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QUATRIEME PARTIEACTIVITÉ ET PERFORMANCE DU SECTEUR BANCAIRE LIBANAISDurant l’année 2008

RAPPORT ANNUEL 2008

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QUATRIEME PARTIE

ACTIVITÉ ET PERFORMANCE DU SECTEUR BANCAIRE LIBANAIS en 2008

Premièrement : introduction

Les banques en activité au Liban sont restées dans une large mesure à l’abri de la crise financière mondiale qui s’est nettement aggravée en septembre 2008. Preuve en est : le gouvernement libanais n’est pas intervenu pour soutenir le marché de l’intermédiation financière, et la Banque centrale n’a pas injecté de nouvelles liquidités ni réduit les taux d’intérêts sur les instruments de la politique monétaire. A souligner aussi l’absence de tout déséquilibre dans les relations et transactions interbancaires, de même, aucune mesure n’a été prise pour restructurer et capitaliser les banques, ou pour assurer des liquidités manquantes ou traiter des actifs toxiques ou pourris comme cela a été le cas à l’étranger. Au contraire, les dépôts auprès des banques ont nettement augmenté affichant un taux de 15,6 % après que le secteur bancaire libanais ait démontré être un abri sûr pour l’épargne cherchant des opportunités de placement stables. L’activité des emprunts bancaires n’a pas ralenti et les profits n’ont pas reculé. Au contraire, les crédits ont augmenté de 22,6 % pour le secteur privé et de 18,2 % pour le secteur public, alors que les profits nets ont augmenté de près de 30%.

Cette performance du secteur bancaire est due à plusieurs facteurs : premièrement les banques opèrent dans le cadre de restrictions et de plafonds qu’elles se sont imposées elles-mêmes en plus de ceux imposés par les autorités monétaires et de contrôle. Ainsi une politique conservatrice a été appliquée en matière de placements dans les créances titrisées et dans les dérivés financiers à hauts risques, avec nécessité d’assurer en contrepartie un certain seuil de liquidité. Deuxièmement, les banques libanaises ont opté pour la diversification de leurs emplois, évitant la concentration de leurs placements directs auprès d’institutions financières internationales et n’ont pas eu par ailleurs de placements dans les banques internationales qui se sont effondrées. Troisièmement, les banques libanaises se basent principalement sur leurs dépôts comme source de financement, (ceux-ci constituant 84 % du total actif/ passif ) et non sur les marchés du crédit et financier des pays développés. Quatrièmement, le fait de conserver un niveau élevé de liquidités en livres libanaises et en devises étrangères, a joué un rôle principal dans la sauvegarde du secteur bancaire. Sans compter le niveau important atteint par les fonds propres, la solvabilité élevée réalisée par le secteur suite à plusieurs années d’efforts continus de la part de la Banque centrale et des banques, ainsi que l’amélioration continue de la qualité du portefeuille des crédits. Finalement, alors que la crise financière mondiale s’est déclenchée sur fond de crise des subprimes sur le marché immobilier aux Etats-Unis, le secteur de l’immobilier au Liban a connu durant les dernières années une croissance normale, dictée par l’offre et la demande. Il est à noter que

les crédits immobiliers (autres que les prêts- logement aux particuliers), constituent près de 5 % seulement de l’ensemble de l’actif. Par ailleurs les dispositions rigoureuses des circulaires de la BDL requièrent du bénéficiaire du prêt d’assurer de ses propres fonds la couverture d’un pourcentage minimal du montant du projet immobilier à financer.

Le dysfonctionnement des marchés financiers internationaux a constitué un motif additionnel pour les directions des banques et les autorités compétentes pour poursuivre les efforts visant à renforcer la solidité, la capacité et la résilience du secteur bancaire et financier à absorber tout choc potentiel, et de suivre de plus près tout développement ou effet négatif sur le portefeuille crédit des banques lié à la baisse de l’activité économique générale ou à des rectifications dans certains secteurs, et ce, en plus de la consolidation des mesures de prudence et de contrôle. Dans ce cadre, s’inscrit le souhait des autorités monétaires aux banques de limiter la distribution des dividendes à 25 % des profits de l’année 2008 et d’œuvrer pour la réactivation de la loi sur la fusion des banques. Par ailleurs un recul du rythme de croissance du secteur bancaire ainsi que de ses profits est prévu en 2009 en raison du ralentissement possible de l’activité économique locale ainsi que des économies arabes et internationales, avec tout ce que cela entraîne en terme de baisse d’activité des travailleurs à l’extérieur, de leurs revenus, de leurs transferts vers le Liban, ainsi que de la baisse des investissements directs étrangers et de la baisse de la demande externe sur les produits et services libanais. Sans compter les répercussions du ralentissement des économies de la région et des troubles persistants dans les marchés financiers internationaux, sur les portefeuilles de crédits, sur les titres financiers qui sont évalués au cours du marché, sur les revenus des fonds d’investissements liés aux banques, sur les revenus des services bancaires privés, ainsi que sur les revenus des investissements à l’étrangers et autres revenus.

I- CARACTÉRISTIQUES DU SECTEUR BANCAIRE LIBANAIS

A la fin de l’année 2008 le nombre des banques opérant au Liban a atteint 64 banques, réparties entre 52 banques commerciales (dont 4 banques islamiques) et 12 banques d’affaires et de crédits à moyen et long termes. Le nombre de branches ou agences des banques commerciales opérant au Liban a atteint 860 agences, celui des banques d’affaires 17. Il y a ainsi au Liban

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RAPPORT ANNUEL 2008QUATRIEME PARTIE ACTIVITÉ ET PERFORMANCE DU SECTEUR BANCAIRE LIBANAIS Durant l’année 2008

Source: Banque du Liban

plus de 2 agences bancaires pour chaque 10 mille personnes, soit un taux de bancarisation élevé en comparaison avec les pays arabes et les pays émergents, et quasi-équivalent à celui des pays développés. La distribution des agences bancaires sur les régions libanaises correspond à la distribution géographique de l’activité économique.

En plus de leur large réseau d’agences, les banques offrent les services bancaires à travers les services de la banque électronique via l’Internet et le téléphone, ou à partir des cartes bancaires, de crédit et de débit. A la fin 2008, le nombre de distributeurs automatiques (ATM) mis au service des clients a atteint 1140 machines (300 distributeurs environ pour chaque un million de personnes), réparties entre les régions libanaises comme le montre le graphique ci-dessous. Alors que le nombre de terminaux de paiement électronique (POS) a atteint 13332 machines et le nombre de cartes bancaires en circulation, aussi bien de crédit que de débit, a atteint 1563958 cartes (environ 415 cartes pour chaque mille personnes).

Le secteur bancaire libanais est depuis toujours ouvert à l’étranger. Sur le marché libanais opèrent huit branches ou succursales de banques arabes et étrangères et onze banques commerciales libanaises à participation majoritaire arabe et étrangère et quatorze bureaux de représentation de banques étrangères. Les banques traitent également avec plus de 225 banques correspondantes répandues dans les quatre coins du monde, indice de la diversification et de la faible concentration des avoirs extérieurs des banques libanaises auprès de leurs banques correspondantes à l’étranger.

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QUATRIEME PARTIE ACTIVITÉ ET PERFORMANCE DU SECTEUR BANCAIRE LIBANAIS Durant l’année 2008

Les principaux services accordés par les banques en activité au Liban

Retail banking Services d’assuranceFinancement des sociétés Services de conseilBanque privée Opérations fiduciairesFinance islamique Marchés financiersBanque électronique et cartes de crédit Financement du commerce

Les banques libanaises ont continué en 2008 leur expansion régionale avec le soutien et l’encouragement des autorités monétaires, afin de diversifier leurs services en conformité avec l’évolution de l’industrie bancaire mondiale, et afin d’assurer une diversification de leurs risques et de leurs sources et types de revenus, et également pour accroître leur part du marché ainsi que leurs profits. Cette expansion à l’étranger s’est caractérisée par l’ouverture de succursales, de bureaux de représentation, de fonds d’investissement et d’institutions financières dans les pays d’Afrique, ainsi qu’une plus grande pénétration dans les pays du Golfe notamment au Qatar en Arabie Séoudite et aux

Emirats arabe Unis qui se distinguent par un important volume d’opérations et de liquidités, par des marges bancaires élevées, et une forte présence de la main d’oeuvre libanaise, et ceci en plus de leur présence dans les pays avoisinants tels la Syrie, la Jordanie et l’Egypte. Notons que la BDL et la CCB suivent de près cette expansion en encadrant les banques par des réglementations et des mesures strictes de contrôle. Ainsi selon les dernières données disponibles, 17 banques libanaises se sont déployées dans 25 pays à l’étranger, à travers 79 unités bancaires (28 branches de banque libanaise, 29 banques affiliées, 2 banques soeurs, 2 branches dans la zone franche syrienne, et 18 bureaux de représentation). Les banques affiliées ou soeurs possèdent également un réseau de 141 agences dans les pays susmentionnés (l’implantation bancaire à l’étranger est détaillée dans le tableau n°20 de l’annexe statistique).

Les banques libanaises accordent un large éventail de services bancaires (aux particuliers et aux sociétés) qui comporte en plus des services bancaires traditionnels les services bancaires modernes tels ceux de la banque de détail, les services privés, la gestion des moyens modernes de paiement, les opérations fiduciaires, ainsi que les services de consultation, d’assurance et d’investissement. Le nombre de banques qualifiées de “banques universelles” (Universal Bank), en raison des services d’intermédiation financière, des services d’assurance et d’investissement, ainsi que d’autres services de la banque moderne qu’elles accordent, s’est accru.

En outre, le marché libanais s’est ouvert depuis le début de l’année 2004 à la finance islamique et à l’application de ses règles et principes à travers les contrats fiduciaires et plus tard avec la promulgation de la loi régissant la création de banques islamiques. La BDL a également émis une série de dispositions relatives, à la constitution de banques islamiques, à l’exercice de leurs opérations et activités, à leurs états financiers, ainsi qu’aux exigences des normes internationales de la finance islamique en matière de bonne gouvernance, de connaissance du client (Know Your Customer) et de la transparence. Par ailleurs les services des banques islamiques ne s’adressent pas uniquement aux musulmans mais sont offerts à tout le monde.


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Le secteur bancaire libanais se caractérise également par son intégration profonde dans l’économie libanaise. Ce secteur est considéré comme le principal bailleur de fonds de l’économie nationale, tant dans le secteur public que privé. En effet, la part de l’actif des banques investie dans l’économie libanaise, y compris les dépôts auprès de la Banque du Liban, a atteint environ 80% du total actif à fin 2008 (soit 113256 milliards de L.L.) contre environ 20% pour les emplois à l’extérieur du Liban. Cependant la part des emplois à l’extérieur atteint plus de 35% si on prend en considération les emplois de la BDL à l’extérieur du pays, et la part des ressources bancaires dont les revenus sont générés à l’extérieur de l’économie libanaise dépasse les 40%. C’est ce qui explique la capacité du secteur bancaire libanais à dépasser en volume le Produit Intérieur Brut ou PIB du pays.

Les créances à l’économie ont atteint 46,5 milliards de dollars à fin 2008. D’autre part, les banques commerciales demeurent le principal pôle pour mobiliser l’épargne, preuve en est la base de leurs dépôts qui a dépassé 79 milliards de dollars américains à la fin 2008 soit près de 265% le montant du PIB. Les banques constituent également l’intermédiaire principal pour l’entrée des capitaux au Liban et pour le financement d’une grande partie du déficit de la balance des paiements courants. En outre, le secteur bancaire porte dans ses registres, la plus grande partie des avoirs extérieurs du pays.

Le secteur bancaire libanais contribue pour environ 4,8% au PIB, alors qu’il n’emploie qu’un faible pourcentage ne dépassant pas 2% de la main d’oeuvre libanaise globale, ce qui confirme sa productivité élevée. Ce secteur attire les hommes d’expertise, de compétence et de qualification de haut niveau, comme en témoigne la hausse continue du taux d’employés titulaires de diplômes universitaires, et qui a atteint en 2008 environ 64% du nombre total des employés dans le secteur qui était de 18632 employés. Les directions des banques accordent une attention particulière pour l’amélioration des capacités humaines de tous les grades, en gardant constamment au courant l’employé, des développements les plus importants dans l’industrie bancaire mondiale, à travers des sessions de formation à l’intérieur et à l’extérieur de la banque, notamment celles organisées par l’Association des Banques du Liban (Se référer à la partie 3 du présent rapport).

Durant les quelques dernières années, les autorités monétaires et de contrôle ainsi que les directions des banques, ont pris de nombreuses mesures qui sont, dans leur totalité, en harmonie avec les normes et les principes adoptés par l’industrie bancaire mondiale et qui sont publiés par la Banque de Règlements Internationaux (BRI ou BIS), le Fonds Monétaire International FMI, le groupe GAFI et d’autres parties concernées par la stabilité financière internationale. Par ailleurs les banques libanaises sont reconnues pour être en conformité avec les normes internationales de l’industrie bancaire. Les différentes mesures prises se sont axées sur la poursuite de la lutte contre le blanchiment d’argent, l’expansion du champ d’application des règles de comptabilité et d’audit internationales, ainsi que le développement du travail administratif et comptable en vue d’améliorer la transparence et l’application de la gouvernance. Le niveau actuel de transparence financière au Liban est considéré, selon les organismes internationaux, comme satisfaisant et conforme aux meilleures pratiques internationales. Ceci montre que les banques libanaises sont ouvertes aux exigences de contrôle du marché et du public.

Pour revenir à la question de la lutte contre le blanchiment des capitaux, les banques ont accordé durant les quelques dernières années une importance accrue à cette question, en instituant des unités spécialisées dans chaque banque et en respectant les dispositions des circulaires de la Banque du Liban (BDL) et de la Commission d’enquête spéciale ainsi que les mesures relatives à la connaissance du client (Know Your Customer), et en organisant de nombreux séminaires spécialisés dans ce domaine. Notons à cet égard que la Commission d’enquête spéciale a reçu 249 demandes d’enquête en 2008 relatives à 226 cas portant surtout sur des opérations de falsification, de financement du terrorisme, de fraude de fonds privés et publics et de trafic de drogue. Les banques restent parmi les plus importantes sources d’informations avec 62 demandes d’investigation en provenance du secteur bancaire durant l’année indiquée.


