Overview of the Lebanese Economy

Outline
I
General Institutional Framework
II
Lebanon’s Macroeconomic Developments
III
Lebanon’s Macroeconomic Prospects
IV
Conclusion
NewLebanese
The
Paradigm Economy:
for Financial
Developments
Services : Where
and does
Prospects
Islamic
Finance fit ?
2Raed
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
3Raed
Raed H. Charafeddine
Banque du Liban
BDL’s Monetary Policy : Objectives, Targets and Instruments
Objectives
•Stabilize the
Exchange Rate
•Low Inflation rates
• Reduce
Unemployment and
Promote Growth
Targets
Instruments
Operational Targets
BDL’s Foreign Reserves
Intervention in the FX
market
Intermediate Targets
Money Aggregates
Interest Rates
Changes in reserve
requirements
Open Market Operations
Central Bank Lending
policies (Repo
operations)
The Lebanese Economy: Developments and
Prospects
4Raed
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
5Raed
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.
The Lebanese Economy: Developments and
Prospects
6Raed
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.
The Lebanese Economy: Developments and
Prospects
7Raed
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
The Lebanese Economy: Developments and
Prospects
8Raed
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.
The Lebanese Economy: Developments and
Prospects
9Raed
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.
The Lebanese Economy: Developments and
Prospects
10Raed
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.
The Lebanese Economy: Developments and
Prospects
11Raed
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.
The Lebanese Economy: Developments and
Prospects
12Raed
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.
The Lebanese Economy: Developments and
Prospects
13Raed
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
14Raed
Raed H. Charafeddine
Banque du Liban
SIC : Cases Received
63%
37%
Local
The Lebanese Economy: Developments and
Prospects
Foreign
15Raed
Raed H. Charafeddine
Banque du Liban
SIC : Status of Cases Received
33%
38%
Passed On
The Lebanese Economy: Developments and
Prospects
29%
Not Passed On
Pending
16Raed
Raed H. Charafeddine
Banque du Liban
SIC : Bank Secrecy Lifted
86
90
57
80
70
54
60
50
41
40
18
30
20
10
2
9
0
12
Investigated
Cases
Foreign
Pending Cases
Information
Provided
The Lebanese Economy: Developments and
Prospects
Local
Bank Secrecy
Lifted
17Raed
Raed H. Charafeddine
Banque du Liban
SIC : Cases by Predicate Offense
39
44 45
12
5
2
7
3
2
Local
The Lebanese Economy: Developments and
Prospects
5
1
1 2
2
0 1
Foreign
18Raed
Raed H. Charafeddine
Banque du Liban
SIC : Terrorism or Terrorism finance related cases
Embassies
14%
UN
43%
FIUs
29%
Police
14%
Local
The Lebanese Economy: Developments and
Prospects
Foreign
19Raed
Raed H. Charafeddine
Banque du Liban
SIC : Source of Foreign ROAs
Australia Africa
2%
2%
Asia
6%
United Nations
9%
Europe
50%
Middle East &
Gulf
9%
South America
11%
North America
11%
The Lebanese Economy: Developments and
Prospects
20Raed
Raed H. Charafeddine
Banque du Liban
SIC : Nature of Specified Crimes 2001-2009
Terrorism or
Financing of
Terrorism
22%
Organized Crime
3%
Forgery
39%
Illegal Arms
Trade
1%
Embezzlement
of Private/Public
Funds
23%
The Lebanese Economy: Developments and
Prospects
Trade of
Narcotics
12%
21Raed
Raed H. Charafeddine
Banque du Liban
SIC : Forgery 2001-2009
Loan
Instruments
10%
Other
6%
Transfers
8%
Identification
Documents
12%
Banknotes
10%
The Lebanese Economy: Developments and
Prospects
Checks
54%
22Raed
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
23Raed
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
24Raed
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
25Raed
Raed H. Charafeddine
Banque du Liban
Macroeconomic Overview
1.
Real Sector
a.
b.
2.
External Sector
a.
b.
c.
d.
e.
f.
3.
X and M
BOP
FDI
Remittances
BDL FX reserves
Gold
Inflation Rate
2.
Exchange Rate
3.
Interest Rates
Fiscal Sector
a.
b.
c.
4.
Real GDP
Coincident Indicator
1.
Budget
Fiscal Deficit
Debt
Monetary Sector
a.
b.
