BEIRUT: The $14 billion of capital inflows recently deposited in Lebanese banks may pose a burden if proper investment tools are not found for this massive cash injection, bankers and economists warned Monday. The Central Bank said recently that close to $14 billion flowed into Lebanon in the first eight months of 2009, despite the long running political stalemate and the failure of Prime Minister-designated Saad Hariri to form a cabinet.

Some bankers, although thrilled by the size of capital inflow in such a short period of time, argue that they cannot sit on this cash for ever because the costs of deposits are a too high.

“About 90 percent of this cash has been converted into Lebanese pounds because the interest rates on the local currencies are higher than US dollar and other foreign currencies. But Lebanese banks [face the] problem of the cost of funding which may be reflected in terms of banks’ profits each year,” head of research at Byblos Bank Nassib Ghobril told The Daily Star.

He added that the profits of Lebanese banks were already being affected by the declining interest rates on both the Lebanese pound and US dollar.

Over the past six months, the Central Bank has gradually reduced interest rates on all five categories of treasury bills to help the Finance Ministry cut the cost of debt servicing and eventually reduce the budget deficit.

Lebanese banks are the biggest subscribers to the T-bills and sovereign Eurobonds, which increases their risk exposure to the growing public debt in Lebanon.

Although the public debt to GDP ratio fell to 161 percent from 180 percent three years ago thanks to the growth in the economy, this debt nevertheless is expected to reach $51 billion at the end of 2009.

Ghobril reflects popular opinion when he says that banks need to find new investment tools to generate good revenues in order to cover the cost of deposits in Lebanese banks.

But this may be easier said than done, given that investment outlets in the Gulf states are becoming harder to find.

Before the global financial crisis, many Lebanese banks managed to grant loans to Lebanese expatriates in Gulf countries to finance specific projects. But since the credit crunch spilled over to Dubai and other Gulf countries, bank lending to Lebanese expatriates has dropped.

At one point, more than 15 percent of the total assets of Lebanese banks came from their operations abroad.

Another banker said that falling interest rates on the Lebanese pound would induce banks to lend more to the private sector.

“But how can we lend to the private sector even at lower rates if the investors are not too comfortable about the political situation? We must have a government as soon as possible to encourage investments,” the banker said.

“Every time we have a transition of power in Lebanon, it results in political crisis. This discourages investment and has a negative impact on consumer confidence,” he said. Bankers and financers are deeply concerned by the inability of politicians to form a government at this critical stage.

Ghassan Deebah, a professor of economics at the Lebanese American University, believes that the Lebanese banks are in a middle of a crisis.

“It is wrong to assume that a rise in capital inflow is good. For the time being, the Lebanese banks have an outlet through subscribing to T-bills. But the more money you put into banks the more difficult it becomes to find outlet for this cash,” Deebah said.

Lebanon has the only fixed exchange system in the world.

“Before Argentine and Uruguay had similar monetary exchange system as Lebanon but they eventually collapsed,” said Deebah, adding that capital inflow and the role of the Lebanese banks in re-financing the public debt have prevented Lebanon from a similar fate.

“But this has its cost in terms of rising debt to GDP ratio,” Deebah said.

Deebah stressed that the growth of the banking sector was at the expense of the rest of the economy.

“If you look at the data on the manufacturing sector since 1998 we notice a trend towards de-industrialization,” he said.

Deebah sarcastically concluded: “Let’s hope that the Lebanese government will not nationalize the local banks if things go out of control. Look what happened to some of the banks in the US where the government injected billions of dollars to keep these banks afloat.”