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Tableau n°1: Ressources du secteur bancaire en fin de période (En milliards de L.L.et en pourcentage)

2006 2007 2008 Valeur % Valeur % Valeur %

Dépôts du secteur privé résident 77366 69.1 86981 70,2 99908 70.3Dépôts du secteur public 1579 1.4 1163 0,9 1331 0.9Dépôts du secteur privé non résident 14128 12.6 14454 11,7 17345 12.2Engagements envers le secteur financier non-résident 4236 3.8 6108 4,9 6490 4.6Fonds propres 8718 7.8 9439 7,6 10705 7.5Autres postes du passif 5937 5.3 5854 4,7 6311 4.5

Total 111964 100.0 123999 100.0 142090 100.0

III- ACTIVITÉ BANCAIRE A la fin 2008, le total actif / passif des banques commerciales opérant au Liban a atteint 142090 milliards de L.L. (soit l’équivalent de 94,3 milliards de dollars U.S.) contre 123999 milliards de L.L. en 2007, enregistrant ainsi un taux de croissance de 14,6% en 2008 contre un taux plus faible de 10,7% en 2007. Le volume du secteur bancaire est très élevé comparé à celui de l’économie libanaise (près de 320%) ce qui démontre la grande capacité des banques à attirer l’épargne de l’intérieur et de l’extérieur, et explique l’expansion bancaire vers l’extérieur dont le rythme s’est accru au cours des quelques dernières années.

Source: Banque du Liban* On entend par secteur bancaire dans ce rapport les banques commerciales opérant au Liban uniquement sans les banques d’affaires ou de crédit à moyen et long

termes. Le total actif / passif des banques d’affaires a atteint 6271 milliards de L.L. à fin 2008 contre 5041 milliards de L.L. à fin 2007 et 4975 milliards de L.L. à fin 2006.

1- Ressources du secteur bancaire*Les dépôts demeurent la principale ressource des banques commerciales opérant au Liban et constituent le moteur principal du total bilan des banques, et leur part représente 83,5% dans le total Passif à fin 2008. Cette part importante des dépôts a préservé les banques comme nous l’avons mentionné plus haut de la crise financière internationale qui est une crise de crédit, de confiance et de liquidités. Par ailleurs comme ces dépôts sont de nature à court terme (actuellement de 90 jours en moyenne), donc rapidement convertibles d’une monnaie en une autre, les banques adoptent une politique de placement basée sur le maintien de taux élevés de liquidité en livres libanaises et en devises étrangères.

Les banques visent en contrepartie à renforcer continuellement leurs ressources à moyen et long termes pour assurer le financement de divers secteurs économiques productifs ainsi que le logement, et également pour augmenter leurs fonds propres et mieux parer aux risques d’asymétrie de maturité. Les banques y parviennent à travers l’émission de certificats de dépôts et d’autres obligations, de récépissés de dépôts globaux (GDR’s) et d’actions ordinaires et préférentielles, en plus d’autres instruments financiers. Et également à travers des lignes de crédit à moyen et long termes octroyées par des institutions et des fonds arabes et internationaux et dont une partie a été ratifiée après la conférence de Paris 3.

Le tableau ci-dessous montre l’évolution des principaux postes du passif des banques commerciales opérant au Liban, de par leur valeur absolue et leur importance relative par rapport au total durant la période allant de fin 2006 à fin 2008.

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1-1 Dépôts

A la fin 2008, le total des dépôts auprès des banques commerciales, qui comprend les dépôts du secteur privé résident et non résident et ceux du secteur public, a atteint les 118584 milliards de L.L. (soit l’équivalent de 78,7 milliards de dollars) contre 102598 milliards de L.L. (soit 68,1 milliards de dollars) à la fin 2007. Ainsi le total des dépôts a enregistré une hausse importante de 15,6% en 2008 après une croissance satisfaisante de 10,2% en 2007. Ce taux de croissance des dépôts devrait cependant se replier en 2009 avec les prévisions de baisse des transferts de fonds vers le pays qui vont être plombés par la récession économique mondiale, la hausse du taux de chômage, et surtout par le ralentissement de la croissance économique dans les pays du Golfe avec ses conséquences sur l’emploi de la main d’œuvre libanaise, l’assèchement des liquidités excédentaires, le recul des investissements intérieurs ainsi que des investissements directs étrangers.

En 2008 et surtout durant la deuxième moitié de l’année, un volume important de dépôts est rentré au Liban, une partie provenant de dépôts de résidents placés à l’extérieur du pays et qui y sont retournés de crainte des retombées de la crise financière dans le monde, une autre partie provenant de non résidents attirés par des rendements élevés et sûrs. Par ailleurs des montants importants ont été convertis du dollar vers la livre afin de bénéficier de la marge des taux d’intérêt entre le dollar et la livre sur le marché de Beyrouth qui jouit en outre d’une stabilité monétaire durable. Ainsi le total des dépôts s’est accru de 5,7 milliards de dollars au cours du deuxième semestre 2008, provenant de la hausse des dépôts en livres de l’équivalent de 5,4 milliards de dollars contre une hausse des dépôts en dollars de 312 millions de dollars seulement.

Le portefeuille des certificats de dépôts émis par les banques qui rentre dans les dépôts des banques, s’élevait à 783 millions de dollars fin 2008 contre 853 millions de dollars fin 2007.

En analysant les dépôts du secteur privé, résident et non résident, il apparaît que les dépôts en livres se sont accrus de 55,2% en 2008 contre une hausse plus faible de 5,6% en 2007. Quant aux dépôts en devises étrangères, ils se sont accrus de 4% seulement en 2008 contre une hausse de 12,5% en 2007. Ainsi le taux de dollarisation des dépôts du secteur privé (résident et non résident), a progressivement mais nettement reculé pour atteindre 69,6% à fin 2008 contre 77,3% à fin 2007. La baisse de la dollarisation ayant caractérisé l’année 2008 sur le plan monétaire.

Les dépôts bancaires sont concentrés dans la ville de Beyrouth et dans ses banlieues. La part de cette région a constitué, en effet, 67,2% du total des dépôts fin septembre 2008 (les dernières données disponibles), répartis sur 50,3% du nombre total des déposants, alors que 32,8% seulement du total des dépôts reviennent aux autres régions, répartis sur 49,7% du nombre total des déposants, ce qui indique une différence au niveau de la moyenne des dépôts entre la ville de Beyrouth et ses banlieues, d’une part, et le reste des régions libanaises, d’autre part.



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D’un autre côté et toujours à propos de la concentration, les 10 premières banques au Liban ont attiré près de 80,9% du total des dépôts des clients à fin 2007, et les cinq premières banques 59,5% environ.

• Evolution des taux d’intérêt créditeurs

Les taux d’intérêt créditeurs sur les nouveaux dépôts ou dépôts renouvelés en livres libanaises ont baissé progressivement mais faiblement à partir du début de l’année 2007 jusqu’à la fin de l’année 2008 variant en 2008 en tant que moyenne mensuelle entre un niveau minimal de 7,18% et un niveau maximal de 7,35% et atteignant 7,22% à fin décembre 2008. Quant aux taux créditeurs sur les nouveaux dépôts ou dépôts renouvelés en dollars, ils ont affichés une baisse continue et plus importante que la baisse enregistrée sur la livre, passant de 4,69% en décembre 2007 à 3,33% en décembre 2008. Ces taux ont suivi l’évolution générale des taux d’intérêt sur les marchés internationaux qui ont été entraînés vers le bas par les multiples baisses du taux de base du dollar effectuées par le Federal Reserve Bank depuis septembre 2007 et qui a reculé de 5,25% à une marge allant de zéro à 0,25% à fin 2008.

Il est à noter que le conseil d’administration de l’ABL, a recommandé aux banques membres dans sa circulaire émise en

janvier 2009 de respecter le plafond de 4% pour les taux d’intérêt créditeurs sur les nouveaux dépôts ou dépôts renouvelés en dollars qui sont égaux ou supérieurs à un million de dollars et pour toutes les échéances égale et inférieures à six mois. Le conseil a également souhaité d’orienter progressivement ce plafond vers la baisse pour prendre en considération la baisse importante et généralisée des taux d’intérêt internationaux qui atteignent actuellement entre 0,3 et 0,4%. Quant aux dépôts en livres libanaises, le conseil d’administration a recommandé aux banques de ne pas dépasser le plafond de 7,5% pour les taux d’intérêt créditeurs servis sur les dépôts égaux ou supérieurs à 500 millions de L.L. et qui sont à terme inférieur ou égal à six mois. Ce plafond devrait également baisser progressivement, entraîné par la baisse du rendement des Bons du Trésor à échéances d’un à six mois ainsi que des certificats de dépôts émis par la BDL.



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1-2 Fonds propres A fin 2008, les fonds propres des banques ont enregistré une hausse de 13,4% après la hausse de 8,3% enregistrée en 2007. La part des fonds propres dans le total bilan consolidé a atteint 7,5% fin 2008 et 28,4% du total des créances au secteur privé, alors que la moyenne des fonds propres dans le total Passif n’avait pas dépassé 5% (avant la crise financière internationale) pour les cinq plus grandes banques américaines et internationales.

Par ailleurs, le ratio de solvabilité du secteur bancaire libanais, calculé conformément aux coefficients de pondération des risques de l’accord de Bâle 1, a dépassé le taux de 18% en 2008 comparé à des taux allant de 11 à 12% en moyenne pour les grandes banques internationales et avant la crise financière internationale. Ce taux atteint par le secteur est élevé et dépasse de loin le taux requis par le Comité de Bâle 1 (8%) ainsi que celui requis par les autorités monétaires libanaises. En outre le taux de solvabilité du secteur bancaire libanais calculé selon les critères de Bâle II est de 12% environ, alors que le taux requis par le nouvel accord est toujours de 8% mais avec une approche différente des risques bancaires. Notons que, suite à l’extension et au développement de la crise financière internationale, de nombreuses requêtes se sont élevées pour demander des procédures de contrôle plus sévères, la révision des exigences en fonds propres correspondantes aux produits structurés et à ceux du hors bilan, et le renforcement de l’application des trois piliers de l’accord de Bâle II.

Les banques libanaises cherchent à consolider leurs capitaux et leurs provisions parallèlement à l’expansion du volume et de la nature de leurs avoirs, notamment ceux affectés de coefficients de pondération élevés tels les crédits accordés au secteur privé, et ce, afin de répondre aux exigences de Bâle II, augmenter la

confiance des investisseurs et des déposants, et également financer leur déploiement à l’extérieur. Cette augmentation des fonds propres se fait par l’élargissement de la base de leur actionnariat vers de nouveaux actionnaires à travers l’émission d’actions ordinaires et préférentielles et par l’utilisation des profits pour le renforcement des fonds propres. Les banques ont eu également recours à l’émission de récépissés de dépôts globaux (GDR) et d’obligations subordonnées même si ces dernières restent faibles par rapport au total des fonds propres (4,9% à la fin de l’année 2008). Par mesure de prudence la BDL a souhaité que les banques injectent la plus grande partie de leurs profits dans leur fonds propres, sachant toutefois que les banques libanaises ont déjà réinvesti durant les dernières années (un peu plus d’une décennie) plus de 80% de leurs profits pour renforcer leurs fonds propres.

2- Emplois du secteur bancaireLes banques commerciales opérant au Liban adoptent dans l’emploi de leurs ressources une politique prudente en matière de prise de risque et suivent des règles sévères de contrôle, et répartissent leurs emplois selon les exigences de liquidité, de profitabilité, de diversification des risques et également en fonction des opportunités de placement rentables et des besoins en liquidités. Elles veillent dans la gestion de leurs ressources à assurer un niveau requis de liquidité en livres libanaises et en devises, afin de renforcer la confiance dans le secteur bancaire et lui permettre de faire face rapidement aux situations imprévisibles auxquelles le pays est souvent confronté. Cette politique prudente s’est avérée judicieuse avec la situation d’instabilité financière mondiale qui s’est déclenchée soudainement et rapidement. En 2008 le taux de liquidité a accusé une légère baisse due à l’augmentation des créances accordées au secteur privé.

L’élément à relever dans la nature des emplois des banques est leur grande exposition aux risques souverains ou risques pays, la part de leurs crédits au secteur public et dépôts auprès de la BDL représentant 54,3% du total des emplois à fin 2008 contre 50,0% à fin 2007. Les banques au Liban ont accru ainsi en 2008 leurs emplois souverains au moment où les plus grandes banques internationales comptaient sur leur gouvernement et leur banque centrale pour les renflouer en fonds et liquidités nécessaires pour assurer leur survie et éviter l’effondrement. Par ailleurs les banques assurent aussi le financement nécessaire au secteur privé résident (particuliers et sociétés), les crédits octroyés à ce secteur ayant représenté près de 73% du PIB en 2008.

Le tableau ci-dessous montre l’évolution des principaux postes de l’Actif des banques commerciales de par leur valeur absolue

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et leur importance relative par rapport au total entre la fin 2006 et la fin 2008. Ainsi la part des avoirs liquides et des créances au secteur privé résident et des créances au secteur public s’est

accrue à fin 2008 par rapport à fin 2007 alors que la part des avoirs extérieurs dans le total a diminué avec la baisse notable du rendement de ces avoirs.

2-1 Crédits au secteur privé résident

A la fin de l’année 2008, les crédits bancaires accordés au secteur privé résident, qui restent soumis, comme nous l’avons mentionné plus haut, à des normes sévères de contrôle, se sont élevés à 21062 millions de dollars environ, enregistrant ainsi une hausse significative de 18,6% en 2008, après avoir également enregistré une hausse importante de 15,9% en 2007. La hausse notable de ces crédits en 2007 et 2008 est attribuable principalement au financement des sociétés et hommes d’affaires libanais dans leur expansion à l’étranger ainsi qu’au financement des secteurs économiques dynamiques à l’intérieur du pays et aux particuliers résidents. Mais de manière générale la croissance du volume de ces crédits est liée à l’activité économique existante ou prévue du pays, qui influe à son tour sur la demande de crédits ainsi que sur la politique de financement des banques. Le volume de ces crédits est également influencé par les niveaux des taux d’intérêt ainsi que par les autres possibilités d’emplois rentables pour les banques.

En tenant compte des crédits accordés aux non résidents, le total des crédits au secteur privé se sont accrus de 22,6% en 2008 contre une hausse de 20% en 2007. Cependant un repli de ces taux de croissance est prévu pour 2009 avec les risques de ralentissement de l’activité économique locale et régionale et de récession mondiale et leurs conséquences sur la baisse de la demande de crédits, du financement des opérations commerciales et du recul de l’empressement des banques à


Tableau n°2: Emplois du secteur bancaire en fin de période (En milliards de L.L. et en pourcentage)*

2006 2007 2008 Valeur % Valeur % Valeur %

Réserves monétaires* 29338 26.2 29851 24.1 39113 27,5Créances sur le secteur privé résident 23091 20.6 26762 21.6 31750 22,3Créances sur le secteur public 31193 27.9 32423 26.1 38314 27,0Avoirs extérieurs 24746 22.1 31220 25.2 28834 20,3Immobilisations et actifs non classés 3596 3.2 3743 3.0 4078 2,9

Total 111964 100.0 123999 100,0 142090 100.0

Source: Banque du Liban* Billets monétaires et pièces métalliques en LL + dépôts auprès de la BDL

octroyer des crédits avec l’accroissement des risques de ces crédits.