M3
FSI of Banking Sector
The Lebanese Economy: Developments and
Prospects
26Raed
Raed H. Charafeddine
Banque du Liban
Nominal GDP Growth Rate
35,000
33,000
29,620
30,000
25,044
15,000
10,000
5,000
50.00
22,437
21,861
21,790
18,123
17,376
16,740
36
16,491
16,491
16,168
14,865
12,997
11,122
25
9,112
21 22
7,535
17
14
5,545
4,452
9
2,7192,811
3
2
-
0
2
4
40.00
in %
20,000
60.00
58
25,000
70.00
30.00
20
20.00
18
12
4
0
11 10.00
3
-
19891990199119921993199419951996199719981999200020012002200320042005200620072008
2009 e
Nominal GDP
The Lebanese Economy: Developments and
Prospects
Change in Nominal GDP
27Raed
Raed H. Charafeddine
Banque du Liban
BDL’s Coincident Indicator
250
30.00%
230
210
20.00%
190
10.00%
170
150
0.00%
130
-10.00%
110
90
-20.00%
70
-30.00%
Jan-93
Sep-93
May-94
Jan-95
Sep-95
May-96
Jan-97
Sep-97
May-98
Jan-99
Sep-99
May-00
Jan-01
Sep-01
May-02
Jan-03
Sep-03
May-04
Jan-05
Sep-05
May-06
Jan-07
Sep-07
May-08
Jan-09
Sep-09
50
Coincident Indicator
The Lebanese Economy: Developments and
Prospects
Percent Change
28Raed
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.
The Lebanese Economy: Developments and
Prospects
29Raed
Raed H. Charafeddine
Banque du Liban
Balance of Payment (Net of Valuation Changes)
2000
1610
In Millions USD
1500
1133.1
1000
500
0
403.3
382.2
30
598.1
400.8
253.4
109 101.8
99.8
-132.2
864.3
714.3
131.1
-133.5
-169.2
-500
-1000
Central Bank
The Lebanese Economy: Developments and
Prospects
Banks & Financial Institutions
Total
30Raed
Raed H. Charafeddine
Banque du Liban
Trade Balance
1600
0
1400
-200
In Millions USD
1200
1000
800
-488
-463
-556
-536
-501
-582
-654
-539 -530
-446
-529
-684 -699
-600
-823
600
-655
400
-885
-800
-1,016
-1000
200
0
-1200
Exports
The Lebanese Economy: Developments and
Prospects
-400
Imports
Trade Balance
31Raed
Raed H. Charafeddine
Banque du Liban
Imports by regions (2008)
Other Asian
Countries
10%
EU
34%
South East Asia
15%
Arab Countries
13%
Others
1%
Oceania
0%
African Countries
1%
The Lebanese Economy: Developments and
Prospects
Other South
America
3%
Other European
countries
11%
North America
(Nafta)
12%
32Raed
Raed H. Charafeddine
Banque du Liban
Exports by regions (2008)
The Lebanese Economy: Developments and
Prospects
33Raed
Raed H. Charafeddine
Banque du Liban
Direct Investment
The Lebanese Economy: Developments and
Prospects
34Raed
Raed H. Charafeddine
Banque du Liban
Workers’ Remittances
The Lebanese Economy: Developments and
Prospects
35Raed
Raed H. Charafeddine
Banque du Liban
Compensation of Employees
The Lebanese Economy: Developments and
Prospects
36Raed
Raed H. Charafeddine
Banque du Liban
Gross Reserves Minus Gold
The Lebanese Economy: Developments and
Prospects
37Raed
Raed H. Charafeddine
Banque du Liban
Gold
12000
10
in Millions USD
10000
8
7
8000
6
6000
5
4
4000
3
2
2000
in Millions Ounces
9
1
Gold according to national valuation
The Lebanese Economy: Developments and
Prospects
Sep-09
Nov-08
Jan-08
Mar-07
May-06
Jul-05
Sep-04
Nov-03
Jan-03
Mar-02
May-01
Jul-00
Sep-99
Nov-98
Jan-98
Mar-97
May-96
Jul-95
Sep-94
Nov-93
0
Jan-93
0
Gold Fine Troy
38Raed
Raed H. Charafeddine
Banque du Liban
Fiscal Sector : 2009 Budget Proposal
The Lebanese Economy: Developments and
Prospects
39Raed
Raed H. Charafeddine
Banque du Liban
Fiscal Performance
The Lebanese Economy: Developments and
Prospects
40Raed
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.
