any one of these persons.
• In case of death of any one of the account owners, his/her
partner can use the account without being subject to heirs
procedures.
• In case one of the account holders is declared bankrupt, the
account becomes the ownership of the bankrupt party, unless
it is proven otherwise.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
12Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Opening Joint Accounts(2)
• The bank can't do any clearing for the different accounts of any
account holder without the written approval of all other
partners.
• The lifting of bank secrecy on the account is non operational
without it being declared by all partners.
• In case any litigation occurs among the different holders of the
account, the bank shall freeze the account from the day it
receives notification of the litigation and until it is settled by the
courts.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
13Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Fighting money laundering
• Law enacted on April 20, 2001
• Designed to comply with the FATF recommendations
• The law provides for the creation of an independent legal entity
with judicial status known as the “Special Investigation
Commission (SIC)”, Lebanon’s financial intelligence unit.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
14Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Fighting money laundering (2)
• Its tasks include:
– receiving and analyzing Suspicious Transaction Reports (STRs)
– conducting financial investigations,
– lifting banking secrecy,
– freezing accounts,
– sharing intelligence with its counterparts,
– coordinating with foreign/local law enforcement authorities on
Request Of Assistance (ROAs),
– not to mention introducing additional AML/CFT regulations and
ensuring compliance of banks and other reporting entities with
existing regulations.
The Lebanese Economy: Developments and Prospects
15Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Cases Received
63%
37%
Local Foreign
The Lebanese Economy: Developments and Prospects
16Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Status of Cases Received
38%
33%
29%
Passed On Not Passed On Pending
The Lebanese Economy: Developments and Prospects
17Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Bank Secrecy Lifted
Bank SecrecyLifted
InformationProvided
Pending Cases
InvestigatedCases
0
10
20
30
40
50
60
70
80
90
Local
Foreign
12
2 9
54
41 18
86
57
The Lebanese Economy: Developments and Prospects
18Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Cases by Predicate Offense
39
2 5
3 1 2
0
44
2
12
7
1 2 5
1
45
Local Foreign
The Lebanese Economy: Developments and Prospects
19Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Terrorism or Terrorism finance related cases
Police 14%
UN 43%
Embassies 14%
FIUs 29%
Local Foreign
The Lebanese Economy: Developments and Prospects
20Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Source of Foreign ROAs
Europe 50%
North America 11%
South America 11%
Middle East & Gulf 9%
United Nations 9%
Asia 6%
Australia 2%
Africa 2%
The Lebanese Economy: Developments and Prospects
21Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Nature of Specified Crimes 2001-2009
Forgery 39%
Trade of Narcotics
12%
Embezzlement of Private/Public
Funds 23%
Illegal Arms Trade
1%
Organized Crime 3%
Terrorism or Financing of
Terrorism 22%
The Lebanese Economy: Developments and Prospects
22Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
SIC : Forgery 2001-2009
Transfers 8%
Checks 54%
Banknotes 10%
Identification Documents
12%
Loan Instruments
10%
Other 6%
The Lebanese Economy: Developments and Prospects
23Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
LEBANON’s Macroeconomic Developments
• Uneven Economic Growth
• Exchange Rate Stability
• Reduced Inflation
• Large Capital Inflows & Remittances
• Reconstruction
• Large budget deficits & Public debt accumulation
• Public Finance Reform & Public Debt Restructuring; the Paris
III process
The Lebanese Economy: Developments and Prospects
24Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Main Features I
• Private sector-based Economy
• Finance of Reconstruction
• Large Budget Deficits
• Dollarized Economy: – payments,
– assets and liabilities of banking system;
– corporate sector
• Open Economy: – freedom of payments and capital flows;
– limited protection
• Multi-currency payment system
• Independent Central Bank
• Independent Banking Control and Supervision
The Lebanese Economy: Developments and Prospects
25Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Main Features II
• Introduction of New Laws and Modernization of Existing legislation to
deal with structural and institutional issues and change
• Money market and financial market instruments: CD’s, Repos’, Swaps
• Flexibility: BDL and BCC issue regulations to manage, organize,
supervise
• Comprehensive view: fiscal policy, monetary policy, exchange rate