Il est à signaler, à cet égard, que ces crédits sont devenus nets des intérêts non réalisés sur les créances non performantes ainsi que sur les créances douteuses en vertu de la circulaire intermédiaire de la BDL n°138 du 24/5/2007

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Tableau n°3: Les créances bonifiées et bénéficiant d’exemption de la réserve obligatoireEn fin de période, en milliards de L.L.


Par ailleurs, le taux de dollarisation des crédits octroyés au secteur privé résident reste élevé, atteignant 84,0 % à fin 2008 contre 84,3% à fin 2007 et 84,0% à fin 2006. Ce taux reflète le niveau élevé de dollarisation de l’économie. Reste à souligner que le rapport crédits /dépôts en devises a augmenté à 40,1% à fin 2008 contre 33,9% à fin 2007, en raison de la hausse de l’octroi de crédits d’une part et de la stabilité relative des dépôts en devises d’autre part. a- Crédits subventionnés et crédits bénéficiant de facilités et d’exemptions au niveau de la réserve obligatoire

Le gouvernement oeuvre dernièrement, en coordination et coopération avec la Banque du Liban, pour l’adoption de mesures financières incitatives, qui viendront s’ajouter aux autres mesures sociales et fiscales, afin de faire face aux éventuelles retombées néfastes indirectes de la crise sur le Liban, dont notamment le retour d’une partie de la main d’œuvre libanaise travaillant sur les marchés régionaux et internationaux. Parmi ces mesures, figurent celles visant à relancer les crédits surtout en livres libanaises, en les dotant de conditions favorables telles la bonification des intérêts des crédits pour les nouveaux projets et de nouvelles exemptions de la réserve obligatoire. Ces mesures vont ainsi accroître les crédits en livres avec le recul de la dollarisation des dépôts

et favoriser la création d’emplois et l’aide au développement économique.

Ces mesures viennent en outre s’ajouter aux nombreuses autres mesures prises au cours de la période précédente afin d’aider les secteurs productifs, soutenir les crédits au logement, et faciliter le mécanisme des crédits accordés aux petites et moyennes entreprises qui sont garantis par la société «Kafalat», et ce, à travers la réduction du coût des crédits octroyés.

Rappelons que les autorités monétaires et financières avaient pris après la fin de la guerre de juillet 2006, et en coordination avec les banques, de nombreuses mesures visant d’une part à venir en aide aux propriétaires de logements et d’établissements ayant subi des dommages directs ou indirects, et d’autre part à préserver la qualité du portefeuille de créances des banques. Parmi ces mesures citons : la possibilité de rééchelonner les crédits garantis par la société « Kafalat » sur un ou deux ans supplémentaires, la prorogation d’un an des crédits subventionnés, ainsi que les montages financiers établis par la BDL permettant de couvrir 60% du coût de remplacement des biens et immeubles endommagés par la guerre. Le tableau ci-dessous présente en détails l’évolution des crédits subventionnés et ceux bénéficiant d’exemption de la réserve obligatoire

1- Les créances bonifiées à moyen et long termes 2- Les créances bonifiées garanties par Kafalat3- Les créances bonifiées accordées s/protocole signé avec la BEI 4- Les créances bonifiées accordées par les sociétés de leasing5- Les créances bonifiées accordées par la IFC 6- Les créances bonifiées accordées pour le financement du working capital 7- Les créances bonifiées accordées par la AFD

TOTAL (1+2+3+4+5+6+7)

Les créances utilisées et bénéficiant d’exemption des engagements soumis à la réserve obligatoireLes créances utilisées et bénéficiant d’exemption de la réserve obligatoire

2006

17964669682---

2440

10801347

2007

200559811898---

2819

12841723

Sept 2008

224373919910939100,3

3319

13852116

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Source: Banque du Liban Source: Banque du Liban

b- Nature et répartition des crédits

Les statistiques relatives à la nature des crédits accordés par le secteur financier, montre que la plupart de ces crédits sont des crédits à découvert sans garanties (overdrafts). En fait, la part de ces crédits a constitué environ 35% du total des crédits utilisés à fin septembre 2008, suivi par les crédits immobiliers (22%).

Les statistiques relatives à la répartition des crédits sur les secteurs économiques montrent que ces crédits continuent à se concentrer dans les secteurs du commerce et des services malgré la baisse de leur part à 41,0 % à la fin de l’année 2008 en comparaison avec l’année 2007. Elle montre de même la baisse de la part des prêts personnels à 18,3 % et celle de l’industrie à 12,8 %. Par contre, les parts du secteur de la construction et du bâtiment (15,5 %) et de l’intermédiation financière (7,4 %) ont augmenté, tandis que la part de l’agriculture (1,0 %) reste quasiment stable et réduite. A noter que les crédits

bancaires pour ce secteur, reflétant les crédits directs et non les crédits indirects liés aux coopératives et aux importateurs, ont augmenté de 17,7 % en 2008. Les crédits agricoles ne comportent pas les crédits octroyés pour le commerce en gros des produits agricoles, des animaux et des insecticides. Ne sont pas comptabilisés non plus les crédits octroyés au commerce en détail des équipements et machines agricoles. Les crédits agricoles comprennent les crédits bonifiés à moyen et à long termes, ceux bonifiés et garanties par Kafalat et ceux signés en vertu de protocoles avec la Banque européenne d’investissement (BEI) et la Société financière internationale, et qui ont tous augmenté de 19 % durant les neuf premiers mois de l’année 2008. Ce qui signifie que le réseau des banques au Liban dirige de manière efficace les mécanismes de financement bonifiés qu’ils soient internes ou externes, non seulement pour le secteur agricole, mais aussi pour d’autres secteurs productifs comme l’industrie, le tourisme, la production artisanale et les techniques spécialisées.

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Tableau n°4: Répartition des crédits du secteur financier sur les secteurs économiques En fin de période

Décembre 2006 Décembre 2007 Décembre 2008 Valeur (%) Valeur (%) Valeur (%) (milliards de L.L.) (milliards de L.L.) (milliards de L.L.)

Commerce et services 12387 42,31 14952 43,04 17266 41,02Construction et bâtiment 4317 14,75 4757 13,69 6502 15,45Industrie 4058 13,86 4650 13,39 5403 12,84Prêts personnels 5613 19,17 6770 19,49 7707 18,31Intermédiation financière 1385 4,73 1870 5,38 3105 7,38Agriculture 328 1,12 362 1,04 426 1,01Autres secteurs 1187 4,06 1376 3,96 1683 4,0

Total 29275 100,00 34737 100,00 42092 100,00




En ce qui concerne la répartition de ces crédits sur les régions et les bénéficiaires, et en raison de la concentration de la population et de l’activité économique à Beyrouth et ses banlieues, les crédits restent largement concentrés dans cette région et au profit de ses habitants : 82,7% de la valeur totale des crédits et 58,9% du nombre de bénéficiaires à fin septembre 2008.

En ce qui concerne la répartition de ces crédits par tranches, les statistiques recueillies à fin septembre 2008 montrent que les crédits dépassant 1 milliard de L.L. représentent 76% de la valeur totale des crédits, répartis sur 2,1% seulement des bénéficiaires dont le nombre s’élève à 4368 constitués de particuliers, de petites et moyennes entreprises et de grandes sociétés.

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Finalement, notons qu’en matière de concentration, les dix premières banques ont monopolisé environ 78,9% de la valeur totale des crédits bancaires accordés au secteur privé en 2007, alors que la part des cinq premières banques a atteint 58,8% environ.

c- Evolution des taux d’intérêt débiteurs

En 2008, les taux d’intérêt sur les crédits nouveaux ou renouvelés en livres libanaises ont connu un léger recul par rapport à l’année précédente au cours de laquelle ces taux avaient affiché une certaine stabilité. Ceci s’explique par l’évolution semblable des taux d’intérêt sur les dépôts en livres libanaises. Le taux d’intérêt débiteur moyen en livres libanaises a atteint 9,96% en 2008 contre 10,26% durant les deux années 2006 et 2007.

Parallèlement à la baisse des taux d’intérêt sur les dépôts en dollars sur le marché de Beyrouth, le taux d’intérêt moyen sur les crédits nouveaux ou renouvelés en dollars, a poursuivi en 2008 la baisse commencée en 2007 mais à un rythme plus accentué pour atteindre en moyenne sur la période 7,48% en 2008 contre 8,32% en 2007.

De son côté, l’ABL recommande périodiquement aux banques membres, d’adopter des taux d’intérêt débiteurs «prime rate» sur la livre libanaise et le dollar, sur la base de l’étude des taux d’intérêt sur le marché de Beyrouth établie selon les composantes du coût dans le secteur bancaire, et allant de pair avec les changements prévalant sur le marché des dépôts en livres libanaises et en dollars sur ce marché. Dans la dernière circulaire publiée à cet égard le 14 janvier 2009, l’Association a recommandé d’adopter un taux d’intérêt débiteur «prime

rate» sur la livre libanaise de 10,00% et sur le dollar américain de 8,25%.

Suite au souhait et encouragement de la Banque du Liban d’établir un taux de référence des intérêts en dollar sur le marché de Beyrouth afin de l’adopter à la place du Libor comme référence dans les contrats de prêts car ce dernier ne reflétait plus le coût des ressources en dollar sur le marché libanais, l’Association a décidé de calculer un taux moyen débiteur de référence en dollar pour le marché de Beyrouth appelé “Beirut Cost Rate –BCR”, qui comporte en plus du coût moyen des dépôts en dollar, le coût moyen d’exploitation du secteur. Ce taux a été fixé à 5,56% et circularisé aux banques pour être adopté à partir du premier avril 2009. Ce taux va servir de base ultérieurement pour le calcul du “Prime rate”.

2-2 Crédits au secteur public

Le secteur bancaire contribue de manière principale et depuis longtemps au financement d’une partie importante des besoins du secteur public, même si le volume de ce financement varie d’une période à l’autre suivant différents facteurs notamment, les liquidités disponibles des banques et les besoins de financement du secteur public. A la fin 2008, les crédits bancaires accordés au secteur public ont atteint près de 38314 milliards de L.L. (soit l’équivalent de 25,4 milliards de dollars) contre 32423 milliards de L.L. (soit l’équivalent de 21,5 milliards de dollars) à la fin 2007. Ces crédits ont ainsi enregistré une hausse importante en 2008 de 18,2% parallèlement à la hausse importante des ressources bancaires en livres, en contrepartie d’une faible hausse en 2007

Tableau n°5: Répartition des crédits selon la valeur et les bénéficiaires (En pourcentage – fin septembre 2008)

Selon la valeur Selon le nombre de bénéficiaires

Moins de 5 millions de L.L. 0,04 3,395 – 25 millions de L.L. 3,68 53,8025 – 100 millions de L.L. 7,58 31,25100 – 500 millions de L.L. 8,26 8,26500 – 1000 millions de L.L. 4,26 1,211000 – 5000 millions de L.L. 16,81 1,495000 – 10000 millions de L.L. 10,21 0,2910000 millions de L.L. et plus 49,16 0,31

Total 100,00 100,00


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de 3,9% seulement à cause des liquidités disponibles en livres plus réduites. Notons cependant que les banques avaient souscrit durant les deux mois d’octobre et novembre 2007 à des bons du Trésor en livres libanaises de la catégorie de 60 mois en remplacement des certificats de dépôts en livres émis précédemment par la BDL dans le cadre de sa politique visant à diminuer sa part dans le financement de la dette publique. Le portefeuille des banques en bons du Trésor en livres s’est accru pour atteindre 22607 milliards de L.L. à fin 2008 contre 15664 milliards de L.L. à fin 2007, alors que leur portefeuille en Eurobonds a baissé à l’équivalent de 15608 milliards de L.L. venant de 16696 milliards de L.L. durant les deux mêmes périodes respectivement. Suite à ce qui précède, la part des crédits en livres libanaises dans l’ensemble des crédits accordés au secteur public a augmenté de 48,5% à fin 2007 à 59,3% à fin 2008 alors que la part des crédits accordés en devises a baissé de 51,5% à 40,7% à la fin de ces deux mêmes années respectivement.

2-3 Avoirs extérieurs

Les avoirs extérieurs représentent une partie essentielle des emplois des banques commerciales, et leur part dans le total actif des banques a atteint à fin 2008 20,3% contre 25,2% à fin 2007. Ces avoirs extérieurs composés en grande partie de dépôts auprès des banques non résidentes ont atteint 19127 millions de dollars à fin 2008 contre 20710 millions de dollars à fin 2007. Ainsi ces avoirs ont baissé de 7,6% en 2008 après avoir enregistré une hausse de 26,2% durant l’année 2007.

Les dépôts auprès des banques non résidentes, malgré leur rendement relativement bas, restent un pilier pour les banques dans la gestion de leur ressources, puisqu’ils sont considérés comme un moyen essentiel de protection contre toute crise de confiance pouvant entraîner un retrait des dépôts en dehors du secteur bancaire comme ce fut le cas durant les deux années 2005-2006. De fait, ces avoirs liquides avaient joué alors un rôle important dans la limitation des opérations de retrait des dépôts puis leur retour progressif. Mais à la fin de l’année 2008, ces dépôts ont reculé à 11390 millions de dollars contre 14553 millions de dollars à la fin 2007, enregistrant ainsi une baisse de 21,7%. Cette baisse en 2008 s’explique par la baisse des taux d’intérêt sur le dollar sur les marchés extérieurs et par le recours à d’autres placements rentables en dollars exprimé par la hausse des créances en devises, alors qu’en contrepartie les ressources en devises n’ont que très légèrement haussé durant cette période. Alors que la forte hausse de 18,9% enregistrée par

ces dépôts en 2007 avait été causée par une hausse importante des dépôts bancaires en devises, tandis que la BDL n’avait pas eu besoin durant cette période d’émettre de certificats de dépôts en dollars. Notons que les dépôts auprès des banques non résidentes, qui sont nets des engagements restent élevés, atteignant 7085 millions de dollars à fin 2008 et représentant 13,1% de l’ensemble des dépôts en devises étrangères.