IMF examines the situation of Lebanon to create the optimal mathematical model

Lebanese expatriate remittances to meet the increase of public debt (Marwan Bou Haidar)
Lebanon represents a model for countries with high public debt, which contribute to strong remittances in the economic wheel. Is there a link between the field in? Yes, according to a paper to the International Monetary Fund. Control over the sustainability of debt ratios would require an increased government revenue, which represents tax on the recipients of funds transfers to act as a key
Become remittances to developing countries than the rest of the importance types of flows, which are included in calculating the balance of payments, and more emphasis on its role in the continuation of economic cycles in the receiving countries and their contribution to the sustainability of public finances, especially when Razhp under the pressure of a large public debt service.
It calls for a new research study issued by the International Monetary Fund that the value of remittances to developing countries, not least those that go through official channels, have risen since 1998, to take immediately after foreign direct investment, representing times the flow of private capital and international aid, the value of those transfers, according to the latest estimates of the International Monetary Fund, about $ 135 billion, «There is significant literature documenting the benefits of improved standard of living that result from the remittances for the benefit of the recipient».
According to the study, «the conclusion that transfers a significant impact on fiscal policy and the level of sustainability (service) religion might be at first glance surprising, since it was not government claims relating to the funds transferred from person to person» except of course the traditional fees on remittances. But the recipient, if an individual or family, «will be adjusted in the patterns saved and spent according to the level of growth of remittances», affecting the macro-economic indicators and fiscal … This study attempts to address its impacts on the sustainability of public debt service in the recipient countries of remittances.
Lebanese situation best In Lebanon, remittances accounted for more than 20% of GDP (about $ 6 billion) in 2008, with the rate of public debt to gross to 162%, prompting his servants Yasser Chami, Ralph and Michael Geeben Mate, the Secretary to the adoption of Lebanon as «ideal situation »In the study of the Fund under the title:« the financial sustainability of countries dependent on remittances ».
The study finds that «the introduction of transfer factor in the traditional analysis of the sustainability of debt (providing requirements) was key in working to achieve that sustainability». The study says that «the real growth of remittances and GDP determine the quality of fiscal policy».
Although the researchers recognize that the result that they arrived «initial», they stress that it «show different control measures on religion between countries with different structures, balance of payments».
3 scenarios show that the surplus to be reduced the higher the flow of funds
In order to determine the appropriate financial policies, the study advocates the countries concerned, on the basis of the Lebanese model, to «look at the stability across several criteria». It is therefore important indicators of «rate of public debt to gross» and «rate of public debt to gross transfers plus».
The study focuses on the overall growth rates and the growth of remittances in addition to inflation, public debt … To identify indicators for Lebanon until 2014, says that «during the period between 2001 and 2008 noted that the rate of the primary surplus (in the national accounts) required for the stability of the rate of public debt to GDP is greater than that required for the stability of the rate of debt to GDP plus transfers». This is due to that during that period «a higher rate of growth of remittances growth rate of GDP», in other words «GDP growth, plus transfers, was greater than the GDP growth».
The study 3 scenarios for the period between 2009 and 2014, to discuss the financial impact of remittances on financial adjustments, as the growth of the Lebanese economy will be affected significantly by the wave of the global slowdown, particularly in the economies of Gulf Cooperation Council:
■ the first scenario, the effect that remittances will grow by 6% during the period studied, meaning that they resist the implications of world financial crisis.
The second scenario considers that remittances to Lebanon is associated primarily with the economic performance of countries of the source of funds. This means that the decline in growth rates in the GCC countries and the United States, Canada and Australia will lead to reduced remittances to Lebanon in 2009 at a rate that is supposed Monetary Fund 15.9%. During the remaining years of the period studied is likely to be the rate of growth of remittances is zero percent, because of the conditions of source countries of remittances.
The third scenario assumes like the former, that remittances will be reduced by 15.9% in 2009, but Lebanon will witness a positive reversal in subsequent years, and the flow of remittances will register a growth rate ranging between 4.2% and 6%. stability … Reducing
And relates the study to the cases of «to maintain debt at current levels» and «targeting a lower level of debt» during the period studied. According to the scenarios put forward different results achieved in theory.
And subjected to financial adjustments required in order to reduce the rate of debt by 30% by 2014 compared to 2008. She says that «a primary surplus represents 7.2% of GDP enough» to achieve this target, and the «reduced the required rate to 6.9% to reduce the rate of debt to gross domestic product, plus transfers in accordance with the first scenario». This means that when high conversion rate will be reduced the surplus to the required output to reduce the rate of debt to GDP. According to the figures assumed the difference of 0.3 percentage points. In contrast, a high rate of the surplus to the required output, according to the third scenario, to 7.7% in order to reduce the rate of public debt to gross domestic product by 30% by the year 2014.
In general, the third scenario is located between the first and second scenarios in terms of ease of reduction of debt to output, of course, due to expectations concerning the growth of remittances. From this point study focuses on the importance of flow of funds to provide the service the public debt and sustainability of public finance mechanisms at the margins are positive.

BEIRUT: Central bank Governor Riad Salameh renewed confidence in the performance of the Lebanese banking sector Thursday, citing the International Monetary Fund’s expectations of a GDP growth rate reaching 7 percent during 2009, if the recent revival in lending activity is preserved. According to the latest weekly monitor study issued by Bank Audi, total loans of commercial banks progressed by LL1,381.3 billion during the month of July alone, surpassing the growth in loans during every month since February 2008, bearing in mind that, in 2008 and prior to the outbreak of the crisis, Lebanese banks were following an aggressive lending strategy.

“The balance of payments surpassed $3 billion for the first seven months of the 2009 and the monetary situation is very positive,” said Salameh.

The same report issued by Bank Audi reported that the sturdy influx of capital into the country over the first seven months of 2009 resulted in a cumulative balance of payments surplus of $3,347.4 million, a record high for Lebanon, and up from a surplus of $1,611.2 million in the first seven months of 2008.