policy, payment system, banking and financial sector
The Lebanese Economy: Developments and Prospects
26Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Macroeconomic Overview
1. Real Sector a. Real GDP
b. Coincident Indicator
2. External Sector a. X and M
b. BOP
c. FDI
d. Remittances
e. BDL FX reserves
f. Gold
3. Fiscal Sector a. Budget
b. Fiscal Deficit
c. Debt
4. Monetary Sector a. M3
b. FSI of Banking Sector
1. Inflation Rate
2. Exchange Rate
3. Interest Rates
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
27Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Nominal GDP Growth Rate
2,719 2,811
4,452 5,545
7,535 9,112
11,122
12,997
14,865 16,168 16,491 16,491 16,740
17,376 18,123
21,790 21,861 22,437
25,044
29,620
33,000
3
58
25
36
21 22
17 14
9
2 0 2
4 4
20
0 3
12
18
11
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
198919901991199219931994199519961997199819992000200120022003200420052006200720082009 e
in %
Nominal GDP Change in Nominal GDP
The Lebanese Economy: Developments and Prospects
28Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
BDL’s Coincident Indicator
Raed H. Charafeddine Banque du Liban
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
50
70
90
110
130
150
170
190
210
230
250
Ja
n-9
3
Se
p-9
3
Ma
y-9
4
Ja
n-9
5
Se
p-9
5
Ma
y-9
6
Ja
n-9
7
Se
p-9
7
Ma
y-9
8
Ja
n-9
9
Se
p-9
9
Ma
y-0
0
Ja
n-0
1
Se
p-0
1
Ma
y-0
2
Ja
n-0
3
Se
p-0
3
Ma
y-0
4
Ja
n-0
5
Se
p-0
5
Ma
y-0
6
Ja
n-0
7
Se
p-0
7
Ma
y-0
8
Ja
n-0
9
Se
p-0
9
Coincident Indicator Percent Change
The Lebanese Economy: Developments and Prospects
29Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
External Sector : Lebanon’s exchange and external
payments environment
Main Characteristics:
– Free exchange rate system
• No restrictions on purchases or sales of foreign currencies
• Lebanese Lira is fully convertible and can be exchanges freely with
any other currency (with the exception of one single currency)
– Free movement of capital with no restrictions on flows into or out
of the Lebanese markets.
– Multicurrency system in which foreign currencies circulate in the
market.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
30Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Balance of Payment (Net of Valuation Changes)
Raed H. Charafeddine Banque du Liban
382.2
30 109 101.8
403.3
-132.2
99.8
-133.5
253.4
1133.1
131.1
400.8
598.1
-169.2
864.3 714.3
1610
-1000
-500
0
500
1000
1500
2000
In M
illio
ns U
SD
Central Bank Banks & Financial Institutions Total
The Lebanese Economy: Developments and Prospects
31Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Trade Balance
Raed H. Charafeddine Banque du Liban
-488
-536
-556
-654
-582
-539
-463
-530
-501
-446 -529 -684
-655
-699
-823
-885
-1,016
-1200
-1000
-800
-600
-400
-200
0
0
200
400
600
800
1000
1200
1400
1600
In M
illio
ns U
SD
Exports Imports Trade Balance
The Lebanese Economy: Developments and Prospects
32Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Imports by regions (2008)
Raed H. Charafeddine Banque du Liban
Arab Countries 13%
South East Asia 15%
Other Asian Countries
10% EU 34%
Other European countries
11% North America
(Nafta) 12%
Other South America
3%
African Countries 1%
Oceania 0%
Others 1%
The Lebanese Economy: Developments and Prospects
33Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Exports by regions (2008)
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
34Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Direct Investment
The Lebanese Economy: Developments and Prospects
35Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Workers’ Remittances
The Lebanese Economy: Developments and Prospects
36Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Compensation of Employees
The Lebanese Economy: Developments and Prospects
37Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Gross Reserves Minus Gold
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
38Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Gold
Raed H. Charafeddine Banque du Liban
0
1
2
3
4
5
6
7
8
9
10
0
2000
4000
6000
8000
10000
12000Jan-9
3
No
v-9
3
Sep-9
4
Jul-95
May-9
6
Mar-
97
Jan-9
8
Nov-9
8
Sep-9
9
Jul-00
May-0
1
Mar-
02
Ja
n-0
3
Nov-0
3
Sep-0
4
Jul-05
May-0
6
Mar-
07
Jan-0
8
Nov-0
8
Sep-0
9
in M
illio
ns O
un
ces
in M
illio
ns U
SD
Gold according to national valuation Gold Fine Troy
The Lebanese Economy: Developments and Prospects
39Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Fiscal Sector : 2009 Budget Proposal
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
40Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Fiscal Performance
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
41Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Fiscal Sector : Debt Record
• The Republic had little public external debt prior to 1975 and,
with one minor exception, has been current on its debt service,
including during the 1975-1990 period of conflict.