Les autres avoirs extérieurs des banques ont augmenté de 7,9% en 2008 contre une hausse de 40,4% durant l’année 2007. Ces avoirs constitués essentiellement par des emplois dans les banques sœurs ou affiliées (Egypte, Syrie, Jordanie, Soudan, Algérie, Turquie….) ont atteint 3759 millions de dollars à fin 2008 contre 3484 millions de dollars à fin 2007. Par ailleurs, les créances des banques au secteur privé non résident ont haussé jusqu’à 3978 millions de dollars à fin 2008 contre 2673 millions de dollars à fin 2007, accusant une hausse de 48,9% en 2008 après avoir enregistré une hausse de 57,4% en 2007 due au financement par les banques de particuliers non résidents ou de projets à l’extérieur appartenant à des non résidents.

2-4- Dépôts auprès de la Banque du Liban

Les dépôts des banques commerciales auprès de la Banque du Liban, constituent également un des principaux emplois bancaires, et leur part dans le total actif des banques a atteint à fin 2008 27,3% contre 23,9% à fin 2007. Ces dépôts sont composés de dépôts à vue et à terme (dont les certificats de dépôt) en livres libanaises et en devises étrangères ainsi que des réserves et emplois obligatoires.

A la fin de l’année 2008, les dépôts des banques commerciales auprès de la Banque du Liban ont atteint 38790 milliards de L.L. contre 29589 milliards de L.L. à la fin 2007 enregistrant ainsi une hausse notable de 31,1% en 2008 contre une hausse de 1,6% seulement en 2007. Par ailleurs la part des dépôts en devises représente plus de 60% du total de ces dépôts.

En 2008, l’évolution de ces dépôts a été influencée, par les souscriptions des banques commerciales aux émissions de certificats de dépôts en livres libanaises et en dollars par la BDL, par la hausse importante des dépôts auprès des banques (surtout en livres ) et par suite du montant plus élevé des provisions ou de réserves obligatoires correspondantes à constituer, et finalement par la baisse notable des taux d’intérêt servis sur les dépôts des banques auprès de leurs banques correspondantes à l’étranger.

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III – LES BANQUES ET LA GESTION DES RISQUES

1- Les risques d’asymétrie de maturité (Mismatch Risk) et les risques de taux d’intérêt

Les risques d’asymétrie de maturité liés au portefeuille des crédits bancaires octroyés au secteur privé sont considérés faibles. Bien que les dépôts bancaires soient, dans leur majorité, à court terme, (plus de 75% sont à moins de trois mois d’échéance), les crédits accordés au secteur privé sont pour la plupart de nature courante, et les taux d’intérêt correspondants sont revus périodiquement. La situation est différente en ce qui concerne les crédits bancaires octroyés au secteur public qui représentent une partie importante des emplois des banques et qui engendrent un coût pour les banques en cas d’augmentation des taux d’intérêt sur la livre libanaise et le dollar (ce qui n’est pas le cas actuellement), car ces crédits ont des échéances plus longues évaluées à environ 622 jours pour les bons du Trésor en livres libanaises à fin 2008, et près de 4,7 ans pour les Eurobonds émis hors Paris 2 et Paris 3. Notons toutefois que ces Eurobonds ne représentent que 16% du total actif des banques en devises étrangères et 100% de leurs fonds propres. Cependant, malgré le court terme des dépôts bancaires, la base de ces dépôts est restée en grande partie stable même durant les périodes très critiques, reflétant la fidélité du déposant et sa confiance dans sa banque, ce qui équivaut pour cette dernière à des dépôts placés à longue échéance.

Durant les deux années 2007 et 2008, les taux d’intérêt créditeurs sur la livre libanaise sont restés presque stables avec une légère tendance à la baisse, alors que les rendements sur les placements en livres se sont légèrement améliorés en 2007 avant de reculer en 2008 provoquant ainsi une légère hausse des marges des banques sur la livre libanaise durant ces deux années de 0,9% et 1,2%. Quant aux marges sur le dollar, elles se sont réduites en 2007 en raison de l’augmentation des intérêts payés sur les dépôts en devises accompagnée par une légère baisse des rendements des placements en devises. Mais en 2008, les marges en dollar se sont stabilisées avec la baisse des rendements des emplois en devises accompagnée d’une baisse à un rythme presque similaire des intérêts payés sur les dépôts en devises étrangères.

2- Risques de change (Exchange Rate Risk) Ces risques demeurent largement contrôlés grâce aux mesures prises précédemment par la BDL concernant les positions de

change, et qui interdisent aux banques au Liban de prendre des positions de change autres que les positions opérationnelle et structurelle pour la protection du capital. Les positions de change ouvertes (Open Foreign Exchange position) ne peuvent pas dépasser 1% des fonds propres de base. De même, les banques sont autorisées à constituer un maximum de 60% des fonds propres de base en devises étrangères. Cependant il est nécessaire de signaler que les banques restent exposées aux risques indirects de détérioration du taux de change de la livre à cause de la détérioration possible de la qualité du portefeuille de crédits en devises accordés à des clients dont les revenus sont en livres libanaises, qu’ils soient des particuliers ou des sociétés. Toutefois, les banques prennent pour ces crédits les garanties nécessaires et qui sont pour la plupart évaluées en devises. Par ailleurs, les banques restent exposées aux risques de taux de change dans leurs placements dans les Eurobonds libanais car la part des revenus en devises de l’Etat dans l’ensemble de ses revenus n’est pas importante. Toutefois le risque de détérioration du taux de change de la livre libanaise n’est nullement soulevé actuellement avec le calme prévalent sur le marché monétaire et à l’ombre de la persistance du gouvernement et de la Banque centrale dans la politique de stabilisation du taux de change et surtout avec le niveau historique atteint par les réserves officielles en devises étrangères.

3- Risques de crédit Les banques travaillent à différents niveaux pour contenir les risques de crédits. Elles adoptent une politique prudente dans l’octroi des crédits, réunissent des dossiers plus fournis en informations sur les clients et consolident le rôle de leurs unités de gestion des risques. Les banques exigent également les garanties nécessaires, constituent les provisions adéquates pour ces crédits, et révisent la classification de leurs crédits d’une manière périodique conformément aux instructions des autorités monétaires et de contrôle. Elles consolident de même leurs fonds propres qui ont couvert 28,4 % des crédits au secteur privé résident et non résident à la fin de l’année 2008. De même, la création du Bureau de renseignement sur les crédits “Credit bureau”, en collaboration avec la Société financière internationale “IFC”, et qui travaillera parallèlement à la Centrale des risques, pour compléter les informations de celle-ci en s’intéressant aux catégories de consommateurs non couverts par elle ainsi qu’à certains types d’informations et d’analyses qui ne font pas partie de ses compétences. Ce bureau pourra contribuer de manière efficace dans

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l’évaluation des risques de crédit du demandeur de prêt et dans l’assainissement du portefeuille créances des banques. Notons à cet égard que les autorités monétaires et de contrôle avaient œuvré précédemment en vue d’assainir les portefeuilles des banques, des créances non performantes (NPL) relatives à des établissements du secteur privé. La BDL avait permis également aux banques de soustraire les créances irrécouvrables entièrement provisionnées de leur bilan et les enregistrer dans le hors bilan. Ainsi, la qualité du portefeuille des crédits s’est améliorée, et le ratio des créances non performantes (NPL) nettes des provisions et des intérêts non réalisés par rapport à l’ensemble des créances nettes est estimé actuellement à près de 4 % contre des taux plus importants durant les années précédentes. De même, les provisions constituées par les banques couvrent pratiquement plus de 70 % de leurs créances douteuses. Mais les risques de crédit pourraient augmenter avec de nouvelles créances douteuses provoquées par le ralentissement économique prévu au Liban et dans la région, et après la hausse importante des crédits octroyés en 2007 et 2008 au secteur privé, ce qui nécessite la constitution de provisions supplémentaires et la non distribution des profits. De même, l’exposition des banques aux risques souverains en 2008 a augmenté comme nous l’avons mentionné plus haut. En effet, la part des crédits au secteur public et des dépôts auprès de la Banque du Liban a augmenté pour atteindre 54,3 % de l’ensemble des emplois en 2008, alors qu’elle avait reculé à 50% à la fin 2007 venant de 53,6% à la fin 2006. Il est à noter que les hausses enregistrées sont en livres libanaises, alors que les crédits au secteur public en devises ont baissé en valeur absolue et en proportion.

4- Risques de liquidité Le secteur bancaire libanais se distingue par des taux de liquidité élevés, selon tous les critères, ainsi les risques de liquidité sont bien maîtrisés. Le maintien d’un seuil minimum de liquidité en livres mais surtout en devises étrangères constitue la stratégie adoptée par les banques depuis plusieurs années. Cette stratégie vise principalement à la sauvegarde et au renforcement de la confiance dans le secteur bancaire, et à la flexibilité face à des

situations critiques soudaines. L’importance du maintien d’une liquidité élevée est apparue lors des développements survenus en 2005 et 2006 et dernièrement au cœur de la crise financière internationale, car la liquidité élevée en devises des banques leur a permis de préserver la confiance des déposants dans le secteur bancaire, de limiter les transferts à l’étranger et de maîtriser la stabilité monétaire. Le ratio de liquidité globale en livres libanaises et en devises, soit les réserves, le portefeuille des bons du Trésor en livres libanaises et en devises sur moins d’un an et les avoirs extérieurs sans les crédits au secteur privé non résident, a atteint environ 57% du total des dépôts et des autres engagements fin 2008.

5- Risques de solvabilité Le secteur bancaire libanais se caractérise par un taux de solvabilité élevé selon les critères de Bâle et selon les meilleurs critères adoptés dans l’industrie bancaire mondiale. Suivant les données des autorités monétaires et de contrôle, le taux de solvabilité du secteur a atteint 18% en 2008 selon l’accord de Bâle 1 et environ 12% selon les critères de l’accord de Bâle 2, dépassant ainsi largement le taux requis par le Comité de Bâle et qui est de 8%. Notons que le calcul du taux de solvabilité selon les critères de Bâle 2, s’effectue par une pondération des risques des placements bancaires en devises auprès de l’Etat et de la BDL qui soit conforme à la notation des risques souverains au Liban, soit le coefficient de pondération des risques 100% (au lieu de 20% et 0%). Soulignons que les banques au Liban entreprennent depuis des années les préparations nécessaires pour appliquer l’accord de Bâle 2 à tous les niveaux, principalement : l’augmentation des fonds propres à travers l’émission d’actions ordinaires et préférentielles et la mise en réserve d’une partie des profits, l’amélioration de la gestion de tous les risques bancaires (risques de crédits, risques du marché et risques opérationnels), la consolidation de leur contrôle interne, le renforcement du rôle des unités d’audit, l’amélioration des principes et méthodes d’administration et de gestion, l’augmentation de la transparence par une meilleure communication des états financiers des banques, ainsi que d’autres mesures rentrant dans le cadre de Bâle 2.

RAPPORT ANNUEL 2008

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IV- PERFORMANCES DU SECTEUR BANCAIRE

Le secteur bancaire a enregistré une bonne performance en 2008 malgré la crise financière et économique mondiale survenue au dernier trimestre de l’année. Les profits des banques ont augmenté en 2008 de plus de 27 % en comparaison avec les résultats de l’année 2007 dépassant le milliard de dollars (chiffre non encore définitif ) et le ratio du rendement net sur la moyenne des actifs a atteint 1,17% environ et celui du rendement sur la moyenne des droits des actionnaires près de 15,58%. Cette augmentation est due aux facteurs prix et volume combinés, car le bilan consolidé des banques a augmenté et la marge nette globale a augmenté en même temps. Cependant le développement positif dans les marges d’intérêt pourrait s’inverser en 2009, surtout avec la chute des taux d’intérêt au niveau international dans le cadre des différents plans de relance du crédit, qui pourrait entraîner la baisse des rendements des placements liquides des banques libanaises à l’étranger. De même, la baisse des bénéfices en 2009 serait liée à certaines pertes dans les actifs détenus avec la baisse des prix, l’augmentation des risques de crédits, l’augmentation des provisions et la baisse des commissions et des rendements sur un certain nombre de services bancaires.

Les chiffres publiés d’un échantillon représentatif de banques libanaises de grand volume et dont le total actif représente près de 82 % du total actif du secteur, montrent que l’augmentation des profits net en 2008 a atteint 33 % en raison de la hausse des marges d’intérêt de plus de 30 % et de l’augmentation des commissions et des autres revenus de plus de 20 %, en contrepartie d’une hausse de près de 25 % des charges générales d’exploitation ainsi que des provisions nettes qui se sont également accrues après une baisse importante en 2007. Et l’impôt sur les profits a lui aussi augmenté. Ceci constitue une preuve supplémentaire que les performances du secteur bancaire libanais n’ont pas été affectées par la crise financière mondiale, qui s’est répercutée négativement sur les bénéfices

des établissements financiers à l’étranger ainsi que sur leur développement. Les données disponibles montrent de même un certain recul du ratio coût/ revenu.

Les bénéfices nets des banques au Liban (après déduction de l’impôt sur les profits) ont augmenté selon les données publiées par la BDL, de 27% durant chacune des années 2006 et 2007. En 2007 ces bénéfices nets ont atteint 1281 milliards de L.L. (soit 850 millions de dollars) contre 1007 milliards (ou 668 millions de dollars) en 2006. La cause principale de la hausse des profits en 2007 revient à la hausse des intérêts nets reçus, des commissions nettes perçues et autres recettes.

Le rendement sur la moyenne des actifs après l’impôt a augmenté de 0,89% en 2006 à 1,04% en 2007, et le rendement sur la moyenne des fonds propres est passé de 12,46% à 13,42% respectivement durant les deux années mentionnées, sachant que ce rendement est supérieur pour les grandes banques. La comparaison des deux indices du rendement sur la moyenne des actifs avant l’impôt (ROA) et celui du rendement sur la moyenne des droits des actionnaires avant l’impôt (ROE) entre le Liban, d’une part, et les 100 premières banques arabes ainsi que les 100 premières banques mondiales, d’autre part, montre que les indices de profitabilité des banques libanaises restent, malgré leur amélioration, notamment au niveau du rendement sur la moyenne des droits des actionnaires (ROE), inférieurs aux indices des 100 premières banques tant arabes que mondiales durant la période étudiée. Cependant la chute en 2008 de grandes banques internationales qui ont subi de grosses pertes et vu fondre leurs capitaux propres, a montré que cette comparaison n’était plus valable pour prouver la solidité d’un établissement bancaire et sa viabilité ainsi que sa capacité à s’accroître et à attirer les nouveaux investisseurs sans que d’autres critères liés aux risques du bilan et du hors bilan ne soient eux aussi contrôlés

Tableau n°6: Rendement avant l’impôt sur la moyenne des actifs (ROA) et sur la moyenne des droits des actionnaires (ROE)

ROA ROE 2007 2008 2007 2008

Secteur bancaire libanais 1,04% 1,17% 13,42% 15,58% (non définitif ) (non définitif )Banques arabes: les cents premières 2,61% 24,1% Banques internationales: les cents premières 1,08% 27,3%

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Le ratio coût/revenu (cost-to-income), mesuré par le rapport entre les frais de personnel et autres frais généraux d’investissement sur le produit financier net, a baissé de 58,5% en 2006 à 55,2% en 2007. Il est à noter que les dépenses bancaires vont, en partie, à l’ouverture de nouvelles branches ainsi qu’aux investissements dans les technologies de l’information, la vente et la commercialisation.