It said the cumulative surplus in the first seven months of 2009 is the result of a rise of $5,033.1 million in net foreign assets of the central bank, which more than offset the decline of $1,685.7 in those of banks and financial institutions.
Salameh said the dollarization rate reached 67 percent, which reflects great trust in the monetary situation in the country and the Lebanese pound.

His remarks came during the monthly meeting of the Lebanese banks association.

He lately disclosed that up to $16 billion of cash came into Le banon over the past 12 months, 90 percent of which was converted into Lebanese pounds.

He reiterated that the central bank will continue to uphold the same monetary policy be cause preserving the Lebanese pound has become the cornerstone of stability.

Salameh also praised the Lebanese banks’ favorable reaction to the regulations issued by the central bank concerning housing loans and the other new projects including environmental and educational ones in re turn of the cancellation of man datory reserves. – The Daily Star

BEIRUT: Lebanese banks continued to see steady growth in customer deposits and assets for the seventh month this year. Bank Audi’s weekly monitor, which released new figures on the performance of Lebanese banks, noted that July 2009 was yet another month during which all banking activity indicators moved upward with assets progressing by a monthly LL2.660 trillion, or $1.764 billion and deposits in­creasing by a monthly LL2.877 billion.

“This monthly growth in deposits is deemed especially significant as it is the second-highest monthly deposit growth rate witnessed in over a year now, following that observed in April 2009,” Audi said.

It added that the growth in assets and in deposits are important indicators of the sturdiness of the Lebanese banking system. Nonetheless the most notable result in the banking sector in July was the revival of lending activity after months of a strict lending policy adopted by banks since the eruption of the global financial crisis in late 2008.

Total loans of commercial banks progressed by LL1.3813 trillion during the month of July alone, surpassing the growth in loans during each and every month since February 2008, bearing in mind that in 2008 prior to the outbreak of the crisis, Lebanese banks were following an aggressive lending strategy.
“This growth is especially significant as it occurs during a period of deleveraging across the globe and could be attributed to the relatively large flexibility at Lebanese banks characterized by high liquidity and significant operating surpluses,” Audi said.

It is worth noting that almost 79 percent of the total growth in loans during the seventh month of the year, the equivalent of LL1.086 trillion, is in the form of loans extended to non-residents.

“This indicates that Leba­nese banks are continuing the path they were following prior to the global crisis, which was characterized by extending vigorous loans to regional corporates in order to make use of the banks’ abundant liquidity, bearing in mind that the local market remains relatively small considering the size of the country’s banking system and its ensuing liquidity,” Audi said.
The upsurge in all three banking-activity indicators during the month has kept aggregate activity flourishing in the first seven months of the year.

Between December 2008 and July 2009, total bank assets grew by $11.1 billion, the equivalent of 11.8 percent, higher than the growth of 9.6 percent reported over the corresponding period of 2008, and nearly three times the average growth recorded over the corresponding period of the previous six years of 4.6 percent.

Customer deposits remained one of the most important activity drivers in the first seven months of the year. The latter’s growth during that period outpaced the growth reported in the first seven months of 2008 and was more than three times the average growth reported over the previous six years.

Bank deposits rose by a healthy 12.7 percent this year’s first seven months, moving from LL117.253 trillion at end-December 2008 to LL132.188 trillion at end-July 2009.

“Within the context of significant conversions from FX holdings to LL holdings as a result of growing confidence in the national currency, the growth in deposits was accounted for to the extent of 58.5 percent by LL deposits, which actually grew by $ 5.795 billion, while FX depos­its rose by $4.112 billion over this year’s first seven months,” Audi said. – The Daily Star

BEIRUT: Lebanese banks did not only survive the far-reaching effects of the global credit crunch but managed to achieve significant growth in assets, deposits and net profits, Bank Audi said in full report on the performance of the local banking sector. The report was based mainly on the consolidated statistics of Lebanese banks as provided by Bankdata Financial Services.

The report indicated that the Lebanese banking sector has demonstrated a significant resilience to the on-going global financial crisis, adding to its successive episodes of noticeable resilience of the past few years.

“In fact, Lebanese banks activity, measured by total assets, grew by $13 billion in 2008, the equivalent of 13 percent, driven by customer deposits which accumulated $11 billion as outlined by consolidated banking statistics provided by Bankdata Financial Services, a trend that was extended even further over the first half of 2009, as per preliminary Central Bank statistics,” the report said.

The report infers that the growth in banking activity clearly highlights the strong confidence in the Lebanese banking sector within the context of perfect capital mobility across borders and with capital increasingly fleeing to the most immune banks and financial institutions around the world.
With respect to profitability, the report said that net profits reported a considerable growth of 26.7 percent in 2008, maintaining a six-year trend of consecutive positive double-digit annual earning growth rates for the banking industry despite the impact of the global financial crisis on the banks earning power around the globe.