The Lebanese Economy: Developments and
Prospects
41Raed
Raed H. Charafeddine
Banque du Liban
Domestic and Foreign Debt
80,000
70,000
In billion LBP
60,000
31,881
50,000
28,844
40,000
30,000
10,828
8,351
14,467 21,974
30,647
31,977
23,442 27,711
6,283
20,000
10,000
0
2,960
2,145
3,713
1,449
17,229 19,787
735 9,348 11,997
5,803
30,204
27,161
21,686
25,383
I. Gross domestic debt
The Lebanese Economy: Developments and
Prospects
25,302
28,214
39,007
26,371
26,843
29,141
31,373
II. Gross Foreign debt(2)
42Raed
Raed H. Charafeddine
Banque du Liban
Gross Total Debt
168% 176%
70,000
168%
166%
60,000
151%
in Billion LBP
200%
180%
168%
180%
160%
167%
160%
50,000
140%
132%
40,000
120%
99%
30,000
98%
71%
20,000
10,000
0
109%
78%
70,888
100%
in % of GDP
80,000
80%
37,989
50%
60%
6,538
Gross total debt
The Lebanese Economy: Developments and
Prospects
40%
Gross Public debt as Percentage of GDP
43Raed
Raed H. Charafeddine
Banque du Liban
Composition of Foreign Debt
35,000
In Billion LBP
30,000
25,000
419
3,787
419
4,459
419
4,645
24,743
26,441
27,099
26,817
2005
2006
2007
2008
419
3,682
20,000
15,000
10,000
5,000
0
Eurobonds
The Lebanese Economy: Developments and
Prospects
Loans
Other debt
44Raed
Raed H. Charafeddine
Banque du Liban
in billion LBP
Breakdown of Loans
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
86
158
115
1,928
2,026
2,104
54
2,002
745
759
703
0
893
714
0
932
603
1,095
907
748
2005
2006
2007
2008
Paris II loans
Bilateral loans (non-Paris II and III)
Foreign Private Sector Loans
The Lebanese Economy: Developments and
Prospects
Paris III loans(4)
Multilateral loans (non-Paris II and III)
45Raed
Raed H. Charafeddine
Banque du Liban
Breakdown of Eurobonds
30,000
in Billion LBP
25,000
20,000
406
0
5,608
434
0
5,608
410
754
5,156
430
754
4,708
18,729
20,399
20,779
20,925
1
2
3
4
15,000
10,000
5,000
0
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
46Raed
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.
The Lebanese Economy: Developments and
Prospects
47Raed
Raed H. Charafeddine
Banque du Liban
Monetary Aggregates
BDL’s Definition
International Definition
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
M1 + Overnight repurchase agreements issued
by commercial banks + Overnight Eurodollars +
Savings accounts + Time deposits under $
100,000 + Money market mutual funds shares
M1
Currency in Circulation +
Demand Deposits in LPB
M2
M1 + Other deposits in LPB
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
48Raed
Raed H. Charafeddine
Banque du Liban
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
in Billions of LBP
Monetary Sector
300000
250000
200000
150000
100000
50000
0
M1
The Lebanese Economy: Developments and
Prospects
M2
M3
M4
49Raed
Raed H. Charafeddine
Banque du Liban
BDL’s View on Banking Policy
Liquidity
Profitability
The Lebanese Economy: Developments and
Prospects
Solvency
(Capital
Gearing)
50Raed
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
51Raed
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
52Raed
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
53Raed
Raed H. Charafeddine
Banque du Liban
Banking Sector : Total Assets
140,000
0.250
124,457
120,000
22%
0.200
101,862
100,000
0.150
78,855
80,000
70,595
73,565
15%
61,589
in %
in Millions of USD
88,853
15%
13%
60,000
0.100
40,000
7%
0.050
20,000
4%
0
0.000
2003
The Lebanese Economy: Developments and
Prospects
2004
2005
2006