Les commissions nettes et autres revenus nets ont haussé de 774 milliards de L.L. en 2006 à 1006 milliards en 2007, soit dans une proportion de 30%. Toutefois, les banques accordent une très grande importance à la diversification de leurs services, dont les opérations bancaires de détail et les services des marchés de capitaux, ainsi que les services de conseil qui leur rapportent des commissions. La part des commissions nettes et autres revenus ont haussé de 26,2% du produit financier net

Le tableau ci-dessous détaille l’évolution des revenus et leur répartition. Le total recettes des banques a augmenté de 8466 milliards de L.L. en 2006 à 9385 milliards en 2007, soit une hausse de 10,9%. Cette hausse est due principalement à la hausse des intérêts perçus qui constituent 90% du total recettes notamment celles perçues sur les comptes débiteurs clientèle et sur les bons du Trésor et également celles sur les comptes des banques.

en 2006 (9,1% du total recettes) à 30,3% en 2007 (10,7% du total recettes).

Le tableau ci-dessous détaille l’évolution des dépenses et leur répartition. Les dépenses ont augmenté de 7459 milliards de L.L. en 2006 à 8103 milliards en 2007, ce qui représente une hausse de 8,6% due principalement à la hausse des intérêts payés sur les comptes créditeurs.

Tableau n°7: Répartition des recettes (en milliards de L.L.)

Variation % 2006 2007 2007/2006

Intérêts perçus 7692 8378 +8,9 Dont: sur les comptes des banques 3203 3464 +8,1 sur les comptes débiteurs 1758 2013 +14,5 sur les bons du Trésor 2414 2604 +7,9Commissions nettes perçues 417 527 +26,4Autres recettes nettes perçues 357 479 +34,2

Recettes totales 8466 9385 +10,9


RAPPORT ANNUEL 2008

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Les provisions nettes pour créances irrécouvrables et investissements bancaires ont baissé de 165 milliards de L.L. en 2006 à 71 milliards en 2007, les banques n’ayant plus besoin de constituer des provisions supplémentaires avec l’amélioration de la qualité de leur portefeuille créances.

Les charges d’exploitation, administratives et générales, ont augmenté de près de 121 milliards de L.L. soit à un taux de croissance de 8,1%. Cette hausse est due principalement à la hausse des frais de personnel dans une proportion de 9,6% causée en grande partie par l’accroissement du nombre des

employés dans le secteur bancaire de 16538 en 2006 à 17664 en 2007. Notons que les frais de personnel ont constitué près de 57% de ces charges d’exploitation durant chacune des années 2006 et 2007. Quant aux autres charges d’exploitation, elles sont assumées par les banques pour couvrir les opérations de modernisation et de développement requises afin de rester en harmonie avec l’évolution de l’activité bancaire mondiale. Par ailleurs, la valeur de l’impôt sur les bénéfices a augmenté de 20 milliards de L.L. pour atteindre 231 milliards de L.L. avec un taux de croissance de 9,5%.

Tableau n°8: Répartition des dépenses (En milliards de L.L.)

Variation % 2006 2007 2007/2006

Intérêts payés 5357 5965 +11,3Provisions nettes 165 71 -57,0Charges administratives et générales 1501 1622 +8,1Dont: coût des employés 850 933 +9,8Autres charges d’exploitation 225 214 -4,9Impôt sur les bénéfices 211 231 +9,5Dépenses totales 7459 8103 +8,6

Recettes totales 7459 8103 +8,6


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Tableau n°9: Comptes de résultat du secteur bancaire (en milliards de L.L.)

2006 20071- Intérêts perçus 7692 83782- Intérêts payés 5357 59653- Marge d’intérêt (1) – (2) 2335 24134- Provisions nettes 165 715- Intérêts perçus nets (3) – (4) 2170 23426- Commissions nettes et autres revenus nets 779 9827- Produit financier net (5) + (6) 2949 33248- Charges générales d’exploitation 1726 18369- Bénéfices exceptionnels -5 +2410- Bénéfices avant impôt (7)-(8)+(9) 1218 15129- Impôts sur les bénéfices 211 23110- Bénéfices nets (10)-(11) 1007 1281


CINQUIEME PARTIETABLEAUX STATISTIQUES

Voir Page 153

ANNUAL REPORT 2008PART I GENERAL ECONOMIC DEVELOPMENTS

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PART IGENERAL ECONOMIC DEVELOPMENTS

ANNUAL REPORT 2008

88

PART I

GENERAL ECONOMIC DEVELOPMENTS

I – WORLD ECONOMY

After two years of strong growth (5.0% and 5.2% in 2006 and 2007 respectively), the global economic activity significantly slowed down in 2008 to reach 3.2%, with the aggravation of the world financial crisis and its economic repercussions during the last four months of the year. A crisis which its first signs start to emerge in August 2007, with the collapse of the high risk housing loans market in the U.S., the subprime crisis. According to the latest reports published by the International Monetary Fund (IMF), the global growth should decelerate to become negative -1.3% in 2009, reaching therefore its lowest levels recorded since the world war two. It is also likely that the world growth rate would become negative and reach -2%, with a large number of developed economies experiencing a recession or a situation quasi-close to recession, despite all large – scale measures taken to date at the level of fiscal and monetary policies; and also with a continuous decrease in growth in the emerging and developing countries, the fall of or stable raw material prices, the drop in the demand for exports, the increasing difficulties regarding the external financing, and others. The GDP of the developed economies is expected to contract, for the first time since 6 decades to -3.8% in 2009, against a growth rate of nearly 0.9% in 2008. The emerging and developing economies will also witness a severe regression, with a growth rate of 1.6% against 6.1% during these last two years respectively.

According to the projections of the same source, the global economy is likely to resume growth progressively in 2010, with an expected growth rate of 1.9%, due to continuous efforts, aiming at putting an end to liquidity and credit risks, lifting the obstacles hindering the credit markets, and restoring to the financial sector its functional capacities, whether through pumping liquidity or capital or by providing the necessary assistance to clean bad assets of companies capable of surviving or other initiatives and measures which will strengthen the trust of investors and the business society. These measures lie within the framework of the adopted fiscal and monetary policies, especially in the advanced economies and those supporting aggregate demand. The continuous and coordinated international cooperation plays an important role in favor of progressive recovery. However, the cost of rescue operations in the financial sector and the expansion of fiscal measures adopted by the governments to revive the economy will contribute to reducing the budget surplus or recording even a deficit in many developed countries, which will provoke an increase of the public debt to GDP to undesired levels.

Based on IMF reports too, inflation rates witnessed an increase in

2008. In fact, the inflation rate of advanced economies increased from 2.2% in 2007 to 3.4% in 2008, with an increase of prices of raw materials and food products at a quick pace, to reach the peak in July 2008. Inflation in these developed economies should decrease to an unprecedented rate, -0.2% in 2009, due to falling global demand and the decrease of the prices of raw materials, before slightly increasing by 0.3% in 2010. The weakening inflationary pressures helped central banks of developed economies to take the necessary measures in order to diminish interest rates, which became close to zero in many countries, and to improve the level of liquidity in the markets. With regards to emerging and developing economies, the inflation rate increased, from 6.4% in 2007 to 9.3% in 2008 and is expected to decrease to reach 5.7% in 2009 and 4.7% in 2010.

The retreat of world growth and that of developed economies, affected to certain extend growth in the Middle East region, to record 5.9% in 2008 against 6.3% in 2007. Nevertheless, this is still considered a good growth rate, recorded due to the high prices of raw materials and the strong local demand during the first three quarters of the year, in addition to the fact that the local economic activity was not directly and largely affected by the international financial crisis at its beginnings. However, growth may witness a severe slowdown to reach 2.5% in 2009 before increasing again in 2010 to 3.5%, because of the decrease in the prices of raw materials and a severe slowdown of the economic activity in developed countries, accompanied with the regression of demand for exports, as well as the tourism and real estate activities, in addition to the negative impact on remittances and on credit costs.

Within this context, it is noteworthy that the average growth rate of GDP for GCC countries witnessed a different path, moving from 5.3% in 2007 to 6.8% in 2008, despite the weakening of some economic activities during the first quarter of the year. This was accompanied by a significant increase of the current account and budget surpluses to GDP to reach 27.5% and 22.8% respectively, with the continuous rapid growth of oil revenues and increased investments in non-oil sectors. However, these countries are likely to experience a steep decrease in growth rates to reach 3.5% in 2009, which will go in pair with the budget and current account balance deficits to GDP to reach -0.1% and -3.1%, because of the decrease of oil prices and production cuts, which ultimately lead to a decrease in oil export revenues and government revenues in general, thus casting doubts about the possibility to continue spending and investment plans as earlier scheduled without introducing radical amendments.

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Table No1: World growth rates and changes in trade volume and consumer prices (%)

2007

5.2

2.72.02.72.4

8.36.25.48.6

10.613.09.36.35.7

7.2

2.26.4

2008

3.2

0.91.10,9-0.6

6.15.22.95.5

7.79.07.35.94.2

3.3

3.49.3

2010

1.9

0.00,0-0.40.5

4.03.90.81.2

6.17.55.63.51.6

0.6

0.34.7

2009

-1.3

-3.8-2.8-4.2-6.2

1.62.0-3.7-5.1

4.86.54.52.5-1.5

-11.0

-0.25.7

ExpectedActual

6.25.48.6

5.22.2 95.5.5

3.90.81.2

2.0-3.7-5.1

13.09.36.35.7

9.9.007.7.335.94.2

7.55.63.51.6

6.54.52.5-1.5

2.26.4

3.49.3

0.34.4.77

-00.2.25.5 77

Source: World Economic Outlook (WEO) - April 2009

World Economy

Advanced Economies, o/w :- United States -Euro area- Japan

Emerging & Developing economies, o/w :- Africa-Central and Eastern Europe-Commonwealth of Independent States (CIS), o/w Russia

Developing Asia, o/w- China - India - Middle East-Western Hemisphere (Central & South America, and others)

World Trade Volume (goods & services)

Change in consumer pricesAdvanced Economies Emerging & Developing economies

II- THE LEBANESE ECONOMY

According to official sources and estimations, the Lebanese economy witnessed in 2008, for the second consecutive year, a strong growth, reaching 8.5% in real value, after reaching (according to the economic accounts of Lebanon for the years 2006 and 2007 published by the Republic of Lebanon in December 2008) 7.5% in 2007 and 0.6% in 2006. As indicated by the same source, GDP was close to LBP 37754 billion in 2007 against LBP 33824 billion in 2006 and LBP 32955 billion in 2005. Therefore, with the adoption of an inflation rate estimated by the different concerned sources of around 10.8%, nominal GDP reached LBP 43625 billion (i.e. USD 29.9 billion) in 2008. The real growth rate should be more modest in 2009 (between 3 and 4%), which will be de facto affected by the positive and

negative aspects linked to parliamentary elections and the global economic recession, especially the regional one, which can weaken the exports sector, the tourism activity, and the volume and pace of transfers towards Lebanon and the direct investments.

The improvement of the political and security situation and the restoration of confidence in individuals and in the business society following the success of Doha conference in May, then the election of a President of the Republic, the formation of a national unity government, and the reinstatement of the legislative activity, contributed to growth reported in 2008. The Lebanese economy benefited from the increasing activity


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GDP and Current Account Balance

2006 2007 2008 2009 (projected)

Real growth rate (%) 0.6 7.5 8.5 3.0Change in consumer prices (%) 5.6 4.1 10.8 3.6GDP Deflator (%) 1.9 3.8 6.5 5.0GDP (billion LBP) 33824 37754 43625 47180GDP (billion USD) 22.4 25.0 28.9 31.3Current account deficit / GDP (%) -6.9 -7.9 -11.8 -10.7Population (millions of inhabitants) 3.9 3.9 3.9 4.0

Sources: Economic accounts of Lebanon / International Monetary Fund (IMF) Report, March 2009

The below listed economic, monetary, and banking indicators and the field surveys reflected, at large, the improvement of the economic activity in 2007 and 2008. The value of cleared checks, revealing the volume of economic transactions, without however neglecting the important development of other means of payment, increased in nominal value by 37.1% and 17.9% respectively and in real value by 26.4% and 13.9%. Moreover, the imports of goods increased in quantity by 6.8% and 6.5% in 2008 and 2007 successively, showing the improvement of household

consumption, goods and services production, and investment. The below table also shows the rising activity of the tourism sector, as measured by passenger arrivals and departures at the Rafic Hariri International Airport. Furthermore, exports of goods knew a remarkable growth in 2007 and 2008. As for the construction sector, the area of construction permits significantly increased in 2008 (+31% during the first three quarters of 2008 compared to the same period of 2007). The same applies for the quantity of delivered cement.

in the tourism and construction sectors, two main engines of economic growth, and from the higher aggregate demand, in general, especially before the repercussions of the global financial crisis, by which Lebanon, apparently, was not affected in 2008, as shown by a series of economic, financial, and monetary indicators. This was due to the control of the public finances and the interests policy appropriate to the balance of payment, and the preventive measures adopted by the banking, monetary, and supervisory authorities. The growth in 2008 was attributed also to the increase of external demand for the Lebanese products and services. These facts were accompanied by an increase of oil prices, abundant liquidity, and economic growth in the Gulf region during a large part of the mentioned year in addition to an acceleration of the capital

and transfers inflows towards Lebanon. The economic accounts of Lebanon for 2007 revealed a significant increase of private and public consumption, the most influencing element in the determination of growth rate, considering that consumption represents the two thirds of the aggregate demand, with the compensation of households of durable goods purchases, which retreated because of the July war in 2006. Moreover, the investments of public and private sectors recorded a strong growth, following the end of aggressions, because of the construction activities, especially the reconstruction of damaged infrastructure. Add to that the growth of exports of goods and services at high rates, which were largely and negatively affected by the embargo and the aggressions of 2006.