• The only instance of arrears was in respect of a debt to the
United States Commodity Credit Corporation, which financed a
sale on concessional terms in 1970. The loan fell into arrears in
April 1986 as the Ministry of Finance, which coordinates
external debt service, was then unaware of its existence due to
loss of records during the conflict period. The loan was not
accelerated. The Ministry of Finance assumed responsibility
for the debt and the arrears (amounting to U.S. $5.5 million in
principal and accrued interest and U.S. $713,000 in late interest)
were cleared in 1995.
• The Republic has never conducted a Paris Club or London
Club rescheduling of its external debt.
Raed H. Charafeddine
Banque du Liban
The Lebanese Economy: Developments and Prospects
42Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Domestic and Foreign Debt
Raed H. Charafeddine Banque du Liban
5,803 9,348 11,997
17,229 19,787
21,686
25,383
27,161
28,214
25,302
26,843
26,371
29,141
30,204
31,373
39,007
735 1,449
2,145
2,960 3,713
6,283
8,351 10,828
14,467 21,974 23,442
27,711 28,844
30,647 31,977
31,881
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
In b
illio
n L
BP
I. Gross domestic debt II. Gross Foreign debt(2)
The Lebanese Economy: Developments and Prospects
43Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Gross Total Debt
Raed H. Charafeddine Banque du Liban
6,538
37,989
70,888
50%
71% 78%
99%
98%
109%
132%
151%
166%
168%
168%
167%
176%
180%
168%
160%
40%
60%
80%
100%
120%
140%
160%
180%
200%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
in %
of
GD
P
in B
illi
on
LB
P
Gross total debt Gross Public debt as Percentage of GDP
The Lebanese Economy: Developments and Prospects
44Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Composition of Foreign Debt
Raed H. Charafeddine Banque du Liban
24,743 26,441 27,099 26,817
3,682 3,787
4,459 4,645 419 419
419 419
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2005 2006 2007 2008
In B
illio
n L
BP
Eurobonds Loans Other debt
The Lebanese Economy: Developments and Prospects
45Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Breakdown of Loans
Raed H. Charafeddine Banque du Liban
893 932 907 748
0 0 603 1,095 703 714
759 745
1,928 2,026
2,104 2,002 158 115
86 54
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2005 2006 2007 2008
in b
illio
n L
BP
Paris II loans Paris III loans(4)
Bilateral loans (non-Paris II and III) Multilateral loans (non-Paris II and III)
Foreign Private Sector Loans
The Lebanese Economy: Developments and Prospects
46Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Breakdown of Eurobonds
Raed H. Charafeddine Banque du Liban
18,729 20,399 20,779 20,925
5,608 5,608 5,156 4,708
0 0 754 754
406 434 410 430
0
5,000
10,000
15,000
20,000
25,000
30,000
1 2 3 4
in B
illio
n L
BP
Accrued Interest on Eurobonds
Eurobonds: Of which, Paris III at preferential rates(3)
Eurobonds: Of which, Paris II at preferential rates(2)
Eurobonds
The Lebanese Economy: Developments and Prospects
47Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
The monetary policy for 2010
In the context of the liquidity surplus, the main targets for the monetary
policy are :
– Controlling Inflation, and
– Limiting speculation
Therefore BDL will be monitoring carefully the impact of the excess
liquidity in the market on the prices of assets & services.
o The inflation target set by BDL for 2010 is 4%, while
o The liquidity made available for credits is 15 Billions USD.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
48Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Monetary Aggregates
BDL’s Definition International Definition
M1 Currency in Circulation +
Demand Deposits in LPB
Currency in circulation + Commercial bank demand deposits + NOW (negotiable order of withdrawal) and ATS (automatic transfer from savings) accounts + credit union share drafts +mutual savings bank demand deposits + nonbank travelers checks
M2 M1 + Other deposits in LPB M1 + Overnight repurchase agreements issued by commercial banks + Overnight Eurodollars + Savings accounts + Time deposits under $ 100,000 + Money market mutual funds shares
M3
M2 + Deposits in FX M2 + time deposits over $ 100,000 + term repurchase agreements
M4
Or
L
M3 + TBs held by non
banking system including
accrued interests
M3 and other liquid assets such as: Treasury bills, savings bonds, commercial paper , bankers’ acceptances, Eurodollar holdings of United States residents (nonbank).