Assets (in millions of U.S. dollars)
2007
2008
Assets Growth Rate
2009 (P)
54Raed H. Charafeddine
Banque du Liban
Banking Sector : CAR
30
25
25
22.9
22.3
21.2
in %
20
15
12.5
11.8
12.4
10
5
0
2003
The Lebanese Economy: Developments and
Prospects
2004
2005
2006
2007
Capital adequacy ratio 1/ 2/
2008
Jun-09
55Raed H. Charafeddine
Banque du Liban
Banking Sector: Capital to Asset Ratio
10
9.1
8.9
9
8
7
7.8
7.5
6.9
6.8
2003
2004
7
in %
6
5
4
3
2
1
0
The Lebanese Economy: Developments and
Prospects
2005
2006
2007
Capital to asset ratio
2008
2009 (P)
56Raed H. Charafeddine
Banque du Liban
Banking Sector: Net Problem Loans
14
12.8
12
10.6
10
9.1
in %
8
6.8
6
4.7
4
3.1
2.2
2
0
2003
2004
The Lebanese Economy: Developments and
Prospects
2005
2006
2007
Net problem loans/Net total loans
2008
2009 (P)
57Raed H. Charafeddine
Banque du Liban
Banking Sector: Net Problem Loans (2)
70
64.4
61
60
56.9
54.4
50
49
46.3
46.1
2003
2004
in %
40
30
20
10
0
The Lebanese Economy: Developments and
Prospects
2005
2006
2007
2008
Provisions against problem loans/Problem loans
2009 (P)
58Raed H. Charafeddine
Banque du Liban
Banking Sector: Provisions
98.4
100
90
85.6
76.8
80
72.4
70
in %
60
63.3
57.3
53.1
50
40
30
20
10
0
2003
The Lebanese Economy: Developments and
Prospects
2004
2005
2006
2007
Total provisions/Problem loans
2008
2009 (P)
59Raed H. Charafeddine
Banque du Liban
Banking Sector: Claims on Government and on BDL
35
31.3
29.9
30
28.6
29.3
27.9
27
25.2
25
23.2
23.6
26.1
24.7
27
27.8
24.2
in %
20
15
10
5
0
2003
2004
The Lebanese Economy: Developments and
Prospects
2005
2006
Share of claims on government
2007
2008
Share of claims on BdL
2009 (P)
60Raed H. Charafeddine
Banque du Liban
Banking Sector: ROA and ROE
16
14
14.39
14
12.1
12
11
10.9
10.1
in %
10
9.3
8
6
4
2
0.7
0.7
0.7
0.9
1
1.1
1.05
0
2003
2004
The Lebanese Economy: Developments and
Prospects
2005
2006
Average return on assets (post tax)
2007
2008
2009 (P)
61Raed H. Charafeddine
Average return on equity (post tax) Banque du Liban
Banking Sector: Dollarization Rates
90
87
86.4
86.6
87.1
87.5
87.6
84.7
85
80
in %
75
75.9
77
73.2
70
70.1
69.2
65
66.2
63
60
55
50
2003
2004
The Lebanese Economy: Developments and
Prospects
2005
2006
FC deposits/total deposits
2007
2008
FC loans/total loans
2009 (P)
62Raed H. Charafeddine
Banque du Liban
USD/LBP Exchange Rate
2000.00
1838.00
1711.00
1647.00
1596.00
1552.00
1800.00
1600.00
1527.00 1508.00 1507.50
1400.00
1507.50
1200.00
1000.00
842.00
879.00
800.00
600.00
MARKET RATE, END OF PERIOD
The Lebanese Economy: Developments and
Prospects
MARKET RATE, PERIOD AVERAGE
63Raed
Raed H. Charafeddine
Banque du Liban
Nominal Effective Exchange Rate
102
100.27
100
100.00
98.22
98
96
94
92
90.07
90
88
2005
2006
2007
2008
Nominal Effective Exchange Rate (2005=100): Period Averages
The Lebanese Economy: Developments and
Prospects
64Raed
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.
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.
Mount and North Lebanon’s share is Recovery only started afterwards and
on the rise since 2007 whereas is so far sustained with better figures
Beirut’s share decreased by -5% in than that witnessed in 2008.
2008 and by -3.5% in 2009
Sections and built lots sales are
Cement deliveries increased (+7%) in healthy and improving. Raw lands are
2008 and (+16%) in 2009 thus actually facing either price pressure or
fuelling supply
reallocation into cheaper areas or
both.