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1-Public finances and public debt In 2008, total government revenues improved significantly, compared to 2007, reaching LBP 10553 billion, i.e. an increase of LBP 1804 billion and of 20.6%. This increase is partially attributed to the increase in prices of raw materials and alimentary products and to the appreciation of main foreign currencies to the US dollar, on the one hand, and to the improvement of the overall economic activity, on the other. Based on the data published by the Ministry of Finance, the increase, in its greatest part, is due to the improvement of fiscal revenues, which increased by LBP 1600 billion. Among the main components of this increase: the VAT (+LBP 581 billion), tariffs levied on trade and international transactions (+LB 341 billion), profits and income taxes (+LBP 256 billion), and real estate tax

(+LBP 254 billion). Non fiscal receipts increased only by LBP 102 billion and the Treasury receipts rose by LBP 103 billion. It is noteworthy that the grants received for budget support increased to LBP 200 billion in 2008 (i.e. around 6% of the total non fiscal receipts) against LBP 188 billion in 2007.

Total government expenditures also increased, reaching LBP 14957 billion in 2008; i.e. an increase of LBP 2370 billion and of 18.8%, compared to 2007. The public debt service, which includes the reimbursement of interest and principal on the external debt, increased by LBP 363 billion, i.e. 7.4% because of the increase of the portfolio of treasury bills in Lebanese pounds, with the concentration of subscriptions in the 36 month-

Evolution of main economic indicators for Lebanon

2006 2007 Change (%) 2008 Change (%)

Cleared checks (million USD) 32490 38301 17.9 52511 37.1Imports of goods (000 tons) 10994 11708 6.5 12506 6.8Excluding mineral products 4261 5396 26.6 5740 6.4

Imports of goods (million USD) 9398 11815 25.7 16137 36.6Excluding mineral products 6985 9121 30.6 11861 30.0Public expenditures excluding debt service (billion LBP) 7100 7647 7.7 9703 26.9Credits to individuals (end of period – million USD) 3723 4491 20.6 5112 13.8

Construction permits (000 sqm) 9683 9038 -6.7 16068* -Cement deliveries (000 tons) 3423 3945 15.2 4219 6.9Collected real estate fees (billion LBP) 301 406 34.9 617 52.0Credits to construction (end of period – million USD) 2864 3156 10.2 4313 36.7Credits to industry (end of period – million USD) 2692 3085 14.6 3584 16.2Total credits (end of period – million USD) 17016 20425 20.0 25040 22.6

Exports of goods (million USD) 2282 2816 23.4 3478 23.5Industrial exports (million USD) 1738 2361 35.8 2994 26.8Passengers arrivals (BIA) (000) 1465 1677 14.5 2026 20.8Passengers departures (BIA) (000) 1275 1649 29.3 2014 22.1Number of tourists (000) 1063 1017 -4.3 1333 31.1Credits to hotels & restaurants (end of period – million USD) 811 863 6.4 883 2.3

Average price of the barrel of Brent (USD) 65.39 72.69 11.2 97.91 34.7

Euro / US dollar (period average) 1.2558 1.3702 9.1 1.4715 7.4

Sources: BDL, Lebanese Customs, Orders of Engineers, Cadastre & Land Registry, Ministry of Tourism, Rafic Hariri International Airport. * Does not represent the actual activity in this sector for the period.


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Public Finances - 2006 till 2008 (Billion LBP)

2006 2007 Change (%) 2008 Change (%)

1- Total Receipts (Budget + Treasury) 7295 8749 19.9 10553 20.6o/w Tax Revenue 4922 5583 13.4 7182 28.6

Total Expenditures (Budget + Treasury)* 11879 12587 6.0 14957 18.8o/w Debt Service 4780 4941 3.4 5304 7.3 Current Expenditures 7099 7646 7.7 9652 26.2

Overall Deficit 4585 3838 -16.3 4404 14.7

Primary Balance : Surplus (+), Deficit (-) +195 +1102 465.1 +900 -18.3

Overall Deficit / Total Expenditures 386% 30.5% 29.4% Primary Balance / Total Expenditures 1.6% 8.8% 6.0% Debt Service / Total Expenditures 40.2% 39.3% 35.5% Debt Service / Total Receipts 65.5% 56.5% 50.3% Tax Revenue / Total Receipts 67.5% 63.8% 68.1%

Overall Deficit / GDP 13.6% 10.2% 10.1%

Source: Ministry of Finance*Do not include CDR expenditures financed externally and most of the liabilities of the State vis-à-vis NSSF, entrepreneurs, and appropriations.

category of relatively high effective rate and representing 79% of the total portfolio. It is worth to note the decrease of the deficit to total expenditures to 35.5% in 2008, against 39.3% in 2007. Primary expenditures (total expenditures excluding debt service) increased by LBP 2007 billion (26.2%) in 2008, and the ratio of primary expenditures to total expenditures increased to reach 64.5% in 2008, against 60.7% in 2007. Transfers to EDL, accounting for the largest increase in primary expenditures, reached LBP 2430 billion in 2008, against LBP 1479 billion in 2007, i.e. an increase of LBP 951 billion (47.5% of the increase of primary expenditures). It should be mentioned that transfers to EDL include expenditures related to debt service – principal and interest- signed by EDL with the guarantee of the Treasury, and those approved by the Treasury for EDL. Expenditures include also the fuel purchasing, which, since the end of 2005, is undertaken by virtue of bilateral contracts signed between the Ministry of Energy and Water Resources, on the one hand, and the Algerian company Sonatrac and the Kuwaiti

petroleum institution, on the other. The Treasury guarantees these purchases. Among the main reasons explaining the increase of transfers to EDL, we can mention the significant increase of the price of the oil barrel, which surpassed 140 dollars before decreasing again and closing at an average of 98 dollars in 2008, against an average of 73 dollars in 2007. EDL related expenditures, represent therefore a huge economic and financial burden. It might be necessary in this respect to review the tariff, which was adopted in 1996 on the basis of the price of the oil barrel at 25$.

As such, the public deficit moved from LBP 3838 billion in 2007 to LBP 4404 billion in 2008, i.e. an increase of 14.7%, whereas the deficit to GDP ratio stabilized: 10.2% and 10.1% during the two-above mentioned years. The primary surplus decreased from LBP 1102 billion (2.9% of GDP) in 2007 to LBP 900 billion (2.1% of GDP) in 2008.

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In November 2008, and upon the request of the Lebanese authorities, the IMF announced that it will continue to support the Lebanese government through EPCA 2 Program (Emergency Post-Conflict Assistance 2), which will last until June 2009. The IMF accepted to grant Lebanon a loan of USD 37.6 million to support an economic program for 2008-2009, which is an addition to an amount of USD 76.7 million, granted earlier by the IMF by virtue of EPCA-1 program to support the policies of the Lebanese authorities. The mentioned program showed that, at the end of December 2008, all the quantitative objectives were achieved with success; others were exceeded by far. Among the main results: a primary surplus that contributed to the decrease of the ratio of public debt to GDP, and a significant increase in reserves in foreign currencies of the Banque du Liban. With regards to the other objectives, a remarkable progress was achieved pertaining to the preparations in favor of the privatization of the mobile phone sector. However, because of domestic political reasons and others related to the global financial crisis, the privatization process has been postponed. Moreover, auditing programs for the NSSF and EDL were prepared. The Lebanese government benefited from the decrease of world oil prices to reconstitute the taxes on oil derivatives whereas electricity tariffs were not subject to revision, probably for social reasons.

EPCA-2 objectives are based on the previous achievements. Among these objectives: maintaining financial stability, containing public deficit, implementing the reforms in the vital sectors in conformity with the government program on the mid and long run submitted during Paris 3 conference. The aid provided by the IMF and the Fund’s periodical assessment of the reforms progress in Lebanon contribute to strengthening financial discipline and promotion of external financial support of donating parties, particularly in the light of the global economic recession and the global credit markets crisis.

It is also worth to note in this regard that during Paris 3 conference, held in November 2007, the participating States, organizations, and funds, made financial commitments and promised aid related to sectoral and social projects of an amount exceeding USD 7.5 billion and for a duration of five years, most of these under the form of soft loans, aiming at financing the Government’s program of reforms and a series of other programs. According to the latest report published by the Ministry of Finance regarding the progress of Paris 3, the overall amount of the signed contracts attained USD 5.4 billion, whereas the received amounts reached USD 3.1 billion.

Pledged, signed and received amounts (USD million – end of December 2008)

Pledged amounts Signed amounts Received amounts

Budget Support 1737 2133 1491BDL 43 43 43Private Sector Support 1463 1431 785Project Support 3491 1047 97In-kind contributions 362 326 301Others 436 405 405Total 7532 5384 3122

Source: Ministry of Finance

Until the drafting date of the present report, the Council of Ministers has not ratified yet the draft budget for 2009, knowing that the three budget projects for 2006, 2007 and 2008 that include important reforms are still at the Parliament. The figures published in draft budget laws since 2006 are therefore of trend indicative nature, not figures on which expenditures should be based upon, considering that the estimated expenditures are inferior to actual ones. Expenditures are undertaken on the ‘one-twelfth’ rule since the budget draft laws were not ratified.

Based on the leaked information regarding the draft budget for 2009, some amendments were introduced on the revenues side, among which levying a tax on maritime real estate, the increase of tax on the reevaluation of companies’ assets for once, and the increase of tax on interest. On the expenditures side, there will be an increase in salaries and remunerations because of the increase of the minimal wage, a lump-sum increase of salaries due to the implementation of the scale of salaries and grades with a retroactive effect, and an increase of capital


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Public Debt (2006-2008) (end of period – billion LBP)

2006 2007 Change 2008 Change 2007/2006 (%) 2008/2007(%)

Gross Public Debt 60851 63364 4,1 70880 11,9 Public debt in domestic currency (LBP) 30204 31373 3.9 39006 24.3Public debt in foreign currencies 30647 31991 4.4 31874 -0.4

Public sector deposits with the banking system 4444 4527 1.9 8326 83.9Net public debt 56407 58837 4.3 62554 6.3

Public debt financing (estimates, %) Banks in Lebanon 54.0 53.4 56.7 Banque du Liban 21.8 20.0 18.8 Public & financial and public institutions (resident) 8.3 10.2 9.7 Bilateral & multilateral loans 6.0 6.9 6.4 Others 9.9 9.5 8.4

Source: BDL

expenditures which remain relatively low. It is noteworthy that the government tries to take measures to boost the economy, among these: increasing the tools of support to investment loans from commercial banks in order to extend the subsidies of interests on loans for some sectors, improving the investment climate, drafting programs to encourage the creation of work opportunities, and developing a strategy for the social regime in cooperation with the World Bank.

Some measures remain urgent in order to improve the public finances situation, among which, the unification of total expenditure, including budget and off-budget expenditures that comprise those of the Treasury, the CDR, the municipalities and the EDL, in a manner that the budget produced could represent the overall receipts and expenditures. It is important to highlight in this respect the deployed efforts made by the Ministry of Finance in order to release the public accounts for 1993-2006. It is also preferable to abondon the carried forward appropriation in order to control spending operations.

Public debt and financing sources

At the end of 2008, the total public debt reached LBP 70880

billion (the equivalent of USD 47.0 billion) to increase by 11.9% in 2008 against 4.1% in 2007.

The total public debt remains high in relation to estimated GDP, despite its decrease from 168.05 in 2007 to 162.5% in 2008, which is within the government’s commitment towards the IMF.

As for the net public debt (which is calculated by deducting public sector deposits with the banking system from gross public debt), it increased by 6.3% and 4.3% in 2008 and 2007 respectively. Compared to the figures of the gross public debt in 2008, that means that the Treasury resorted to borrowing and increasing the deposits of the public sector in the banking system in a way which exceeds its financing needs.

Moreover, the public debt denominated in LBP represented at the end of 2008, 55% of the total public debt against 45% of the debt in foreign currencies, knowing that both levels were 49.5% and 50.5% at the end of 2007 and 2006 respectively. This was largely related to the increase in banking resources in LBP, with the conversion of a large share of deposits in foreign currencies into LBP and an increase of subscriptions to treasury bills.

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The public debt denominated in LBP recorded a significant increase in 2008, of LBP 7633 billion, i.e. of 24.3%, mainly due to an increase in the portfolio of banks of treasury bills in LBP (from LBP 16784 billion at the end of 2007 to LBP 24222 billion at the end of 2008) and in the portfolio of the non-banking sector (from LBP 5474 billion to 5906 billion), against a decrease in the BDL portfolio of treasury bills in LBP (from LBP 8647 billion to 8419 billion) during the two above-mentioned dates respectively.

Moreover, the debt denominated in foreign currencies did not witness any significant change between the years 2007 and 2008, decreasing by only USD 69 million, i.e. 0.3%. With regards to the Eurobonds, the Ministry of Finance issued , in March 2008, bonds amounting to USD 875 million (9.125% interest and maturing in 2013), against bonds coming to maturity in March 2008, amounting to 869 million. On May 2, 2008, the Ministry of Finance issued Eurobonds of a value of USD 882 million, (9.00% interest and maturing in 2014). This issue partially represented, on the one hand, the renewal of bonds coming to maturity in May, June, and August 2008, in addition to the issuance of new bonds amounting to USD 150 million, on the other hand. In August 2008, the Ministry of Finance issued Eurobonds of a value of USD 500 million coming to maturity in 2015.

Sources of public debt financing

With regards to the public debt denominated in LBP, banks’ share of the total treasury bills portfolio in LBP increased considerably from 54.3% in 2007 to 62.8% in 2008. Moreover, the share of BDL decreased, moving from 28% to 21.8%, in harmony with the commitments made towards the IMF. The share of the non-banking sector also regressed during the two above-mentioned years respectively, from 17.7% to 15.3%.

Source: BDL


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Concerning the public debt denominated in foreign currencies, the portfolio of commercial banks of Eurobonds reached USD 10354 million at the end of 2008 against USD 11075 million at the end of 2007, i.e. a share of 58.2% and 61.6% of the total portfolio (principal and interest) on these dates respectively.

It is noteworthy that 85% of the Lebanese total public debt is assumed by resident parties, thus granting Lebanon a certain margin of independence towards external (non resident) parties – countries, institutions and individuals.

Interest rates and maturities

Treasury bills of all categories in LBP witnessed a slow and gradual decrease in 2008, following stability between December 2005 and December 2007, except for the 36 month-category. The effective rates of the last issue of 2008 were as follows:

The weighted interest rate on the portfolio of treasury bills in LBP increased from 8.86% in 2007 to 9.04% in 2008, with an increase of subscriptions in treasury bills, particularly for the 36 month-category.