The Lebanese Economy: Developments and Prospects
49Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Monetary Sector
Raed H. Charafeddine Banque du Liban
0
50000
100000
150000
200000
250000
300000
Ja
n-9
5
Ju
l-9
5
Ja
n-9
6
Ju
l-9
6
Ja
n-9
7
Ju
l-9
7
Ja
n-9
8
Ju
l-9
8
Ja
n-9
9
Ju
l-9
9
Ja
n-0
0
Jul-00
Ja
n-0
1
Ju
l-0
1
Jan-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
in B
illi
on
s o
f L
BP
M1 M2 M3 M4
The Lebanese Economy: Developments and Prospects
50Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
BDL’s View on Banking Policy
Liquidity
Solvency (Capital Gearing)
Profitability
The Lebanese Economy: Developments and Prospects
51Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Overview of the Major Banking Regulations
• Setting a ceiling of 60% on bank loans for real estate projects (excluding housing
loans) to avoid a real estate bubble.
• Setting a ceiling of 50% on the value of an equity portfolio with the requirement to
cover losses immediately if the decrease in the portfolio's market value reaches 25%
of its initial value. This protected the Lebanese banking sector from sharp speculation
on stocks as witnessed in many regional and international markets.
• Regulating Bank’s dealing with derivatives and structured products through
Central Council’s prior approval . Restricting the Lebanese banks to deal in
derivatives for their own accounts.
• Forbidding the acquisition of subprime mortgage debt and high risk assets which
triggered the current global crisis.
• Requiring that banks maintain high levels of liquidity 30%.
The Lebanese Economy: Developments and Prospects
52Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Overview of the Major Banking Regulations(2)
• Requiring that banks maintain a high capital adequacy ratio, which reached 12%
in 2008.
• Building adequate provisions against Non Performing assets.
• Abiding by international standards on fighting money laundering, good
governance, transparency and capitalization requirements.
• Allowing banks to carry out lending operations depending on their level of capital
adequacy.
• Adopting lending policies that balance between the commercial purpose of the
loan and risk management.
• Prohibiting excessive financial leverage in the Lebanese economy, with credits to
the private sector representing around 3 times the private equity of banks,
while this ratio exceeds 20 and even 40 times in many countries in the world
and in the region.
The Lebanese Economy: Developments and Prospects
53Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
Overview of the Major Banking Regulations(3)
Consequently, the Lebanese banking sector
o carries no toxic assets in its balance sheet,
o didn't incur any losses similar to those incurred in many
international banks that have excessively invested in shady
financial assets and subprime securities.
o Confidence and good credit reputation of the Lebanese banking
sector are reflected in various positive indicators in 2008 and 2009.
The Lebanese Economy: Developments and Prospects
54Raed H. Charafeddine Banque du Liban
Banking Sector : Total Assets
61,589
70,59573,565
78,855
88,853
101,862
124,457
15%
4%
22%
15%
7%
13%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2003 2004 2005 2006 2007 2008 2009 (P)
in M
illio
ns o
f U
SD
0.000
0.050
0.100
0.150
0.200
0.250
in %
Assets (in millions of U.S. dollars) Assets Growth Rate
The Lebanese Economy: Developments and Prospects
55Raed H. Charafeddine Banque du Liban
Banking Sector : CAR
22.321.2
22.9
25
12.511.8
12.4
0
5
10
15
20
25
30
2003 2004 2005 2006 2007 2008 Jun-09
in %
Capital adequacy ratio 1/ 2/
The Lebanese Economy: Developments and Prospects
56Raed H. Charafeddine Banque du Liban
Banking Sector: Capital to Asset Ratio
6.9 6.8
7.5
9.18.9
7.8
7
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Capital to asset ratio
The Lebanese Economy: Developments and Prospects
57Raed H. Charafeddine Banque du Liban
Banking Sector: Net Problem Loans
12.8
10.6
9.1
6.8
4.7
3.1
2.2
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Net problem loans/Net total loans