The Lebanese Economy: Developments and
Prospects
65Raed
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)
The Lebanese Economy: Developments and
Prospects
66Raed
Raed H. Charafeddine
Banque du Liban
BDL’s view on the evolution of the real estate sector
• 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
67Raed
Raed H. Charafeddine
Banque du Liban
Evolution of Real Estate Loans
in Millions LBP
Growth
Rate
2008
2009
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
68Raed 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
•
Commercial Loans in FX
13,220
•
Non-Subsidized Productive Loans in
LBP
15,087
•
First Housing Loans
The Lebanese Economy: Developments and
Prospects
265,391
127,955
69Raed H. Charafeddine
Banque du Liban
BDL’s New Incentives: Balance As of End 2009
Education Loans
1%
First Housing Loans
30%
Non-Subsidized
Productive Loans in
LBP
4%
Commercial Loans in
FX
3%
Education Loans
The Lebanese Economy: Developments and
Prospects
Commercial Loans in
First Housing Loans
FX
Commercial Loans in
LBP
62%
Commercial Loans in LBP
70Raed H. Charafeddine
Banque du Liban
Non-Subsidized Productive Loans in LBP
Population
4.50
4.00
3.50
in Millions
3.00
2.97 3.05
3.16
3.28
3.39
4.19
4.08 4.13 4.16
4.03
3.90 3.97
3.83
3.72 3.77
3.63 3.67
3.57
3.49
2.50
2.00
1.50
1.00
0.50
0.00
The Lebanese Economy: Developments and
Prospects
71Raed
Raed H. Charafeddine
Banque du Liban
USD Interest Rates – End of period
14
8
12
10
in %
8
6
4
11.74 11.69
7
11.3
6.73
11.15
10.87
10.14
6.12
6
5.93
9.62
5.79 5.63
5.62
8.81 5.38
5.24 5.12
8.38 8.55
5
8.02
7.98 4.73
7.28
7.473
4.29
4
3.79
6.03
5.9
4.23
5.67 5.63
4.143
5.46 5.62
3.33
4.76 4.69
3
4.21
4.09
4
3.43 3.25
3.33 3.05
2
2
1
0
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Commercial Banks -US$: Discount and Loans (Weighted Average)
Commercial Banks -US$: Average Rate on Deposits (Weighted Average)
Spread
The Lebanese Economy: Developments and
Prospects
72Raed
Raed H. Charafeddine
Banque du Liban
In 100 basis points
12.19
35
14
30 28.9911.87
12
in %
25
20
24.68
9.99
10
20.28 20.04
5
8
18.38 17.94
7.5
7.43
7.31
7.08 16.76 16.1
6.61 6.27
14.69
6
12.97 12.61
11.32 10.48
11.3 10.44
10.15 9.83
10.12 10.37 10.1 9.95
9.04
4
7.79
7.7
7.49
7.4 7.22 6.75
3.53
3.47
7.01
2.88 2.7 2.73
2.42
2.29
2
0
0
15
10
17.12
in 100 basis points
LBP Interest Rates
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Commercial Banks -LBP: Discount and Loans (Weighted Average)
Commercial Banks -LBP: Average Rate on Deposits (Weighted average)
Spread
The Lebanese Economy: Developments and
Prospects
73Raed
Raed H. Charafeddine
Banque du Liban
Currency Spread
18 17.12
14
in %
12
14.69
11.66
12.9712.61
12
11.3
9.07
10
8
6
7.07 6.94
10
10.4410.15
9.83
7.79
7.7 7.49 7.4 7.22
6.75
5.94 5.83 7.01
5.67
6.03
5.46 5.62 5.9 5.67 5.63
4.41
4.21
4
8
4
6
4.76 4.69
4.36
4.09
3.89 3.74
3.76
3.61
3.43 3.25
3.33
2.73 2.71 3.05
in 100 basis points
16
14
2
2
0
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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
74Raed
Raed H. Charafeddine
Banque du Liban
The Lebanese Economy: Developments and
Prospects
12
Aug-09
Jan-09
Jun-08
Nov-07
10
Apr-07
Sep-06
Feb-06
Jul-05
Dec-04
May-04
Oct-03
Mar-03
Aug-02
Jan-02
Jun-01
Nov-00
Apr-00
Sep-99
Feb-99
Jul-98
Dec-97
In %
Repo Rates
35
30
30
25
25
20
20
15
10
5
0
75Raed
Raed H. Charafeddine
Banque du Liban
LB TBs Yields
40
35
30
In %
25
20
15
10
5
Jan-90
Nov-90
Sep-91
Jul-92
May-93
Mar-94
Jan-95
Nov-95
Sep-96
Jul-97
May-98
Mar-99
Jan-00
Nov-00
Sep-01
Jul-02
May-03
Mar-04
Jan-05
Nov-05
Sep-06
Jul-07
May-08
Mar-09
0
Treasury Bills - 3 months
Treasury Bills - 12 months
The Lebanese Economy: Developments and
Prospects
Treasury Bills - 6 months
Treasury Bills - 24 months
76Raed
Raed H. Charafeddine
Banque du Liban
Consumer Price Index
The Lebanese Economy: Developments and
Prospects
77Raed
Raed H. Charafeddine
Banque du Liban
Credit Default Swap
The Lebanese Economy: Developments and
Prospects
78Raed
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 underdeveloped 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
79Raed
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
80Raed
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
The Lebanese Economy: Developments and
Prospects
81Raed
Raed H. Charafeddine
Banque du Liban