As for the weighted maturity of the portfolio of treasury bills in LBP, it increased also from 597 days (around 19 months) at the end of 2007 to 622 days (around 20 months) at the end of 2008.

As for the Eurobonds, the weighted interest rate increased from 7.12% in 2007 to 7.21% in 2008, due to a part of Eurobonds pertaining to Paris 2, coming to maturity with a low interest rate, and the issuance of new bonds or the renewal of bonds coming to maturity at a high interest rate.

The weighted life of the portfolio of Eurobonds decreased from 4.92 years at the end of 2007 to 4.70 years at the end of 2008.

2- Monetary policy and developmentsIn 2008, the monetary situation was characterized as highly positive and seemed shielded against the aggravation of the global financial crisis in September 2008. It even benefited from it. The monetary situation witnessed stability in 2007, compared to 2005 and 2006. The Banque du Liban was not compelled in

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2008 to resort to financial structures, as those to which it has previously pursued. Many factors contributed to this positive situation, among which, the improvement of the political and security situation after the Doha conference in May 2008 that restored confidence in the market, the maintaining of a relatively stable interest rate structure on the national currency, the preservation of the banking system of a high level of liquidity and assets in foreign currencies, and the occurance of financial flows towards Lebanon exceeding significantly current external payments. Among the factors also, the relative stability of the public fiscal situation, the absence of large maturities of Eurobonds outside the banks and the BDL, the success of the Ministry of Finance at the beginning of the month of May 2008 in the renewal of a part of Eurobonds and the issuance of new bonds, and the renewal by BDL, at the beginning of 2008 of USD 1.8 billion of certificates of deposits in dollars issued in 2005 and coming to maturity in 2008. This preventive strategy has been pursued by the concerned authorities with success since numerous years and aims at calming the markets in the face of undesirable developments.

Foreign exchange market and reserves of the Banque du Liban

In 2008, the foreign exchange market witnessed favorable developments, thanks to political and security stability, on the one hand, and to the reduction of the Fed of its main interest rate many times, to reach in December 2008 its lowest level between zero and 0.25%, on the other. This affected interest rates on USD on Beirut’s market, which declined against a slight decrease in interest rates on LBP. Therefore, the difference in interest rates on LBP and USD widened. Considerable conversion transactions of deposits in foreign currencies into LBP thus occurred; Deposits in LBP recorded a significant increase of USD 8 billion. BDL intervened, buying USD on the foreign exchange market, particularly following the success of Doha Conference. Following the mentioned conference too, BDL decreased, gradually, the bid price of USD on the market to reach LBP 1501 (i.e. the lowest level of its margin of intervention) starting September 2008, after the supply of USD exceeded the demand. This also contributed along large inflows from abroad, to the increase of BDL reserves in foreign currencies to a record level exceeding USD 17.0 billion at the end of 2008, against USD 10 billion at the end of 2006 and 2007. This strengthened BDL capacity to pursue the monetary stability policy. It is noteworthy that the foreign exchange market was quasi stable in 2007, a period during which BDL intervened from time to time to sell USD when the political and security tensions were high.

Liquidity and inter-bank operations

In 2008, as in 2007, the weighted interbank interest rate maintained its normal level due to the availability of liquidity in LBP, with limited increases on certain days affected by the lack of liquidity used in the subscription to treasury bills. The weighted monthly average varied between 3.50% and 4.95% in 2008, whereas it varied between 3.50% and 6.35% in 2007. It is noteworthy that BDL discount and repo operations remained limited in 2007 and 2008.

Certificates of deposits in LBP

At the end of 2008, the portfolio of certificates of deposits in LBP, issued by the BDL, increased to LBP 9035 billion, against LBP 4594 billion at the end of 2007, and LBP 6098 billion at the end of 2006. During 2008, the BDL intensely issued certificates of deposits in LBP, mainly for five years at interest rates, which decreased gradually, and varied between 11.5% and 10.25%. This was in parallel to large operations of conversion of banking deposits in foreign currencies into deposits in LBP, and the maturity of a part of outstanding certificates of deposits during the mentioned year. It is noteworthy that the continuous demand for the LBP incited the BDL to reduce the interest rate on the certificates of deposits for five years, reaching 10% for the issue of February 2009. The portfolio regressed in 2007 particularly, because of the conversion of LBP 1500 billion of certificates of deposits into treasury bills of the five year-category, in October and November, within the framework of decreasing the State’s financing dependence on the BDL, whereas subscriptions and maturities were limited during the mentioned year.

Certificates of deposits in dollars

At the beginning of 2008, around USD 1.8 billion of certificates of deposits in USD issued by the BDL and coming to maturity in 2008 were renewed for five years and at an interest rate of 9%, as a preventive measure which contributed to ensure monetary stability in 2008. Moreover, BDL issued new certificates of deposits during the same year, for five years and at an interest rate of 9%, in the light of political and security tensions which prevailed before the Doha Agreement. After the said Agreement, BDL also issued other certificates, at an interest rate of 8.5%. The portfolio of certificates of deposits in USD reached USD 5.9 billion at the end of 2008 against USD 4.7 billion, at the end of 2007.


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Open market operations and the financing of the public sector

In 2008, the portfolio of treasury bills in LBP held by the BDL went down, affected by maturing special bonds of the 54 month-category. This was due to an increase of banks subscriptions to new and renewed treasury bills in LBP, in parallel to banks’ high level of available liquidity in LBP, as already mentioned. The BDL portfolio in treasury bills in LBP decreased to LBP 8419 billion at the end of 2008 and its share of the total portfolio of treasury bills in LBP regressed to 21.8%, against LBP 8647 billion and 28.0% of the total portfolio at the end of 2007 and LBP 9143 billion (30.8% of the total) at the end of 2006. It is noteworthy that in June 2007, a part public debt held by the BDL of a value of LBP 2340 billion was cancelled, hence decelerating the increase of the portfolio held by the BDL for the mentioned year.

In view of the positive developments on the monetary level, the Ministry of Finance has decreased, slightly and gradually, since June 2008, the interest rates on treasury bills after having witnessed stability since April 2005. Interest rate cuts varied

between 12 basis points on the three month-category bill and 32 basis points on the three year-category bond, knowing that the new issues in 2008 were concentrated in the three-year bonds.

Furthermore, the BDL holds a share of treasury bills in foreign currencies or Eurobonds, estimated at the end of 2008 at more than 15% of the overall portfolio, thus contributing to ensuring a relative stability of prices on these bonds on the financial markets, in case of changes in the demand and supply.

Money supply and counterparts

In 2008, the broad money supply (M3) increased significantly by 14.8%, after a remarkable increase too of 12.4% in 2007, thus achieving higher growth rates than those recorded in 2006 (7.8%) and in 2005 (4.4%). As for the dollarization rate of the money supply, it witnessed a retreat due to the intense conversions of deposits in foreign currencies into LBP, moving from 72.5% in 2007 to 63.9% in 2008.

The main elements that contributed to the increase of the money supply in 2007 and 2008 can be summarized as follows:

In 2008: The increase of claims on the resident private sector (+LBP 5746 billion) largely contributed to the increase of the money supply M3, followed by the rise of the net foreign assets

excluding gold (+LB 5184 billion) and the growth of claims on the public sector (+LBP 1928 billion), which contributed lesser to the money creation.

In 2007: Credits to the private sector increased significantly by LBP 3895 billion, which largely contributed to the money creation along with the increase of net foreign assets excluding

Evolution of money supply and counterparts (end of period – billion LBP)

2006 2007 Change 2008 Change 2007/2006 2008/2007

Money in LBP (M1) 3322 3578 +256 4269 +691Money and quasi-money in LBP (M2) 23477 24831 +1353 37325 +12494Money and quasi-money in LBP& FC (M3) 80244 90197 +9952 103506 +13309

Counterparts Net foreign assets 30371 36394 +6023 42169 +5775o/w: gold 8755 11517 +2762 12108 +591o/w: Foreign currencies 21616 24877 +3261 30061 +5184Net claims on public sector 40584 40917 +333 42845 +1928Valuation adjustment -3125 -3041 +85 -3602 -561Claims on private sector 23841 27736 +3895 33482 +5746Other items (net) -11426 -11810 -384 -11389 +421

Source: BDL

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gold by LBP 3261 billion. Credits to the public sector increased by LBP 333 billion only, but these credits effectively increased by LBP 2673 billion when taking into account the cancellation of a certain amount of the public debt in June, against the transfer to the treasury of similar amount of profits coming from the appreciation of the item valuation adjustment on the BDL balance sheet, implying that credits to public sector largely contributed to the rise of the money supply.

Inflation rate

In 2008, the consumer price index increased on average by 10.8%, after it rose by 4.1% in 2007. This increase in 2007 and to 2008 is due to many reasons, among which, the rise of world oil prices, food products, and others, in addition to an appreciation of the Euro/USD exchange rate at a time when Lebanon imports a large share of its goods from Europe. It is noteworthy that the weight of food items and beverages represents 35% of the consumption price index. The share of transports and communications is around 14%. The CPI is expected to increase by 3.6% in 2009.

Due to rising inflationary pressures in 2007, and particularly in 2008, the Council of Ministers have taken some measures, to contain the increase in prices, among which, the reductions of customs duties on some food products. Moreover, at the beginning of May 2008, the Council of Ministers raised the minimal level of salaries, from LBP 300 thousand to 500 thousand and approved a raise of LB 100 thousand for the retiree of the public sector and of LBP 200 thousand for the employees of the private and public sectors to account for the high cost of living. An increase, which was implemented for the private sector by virtue of a decree issued by the Council of Ministers and for the public sector by virtue of a law promulgated by the Parliament. It is likely that this increase will generate some inflationary pressures in 2008 and particularly in 2009, estimated at 3%, since producers and merchants may reflect this increase in salaries in higher prices.

3-The Balance of paymentsAccording to the latest reports published by the IMF on Lebanon in November 2008 and in March 2009, the deficit in the current account balance is expected to increase to USD 3.4 billion in 2008, i.e. 11.8% of GDP, against a deficit estimated at USD 2.0 billion in 2007, i.e. 7.9% of GDP. The deficit in the current account balance is financed through the capital inflows under different forms.

The enlargement of the current account deficit in 2008 is linked to the increase of oil and raw material prices and the local aggregate demand. The global financial crisis, which aggravated in September 2008, and adversely affected the economies of most countries of the world, among which Gulf countries, may cause a drop in tourism revenues and transfers and have an eventual negative impact on the exports of goods, with a decrease of the global and regional growth levels. However, the decrease of oil and raw material prices, and probably the local demand, may lead to a contraction in the imports of goods. Therefore, the deficit of the current account balance is likely to stabilize at USD 3.4 billion in 2009. It is noteworthy that the volume of transfers from the Lebanese working abroad towards Lebanon has been recently estimated at USD 6 billion per year.

In 2008 as in 2007, the surplus of the net balance of services and net transfers, in addition to the inflow of capital through foreign direct investments, portfolio investment, deposits of the non-residents at banks and others, exceeded the huge deficit in the trade balance, thus generating a surplus in the total balance of payment of USD 3462 million in 2008 (+USD 2037 million in 2007), reinforcing, thus, BDL reserves in foreign currencies in the light of the large demand for the LBP.

The graph below shows according to the data published by the IMF, the extent of the deficit in the current account balance in Lebanon compared to many other countries.


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In 2008, the trade balance deficit increased, reaching USD 12659 million against a lower deficit of USD 8999 million in 2007. This was due to an upsurge in the value of imports of goods that outpaced the significant rise in the volume of exports of goods for reasons related to the appreciation of the Euro/USD exchange rate and the increase in the world prices, in addition to the larger imported quantities. This lowered the rate of coverage of imports by exports from 23.8% in 2007 to 21.6% in 2008. The trade balance deficit increased also, from USD 7116 million in 2006 to USD 8999 million in 2007.

Imports of goods reached USD 16137 million in 2008, i.e. an increase of 36.6% in comparison with 2007, but the imported quantities did not increase by more than 6.8% in 2008, which shows that the impact of the price factor on the total value of imported goods was much more than the volume impact. In 2007, these imports attained USD 11815 million, i.e. an increase of 25.7% in comparison with 2006. Exports of goods increased also in 2008, reaching USD 3478 million, i.e. an increase of 25.4% in comparison with 2007, whereas the exported quantities increased only by 4.7% in 2008, which indicates again that the impact of the price factor was more important than that of the volume of exported goods. Goods exports reached USD 2816 million in 2007, recording an increase of 23.5% in comparison with 2006.

Among the main countries from which Lebanon imports goods, the USA came in the first place with a share of 11.5% of the total in 2008 and 9.6% in 2007, then China (8.6% during the two years respectively), France (8.3% and 7.5%), Italy (6.9% and 9.0%) and Germany (6.4% and 6.3%). Among the main countries towards which Lebanon exports goods: the United Arab Emirates came in the first place with a share of 9.9% of the total in 2008 and 8.7% in 2007, then Switzerland (9.5% and 10.9% respectively), Iraq (7.7% and 5.3%), Syria (6.4% and 7.5%), Saudi Arabia (6.0% and 6.6%) and Turkey (6.0% and 3.9%).

The current account balance deficit is financed by the net capital inflows, estimated at USD 4 billion in 2007 (i.e. 16% of GDP) and at USD 7 billion in 2008 (i.e. 24% of GDP). These inflows include foreign direct investments, portfolio investments, deposits of non-residents at banks, in addition to net loans extended by the “rest of the world” to the private and public sectors. Foreign direct investments (FDI) were estimated at USD 2 billion in both 2007 (0.8% of GDP) and 2008 (7.1% of GDP), knowing that these investments are to a large extend placed in the real estate sector.

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Balance of Payments (USD million)

2007 2008 (estimations)

Exports of goods (FOB) 4077 5149Imports of goods (FOB) 11926 16315Balance of trade -7849 -11166Net Balance of services 3197 5351Net income -782 -1200Net transfers 3455 3600Current account balance -1979 -3415In % of GDP -7.9 -11.8Capital and financial accounts 4016 6877o/w : foreign direct investment 2004 2055Short-run financial inflows, including deposits and Errors and Omissions 2012 4822

Overall Balance 2037 3462

Source: IMF reports on Lebanon – November 2008 and March 2009 - BDL

III - BANKS AND FINANCING OF THE ECONOMY This section describes briefly the role of banks operating in Lebanon in attracting resources and financing the economy, and their constructive contribution to monetary stability and to the development of payment systems, which impact positively the economic activity in the country. Chapter IV of the present report will detail the characteristics, activity, performance and management of banking sector risks.