The Lebanese Economy: Developments and Prospects
58Raed H. Charafeddine Banque du Liban
Banking Sector: Net Problem Loans (2)
46.3 46.149
54.456.9
61
64.4
0
10
20
30
40
50
60
70
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Provisions against problem loans/Problem loans
The Lebanese Economy: Developments and Prospects
59Raed H. Charafeddine Banque du Liban
Banking Sector: Provisions
53.157.3
63.3
72.476.8
85.6
98.4
0
10
20
30
40
50
60
70
80
90
100
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Total provisions/Problem loans
The Lebanese Economy: Developments and Prospects
60Raed H. Charafeddine Banque du Liban
Banking Sector: Claims on Government and on BDL
23.2 23.6
25.2
27.9
26.127
24.2
31.3
28.629.9
27
24.7
27.829.3
0
5
10
15
20
25
30
35
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Share of claims on government Share of claims on BdL
The Lebanese Economy: Developments and Prospects
61Raed H. Charafeddine Banque du Liban
Banking Sector: ROA and ROE
0.7 0.7 0.7 0.9 1 1.1 1.05
10.9
9.3
11
10.1
12.1
1414.39
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 (P)
in %
Average return on assets (post tax) Average return on equity (post tax)
The Lebanese Economy: Developments and Prospects
62Raed H. Charafeddine Banque du Liban
Banking Sector: Dollarization Rates
63
70.1
75.977
69.2
73.2
66.2
87 86.4 86.6 87.1 87.5 87.6
84.7
50
55
60
65
70
75
80
85
90
2003 2004 2005 2006 2007 2008 2009 (P)
in %
FC deposits/total deposits FC loans/total loans
The Lebanese Economy: Developments and Prospects
63Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Raed H. Charafeddine Banque du Liban
USD/LBP Exchange Rate
842.00 879.00
1838.00
1711.00
1647.00
1596.00 1552.00
1527.00 1508.00 1507.50 1507.50
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
MARKET RATE, END OF PERIOD MARKET RATE, PERIOD AVERAGE
The Lebanese Economy: Developments and Prospects
64Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Nominal Effective Exchange Rate
Raed H. Charafeddine Banque du Liban
100.00
100.27
98.22
90.07
88
90
92
94
96
98
100
102
2005 2006 2007 2008
Nominal Effective Exchange Rate (2005=100): Period Averages
The Lebanese Economy: Developments and Prospects
65Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
The Real Estate Sector: Supply and Demand
SUPPLY DEMAND
Construction permits grew (+78%) in
2008 and dropped in 2009 (-11%).
Excluding the effect of Dec 2008
rush in registrations, 2009 figures
are reliable.
Mount and North Lebanon’s share is
on the rise since 2007 whereas
Beirut’s share decreased by -5% in
2008 and by -3.5% in 2009
Cement deliveries increased (+7%) in
2008 and (+16%) in 2009 thus actually
fuelling supply
Registered sales soared in 2008
(+58%) and modestly increased in
2009(+4.5%)
2009 Weak performance was caused
by a drop in sales in Jan-May period.
Recovery only started afterwards and
is so far sustained with better figures
than that witnessed in 2008.
Sections and built lots sales are
healthy and improving. Raw lands are
facing either price pressure or
reallocation into cheaper areas or
both.
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
66Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
The Real Estate Sector: Supply and Demand
SUPPLY DEMAND
According to Banque de L’habitat :
• Foreign and Expatriates are active
in the market and their acquisitions are
on the rise since 2007
• Monthly housing loans soared to
almost double in the last quarter of
2009 compared to the historical
average ( 20 Billion LBP/Month vs. 8
Billion LBP/ Month)
Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
67Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
BDL’s view on the evolution of the real estate sector
Raed H. Charafeddine Banque du Liban
• BDL is confident about the evolution of the real estate sector in
Lebanon
• There is no room for a real estate bubble since speculation is
bounded by the credit ruling i.e. all real estate projects loans
are being granted on a 40% collateral basis and therefore the
financing part is limited to 60% of the total real estate value.