According to the report however, the major banking challenge for the year ahead is to maintain the positive growth in earnings within the context of an expected drop in Lebanese banks spreads following the significant contraction of international interest rates over the past year.
The report adds that the global financial crisis which had obviously a negative impact on asset quality of banks across the world within the context of the acute economic downturn generating credit defaults did not leave its imprints on the Lebanese banks’ asset quality at all in 2008.

“On the contrary, the ratio of net doubtful loans to gross loans continued its decline, reporting its lowest level in more than a decade, reaching a mere 1.4 percent, down from 2.1 percent in 2007,” the report said.

At the macro level, the Lebanese banking system benefits from a stable deposit base supported by recurrent capital inflows, the bulk of which is constituted of remittances.

With annual remittances of close to $6 billion, Lebanon has the highest ratio for remittances per capita in the world. Such remittances, which have been sustainably growing year after year over the past decades, are not likely to re­ceive a significant hit as a result of the current crisis, and are expected to remain in the worst circumstances above 15 percent of Lebanon’s GDP.

At the regulatory level, Lebanese banks are very well regulated by international standards. The financial industry is well supervised by the Central Bank and the Banking Control Commission, which imposes significant regulatory measures for risk management and control.
But the report concludes that for the Lebanese resilience to be reinforced in the long term, structural reforms should take place in the aim of ensuring a soft-landing scenario for Lebanon’s public finance. – The Daily Star

Reporting from Beirut — Throughout history, men braved the odds to perform great feats. Outmatched generals snatched victory from the jaws of defeat. Titans of industry gambled on bold innovations to reap jackpots. Athletes tested the limits of human endurance in quests for glory.

Riad Toufic Salame, the governor of Lebanon’s central bank, is not one of those men.

“Being able to survive and to do well in this crisis,” Salame said, savoring a deep sigh. “I can tell you I was proud of this achievement.”

Most outsiders associate Lebanon with one of two extremes: machine-gun-wielding militants in fatigues firing weapons into the air or scantily clad merrymakers downing cocktails until dawn.

But a more sedate and moderate segment of the Lebanese population has also emerged from the political and economic wreckage of the last few decades. They are engineers and dentists, lawyers and bankers. They envision their country as neither hedonistic nirvana nor capital of mayhem, but as a safe harbor for low-key, middle-class ambitions. They have begun to quietly assert themselves.

Salame, who is Lebanon’s equivalent of the Federal Reserve chairman, exemplifies such geeks. He toiled for nearly two decades as an investment banker at Merrill Lynch before taking over as central bank governor 15 years ago. He’s a man of few extravagances, indulging in pricey Cuban cigars he pulls out of a wooden humidor in his spacious office. Unlike most Lebanese bigwigs, he drives himself to work, albeit in an armored BMW.

The country’s bankers adore him, speaking of him in glowing terms. He was once short-listed as a potential candidate for Lebanon’s presidency, a post that traditionally goes to members of his Christian Maronite community.

“We are very proud of him,” said Nassib Ghobril, head of research at Lebanon’s Byblos Bank. “He’s a very smart guy, and the regulations of the banking sector here have been kept up to international standards. It’s very tightly regulated.”

In a country known for windbag politicians prone to soaring oratory, Salame favors mundane technical facts as he describes the effort of growing Lebanon’s banking sector from $7 billion in assets in the early 1990s to $91 billion today.

That meant tightening regulations and banking requirements so much that 35 banks were driven out of business. They just couldn’t meet Salame’s conservative balance-sheet requirements, including a rule that bars banks from lending more than 70% of deposits.

It meant changing transparency rules to do away with Lebanon’s reputation as a money-laundering hub.

And it meant resisting temptation for easy money.

“We had criticism and some were saying that Lebanon could have bigger growth in its economy if there was not such regulation for credit,” Salame recalled. “We were criticized for putting too much regulation.”

When the real estate boom crested this decade and investors began bundling debt into nebulous financial instruments fueled by easy credit, the pressure was on for Salame to let banks take advantage of the high yields.

But Salame steadfastly refused.

He says the mortgage-backed securities worried him from the start. He watched curiously as investment bankers engaged in what he calls “rituals” to please the credit ratings agencies and got back such safe assessments of their products. He didn’t get it. Why were these considered safe investments? They were just too complicated. They went against a major tradition in Lebanese and Middle Eastern banking: Know to whom you’re fronting cash and who’s going to pay you back.

“We could not really sense who would be responsible in the end to collect these loans,” he said. “And we do not perceive banking as being a place to speculate on financial instruments that are not really concrete.”

He felt vindicated when he received a call from abroad last year after the collapse of Lehman Bros. It was a super-rich Lebanese investor living overseas.

“He was always skeptical about the stability here,” Salame recalled. “But he told me, ‘I sent all my money to Beirut now to the banks. You were right.’ “