• The increase in prices is driven by a strong demand owing to :
– The correction of agents expectations , especially in the context of
a more stable political and security environment
– Increase of the number of residents in Lebanon
– Improvement of economic conditions
The Lebanese Economy: Developments and Prospects
68Raed H. Charafeddine Banque du Liban
Evolution of Real Estate Loans
in Millions LBP 2008 2009
Growth Rate
E01
Residential
Buildings
803,453
1,293,467 61%
E02
Commercial
Buildings
1,554,528
1,798,167 16%
K01
Real Estate
Services
2,290,239
2,633,715 15%
R02
Personal
Mortgages
2,665,244
4,228,357 59%
7,313,464
9,953,706 36% Source: BDL – Centrale Des Risques
The Lebanese Economy: Developments and Prospects
69Raed H. Charafeddine Banque du Liban
BDL’s New Incentives
in Millions LBP
Total Amount
approved
Balance of
Granted
Credits as of
31/12/20009
Education Loans 105,100 4,565
Other Loans 583,800 421,653
• Commercial Loans in LBP 265,391
• Commercial Loans in FX 13,220
• Non-Subsidized Productive Loans in
LBP 15,087
• First Housing Loans 127,955
The Lebanese Economy: Developments and Prospects
70Raed H. Charafeddine Banque du Liban
BDL’s New Incentives: Balance As of End 2009
Education Loans
1%
Commercial Loans in
FX
3%
Non-Subsidized
Productive Loans in
LBP
4%
Commercial Loans in
LBP
62%
First Housing Loans
30%
Education Loans Commercial Loans in LBPCommercial Loans in FX Non-Subsidized Productive Loans in LBPFirst Housing Loans
The Lebanese Economy: Developments and Prospects
71Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Population
Raed H. Charafeddine Banque du Liban
2.97 3.05 3.16
3.28 3.39
3.49 3.57 3.63 3.67 3.72 3.77 3.83 3.90 3.97 4.03 4.08 4.13 4.16 4.19
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
in M
illio
ns
The Lebanese Economy: Developments and Prospects
72Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
USD Interest Rates – End of period
Raed H. Charafeddine Banque du Liban
12.19 11.74 11.69
11.3 10.87 11.15
10.14 9.62
8.81
7.98 8.38 8.55
8.02 7.473
7.28
5.46 5.62 5.9 5.67 5.63 6.03
4.21 4 3.43 3.25
4.09 4.76 4.69
3.33 3.05
6.73
6.12 5.79 5.63
5.24 5.12
5.93 5.62
5.38
4.73
4.29
3.79
3.33 4.143 4.23
0
1
2
3
4
5
6
7
8
0
2
4
6
8
10
12
14
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
In 1
00
bas
is p
oin
ts
in %
Commercial Banks -US$: Discount and Loans (Weighted Average)
Commercial Banks -US$: Average Rate on Deposits (Weighted Average)
Spread
The Lebanese Economy: Developments and Prospects
73Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
LBP Interest Rates
Raed H. Charafeddine Banque du Liban
28.99
24.68
20.28 20.04 18.38 17.94
16.76 16.1
11.32 10.48 10.12 10.37 10.1 9.95 9.04
17.12
14.69 12.97 12.61
11.3 10.44 10.15 9.83 7.79 7.01 7.7 7.49 7.4 7.22 6.75
11.87
9.99
7.31 7.43 7.08
7.5
6.61 6.27
3.53 3.47
2.42 2.88 2.7 2.73
2.29
0
2
4
6
8
10
12
14
0
5
10
15
20
25
30
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
in 1
00
basis
po
ints
in %
Commercial Banks -LBP: Discount and Loans (Weighted Average)
Commercial Banks -LBP: Average Rate on Deposits (Weighted average)
Spread
The Lebanese Economy: Developments and Prospects
74Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Currency Spread
Raed H. Charafeddine Banque du Liban
17.12
14.69
12.97 12.61
11.3 10.44 10.15 9.83
7.79 7.01
7.7 7.49 7.4 7.22 6.75
5.46 5.62 5.9 5.67 5.63 6.03
4.21 4 3.43 3.25
4.09 4.76 4.69
3.33 3.05
11.66
9.07
7.07 6.94
5.67
4.41
5.94 5.83
4.36 3.76 3.61
2.73 2.71
3.89 3.7
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
16
18
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
in 1
00
basis
po
ints
in %
Commercial Banks -LBP: Average Rate on Deposits (Weighted average)
Commercial Banks -US$: Average Rate on Deposits (Weighted Average)
Currency Spread
The Lebanese Economy: Developments and Prospects
75Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Repo Rates
Raed H. Charafeddine Banque du Liban
30
25
20
12 10
0
5
10
15
20
25
30
35
Dec-9
7
Jul-98
Fe
b-9
9
Sep
-99
Apr-
00
Nov-0
0
Jun-0
1
Jan-0
2
Aug
-02
Mar-
03
Oct-
03
Ma
y-0
4
Dec-0
4
Jul-05
Fe
b-0
6
Sep
-06
Apr-
07
Nov-0
7
Jun-0
8
Jan-0
9
Aug
-09
In %
The Lebanese Economy: Developments and Prospects
76Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
LB TBs Yields
Raed H. Charafeddine Banque du Liban
0
5
10
15
20
25
30
35
40Jan-9
0
Nov-9
0
Sep-9
1
Jul-92
May-9
3
Mar-
94
Jan-9
5
Nov-9
5
Sep-9
6
Jul-97
May-9
8
Mar-
99
Jan-0
0
Nov-0
0
Sep-0
1
Jul-02
May-0
3
Mar-
04
Jan-0
5
Nov-0
5
Sep-0
6
Jul-07
May-0
8
Mar-
09
In %
Treasury Bills - 3 months Treasury Bills - 6 months
Treasury Bills - 12 months Treasury Bills - 24 months
The Lebanese Economy: Developments and Prospects
77Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Consumer Price Index
The Lebanese Economy: Developments and Prospects
78Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Credit Default Swap
The Lebanese Economy: Developments and Prospects
79Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Investments Opportunities in Lebanon
1. Tourism The industry has the potential to grow since :
Historical Natural Sites are only paralleled by Egypt in the region
Hotels Occupancy rates increased from 25-35 % in 2005-2006 to 85-95% in 2009
Touristic Services Capacities should be increased to accommodate with the increasing Demand (for eg. Hotels, Tour Operators etc…)
2. Medical Tourism Lebanon used to play the role of the “Medical Center” of the Middle East
owing to the superior quality of its services and the higher qualification of its Human Ressources.
Hospitalization sector, Dentistry, Laboratory, Para-medical services and more sophisticated surgeries can be developed given the continued attractiveness of the sector to regional users as these specialized services remains under-developed in the area.
Lebanese market has a competitive edge in terms of cost effectiveness. Medical packages are offered at an attractive price to quality proportion
The Lebanese Economy: Developments and Prospects
80Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Investments Opportunities in Lebanon
3. Education • Mainly academic with over 40 Universities and Academic Institutions, some of them
with over 100 years of experience covering a broad spectrum of specialization
• Limited technical education, which represents a scope for new technical colleges to train people in much needed vocations
4. Financial Sector • Traditional banking is recognized to be among the best in the world
• Monetary sector is well developed and the volume of its assets runs 3.5 times GDP at a time where the international benchmark is at 1-1.5 times GDP.
• Existence of a niche of specialized institutions which offers Investment Banking services : Corporate Debt Structuring and Re-structuring, M&A, IPOs, Venture Capitalist, Private Equity Institutions.
• Insurers and Reinsurers should cater for attractive opportunities in the markets which are in the scope of activity for the traditional Lebanese banks ( Egypt, Jordan, Syria, Iraq, Turkey …) as well as all Western Africa without the hindrance that is encountered by the US Institutions such as the Credit rating and its impact on the solvency of these institutions.
• Lebanese Banks handle it in a smart way by inviting local participation to overcome this constraint.
The Lebanese Economy: Developments and Prospects
81Raed H. Charafeddine Banque du Liban
The Lebanese Economy: Developments and Prospects
Raed H. Charafeddine Banque du Liban
Investments Opportunities in Lebanon
5. Other Services • Stock exchange is one area which need support (possibly from the SEC in NY)
since it is grossly underdeveloped
• Software development and design: Murex, a single enterprise, has been very successful in serving international financial institutions.
• Nascent experiment in developing the software service for a technology incubator : Berytech, which is helping several young companies to address opportunities which are not yet properly tapped.
6. Energy • Shortage of electricity production
• We are looking for new technologies with efficient and clean energy resources. The central bank issued a circular which encourages the lending to the environmental-friendly projects in Lebanon. Major focus in the implementation of the new measures and policies undertaken by the central bank.
7. Real Estate • Real Estate remains lucrative.
• Prices adjusted to their historical rates after a period of stagnation
• Sector prospects remains promising