It is noteworthy, at first, that the Lebanese banks were not directly affected in 2008 by the global financial crisis, which aggravated in September 2008, for many reasons. In fact, banks’ executives were well-aware of their role in the protection of depositors’ savings and had good management of resources and placements, far from the high-risk structured products and in compliance with the regulatory legislations adopted by the supervisory and monetary authorities in this regard. Moreover, the Lebanese banks have always maintained a high liquidity distributed between the domestic and external markets without being concentrated in any of the several correspondent banks spread in many countries, knowing that the main liquidity source rests on customers’ deposits, and not

on the global wholesale markets. The banks have continued to attract more deposits and to finance the domestic economy, in both its public and private sectors. Deposits increased by 15.6% in 2008 and the credits to the private sector by 22.6%.

The financial sector is considered to be the main funding source of the Lebanese economy, in its two sectors, public and private, and with the required volumes. This is clear from the share of credits to GDP, which reached 73% for the credits to the resident private sector in 2008, and 88% for the credits to the public sector. Credits granted to both sectors reached USD 46.5 billion at the end of 2008, of which 54.7% to the public sector and 45.3% to the private sector. The banking sector remains the main player in mobilizing savings and preserving existent deposits and attracting new ones. Thus, deposits at banks reached USD 78.7 billion at the end of 2008 (15% coming from non-resident deposits), without taking into account the fiduciary deposits off the balance sheet, whose volume continuously increases. Deposits at specialized banks reached USD 2.3 billion at the end of 2008.


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The dependence of the economy on banks, in the placement of funds and the financing, comes in parallel with the relative weakness of Lebanon’s capital market. Financing through the capital market has always been modest, whether considering market capitalization of outstanding securities, or regarding the primary issuance of stocks and bonds on the market. Lebanon probably benefited from the weakness of its capital market, because the direct repercussions of the global financial crisis – which affected most financial markets in an unprecedented manner – were restrained somehow. Despite that, the development of capital markets remains necessary, because healthy financing of any economy relies on banks, on the one hand, and on the financial markets, on the other, where the possibility of financing at a lower cost exists through

the issuance of financial instruments, the prices of which are easy to determine and can be easily liquidated. This requires an acceleration in the modernization of laws regarding the management of financial markets and the establishment of strict supervision.

Back to the financing of the economy by banks, it is noteworthy that these latter play an important role in the financing of the State and hold the largest part of the public debt (estimated at 57%); another share being assumed by the BDL (18%), and another one by the other residents – public institutions, financial institutions and the public (10%). Contrary to what prevails in the majority of countries, the highest share of the Lebanese public debt (85%) is assumed by the residing parties, which grants Lebanon a margin of independence towards external parties – States, financial institutions and individuals.

Banks continue to finance the private sector, consumers and coporations, with the requested volume and at an acceptable cost, despite the remarkable placements in the treasury bills, at the BDL, and at the non-resident banks. Credits to the private sector are offered with a margin of intermediation similar or inferior to what prevails in the OECD countries, which is considered to be acceptable even with the addition of commissions, and does not, therefore represent an obstacle to economic growth. It is even a catalyst, proof of which the significant increase in the credits to the resident and non-resident private sector, reaching USD 25040 million at the end of 2008, i.e. an increase of 22.6%, after an increase of 20.0% in 2007. The evolution of these credits was linked to the increase of the financing of economic sectors and individuals and to the financing of foreign trade. It was also linked to the support provided by banks to businessmen and Lebanese companies, in their growing activity on the regional markets, particularly in the Gulf region, through the necessary financing for their transnational expansion, following a regression of their activity in Lebanon because of the circumstances that prevailed in the country. Therefore, banks played a major role in preserving the revenues of these firms and the entrepreneurs, on the one hand, and the revenues of a part of Lebanese who work in these firms, on the other.

Moreover, banks largely contribute to the monetary stability in its fundamental pillars, consisting of preserving the purchasing power of the domestic currency, ensuring supply of essential goods and services imported to the Lebanese market, covering the deficit of the current account balance, and settling the State’s commitments in foreign currencies. Banks contribute to the stability by ensuring sufficient quantity of foreign currencies each year, through deposits of banks in foreign currencies at the BDL, and the credits to the public and private sectors in foreign currencies. The banking sector also finances a large

54.7%

45.3%

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share of the deficit of the current account, one of the pillars of the monetary stability, through capital flows. Therefore, banks have ensured the main pillars of monetary stability and played a social role of preserving the purchasing power of Lebanese citizens, particularly those with limited revenue.

Finally, banks play a major role in the development, the modernization and the facilitation of the payment systems, a particularly important element in the economic cycle of modern economies. In fact, banks made large and continuous investments in the systems and the networks, in order to facilitate payments in Lebanon and between Lebanon and abroad. This is well observed through the expansion or evolution of bank branches, the ATM network, the points of sale (electronic and ordinary machines), the different types of payment and credit cards, in addition to the efficiency of checks’ compensation, and the rapidity and security of transfers on the internal and external levels.

ANNUAL REPORT 2008PART II ACTIVITIES OF THE ASSOCIATION OF BANKS IN LEBANON

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PART IIACTIVITIES OF THE ASSOCIATION OF BANKS IN LEBANON

ANNUAL REPORT 2008

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PART II

ACTIVITIES OF THE ASSOCIATION OF BANKS IN LEBANON

I- CONTENT OF THE MAIN CIRCULARS PROMULGATED IN 2008

1- Strengthening the banking and financial sector

a- The outward Lebanese banking sector openness in the light of the global financial crisis

The Lebanese banking sector, this year, as it was the case during the previous years, continued its large-scale expansion towards the regional markets. In the face of the narrow internal market, the banks managements strengthened their foreign placements through lending to the non-resident private sector, constituting deposits at the non-resident banks, and going in pair with the resident private sector in its work outside Lebanon, in addition to its rewarding placements which are authorized in the global financial markets and instruments.

Despite this large outward Lebanese banking openness, our banks remained shielded against the dangerous global financial and banking crisis which sent a blow to the financial and banking system in most developed countries. The close cooperation between the monetary authorities and the banks managements prevented the Lebanese banks from being involved in placements which have revealed to be risky at a later stage. Banks remained committed to the provisions of Bank of Lebanon (BDL) basic circular no 62 and its amendments pertaining to dealing with non-resident sectors, which prohibits placements in any securities below the level of investment grade. Despite the large availability of liquidity in foreign currencies, the Lebanese banks did not leverage on the global markets, as it was the case in the international banks. Moreover, our banks did not resort to borrowing from the financial markets for leveraging purposes and for boosting the results and profits at the expense of the security of the banking activities.

At the beginning of 2008 and with the expansion of the global

credit crisis, the Lebanese monetary and supervisory authorities re-evaluated the legislations and the circulars to make sure that there were no breaches in favor of marketing high-risk funds and products in Lebanon at very attractive prices in order to clean up their balances sheets. The meetings with the Lebanese banks managements which committed themselves to a prudential policy and to inspecting real risks related to the funds and the financial products which were offered to them at an increasing pace were intensified, despite the decrease of interest rates which exerted too much pressure on the profits of banks in Lebanon.

In 2008, the Bank of Lebanon promulgated a series of circulars in order to immunize the sector against the risks of the aggravating global crisis, mainly:- Preventing banks and financial institutions from owning stocks

and participation shares entailing unspecified responsibilities (Intermediate Circular No 159, 4/18/2008)

- Submitting banks shares and participations in any foreign financial sector (bank – financial institution – financial intermediation institution – collective investment institution

– insurance company, etc.) to the approval of the Bank of Lebanon, whether these contributions or participations were direct or indirect (Intermediate Circular No 160, 4/18/2008, Intermediate Circular No 176, 7/8/2008, Memorandum of the Banking Commission Control No 14/2008)

- Submitting to the approval of the Bank of Lebanon all new Islamic products or investments created by Islamic banks other than the ones stipulated in the BDL legislations (Intermediate Circular No 163, date 5/6/2008)

- Organizing financial data (monthly and yearly) for foreign entities affiliated to financial banks and institutions (Intermediate Circulars No 164 and 165, date 5/14/2008)

- When the ABL warned the monetary authorities against the promotion, by some foreign financial establishment, of structured financial products based on Lebanese sovereign

In the light of the locally and internationally prevailing circumstances, the Association has continued to closely follow the banking regulations and legislations with the relevant authorities, particularly the monetary authorities, as well as other issues related to the banking profession. The Association has also continued its collaboration and coordination with the various economic institutions with regards to the economic situation of the country.

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risks (Lebanese Treasury Bills or BDL CD’S) Eurobond Credit Linked Notes, the Banking Control Commission (BCC) adopted memorandum No 9/2008, in which it is requesting to be provided by prompt statistics on the portfolio of investments of the banks, the financial institutions, and the brokerage institutions in these financial instruments. Then, BDL promulgated Intermediate Circular No 169, 6/23/2008, which authorized dealing with these products, provided that the delivery of bonds is in kind, not in cash, in order to avoid any loss the banks may incur because of these operations. BDL promulgated also Intermediate Circular No 171, 6/23/2008 which prevent exceeding the total nominal value of these instruments, 10% of the capital accounts of the concerned bank or financial institution, unless after the approval of the Bank of Lebanon.Moreover, the BDL asked from the banks managements to review the contracts of Lebanese bonds deposited at foreign institutions, like Euroclear and others, to make sure that there is a clause which prevents them from lending them, thus guaranteeing the right of the holder of the instruments, in case the borrower faces any problem. Midclear adopted such a clause in its contracts in due time.

- Preventing the publication and promotion of financial instruments and products, particularly those generated by securitization operations before obtaining the approval of the BDL (Intermediate Circular No 170, 6/23/2008).

The BCC controlled the respect by the banks, the financial institutions, and the financial brokerage institutions, of the BDL instructions, through various memoranda, in which it called for detailed statistics and monthly statements about the portfolio of their financial instruments on foreign markets (memoranda No 17 – 22 – 23 – 24/2008). It was also agreed to inform the BCC, at a prior stage, of any regional or external debts intended to be bought in order to avoid any disapproval at a later stage.

With the emergence of the phenomenon of real estate speculations in Lebanon, in 2008, and after the reasonable restructuring of prices in this sector by around 40%, such an ongoing wave would have generated a bubble which would have exploded later on. Therefore, it was agreed between the monetary authorities and the banks managements not to nurture such a wave and asserted to execute the circulars in place. Moreover, the BDL promulgated, on 7/21/2008 Intermediate Circular No 177, which organized the non-residential housing credits, the investor (or the speculator) being compelled to finance from its own capital accounts a specified share (40%) from any real estate project financed by the Banks. The said circular prohibited also the operations of real estate brokerage and financing speculations. This procedure applies also to Islamic banks (Intermediate Circular No 178, 7/21/2008). Furthermore, the BDL called upon the banks to implement the

content of these circulars on their branches abroad, even if they are not compulsory, for safety purposes.

With the deterioration of the prices of shares and securities on the international markets and after the introduction of amendments to the International Accounting Standard No 39 (IAS 39) and the International Financial Reporting Standard No 7 (IFRS 7), the BDL explained to ABL, with regards to the method of calculations of Eurobonds at the Lebanese banks, that every bank, with the agreement of the auditors, can opt for one of the following choices:- Whether to reclassify the available for sale Eurobonds into

held to maturity- Or turn them into receivables & loans, in conformity with what

is authorized internationally, in the light of the worldwide financial crisis.

- Or maintain its value, as it was at the end of July 2008.The BDL insisted that the last reference was the BCC and that the double standards or the divergent points of view of the auditors should not lead to situations, as it was the case in some countries.The BCC published two memoranda No 25/2008 and 26/2008 regarding this issue.

b- Follow-up of the implementation of Basel II accord for control and banking risk

The supervisory and monetary authorities, in coordination and in cooperation with the Association, as well as banks managements, continued to carry on with preparing the implementation of Basle II Accord, in order to strengthen the Lebanese financial and banking sector. The banking sector has made great steps on this level, despite the international developments and the credit crisis, from which Lebanon has stayed away, developments which may compel central banks to set up new rules governing structured product, and even - probably – reconsider Basel II principles in the light of the credit crunch which revealed the risks in countries and on markets which were considered to be safe, compared to the emerging markets.

In 2008, the monetary authorities sent to the ABL a series of draft circulars for study before adoption. These circulars and instructions revolved around many fields, within the context of the sector’s commitment to Basel II Accord, among which:-Setting up a documented mechanism in order to assess capital adequacy, according to the first and second pillars, to be in harmony with the nature and the size of the bank, as well as the degree of diversification and complications of banking services and operations, in addition to the type and size of risks the bank may be exposed to and its future prospects (Basic


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Circular No 119, 7/21/2008). At the beginning of 2009, the ABL organized, in cooperation with an institution specialized in risks management, a seminar about the practices adopted in risks management, according to the concept of capital adequacy assessment, according to the second pillar and its requirements ICAAP.- Creating “an audit commission” which helps the Board of

Directors in exercising its mandate and playing its supervisory role and ensuring the adequacy and efficiency of the supervisory regulations (Basic Circular No 118, 7/21/2008). Moreover, the BCC published Memorandum No 19/2008 by virtue of which it called upon the banks to give it the names of the president and members of the “audit commission”, in addition to its prerogatives and mandate, approved by the Board of Directors.The cases of embezzlement in some international banks, like the Société Générale/France, revealed the importance of the role of good internal control, in parallel with the regulations provided by the monetary and supervisory authorities, in order to maintain the safety of the banking system and protect the rights of the depositors and the shareholders. These qualitative aspects of Basel II are equal, or even of greater importance than the quantitative requirements of the capital, i.e. solvency ratios.

- Organizing the elements which intervene in the calculation of Tier one & Tier two capital accounts of Islamic banks (Basic Circular No 116, 5/13/2008)

- Increasing the value of the allowances which should be guaranteed from the regulatory capital account for every branch of the banks, from 250 to 500 million LBP and ensuring provisions amounting to LBP 250 million for the only branch of the financial institutions and the financial brokerage institutions, in addition to the provisions incumbent upon the headquarters (LBP 10 billion for the banks, LPB 2 billion for the financial institutions, LBP 1 billion for the financial intermediation institutions) (Intermediate Circulars No 173 and 175, 6/23/2008 and Intermediate Circular No 168, 6/10/2008)

- With regards to financial disclosure according to the third pillar of Basel II Accord, the BDL adopted, on 3/28/2008, Intermediate Circular No 158, by virtue of which it calls upon the banks and the financial institutions to set up the balance sheet and the income statement (which replaces the profit and loss account) to be published, in addition to ascertaining the access of the user of these data to the annexed detailed information, according to IFRS (particularly No 1 and 39) and according to the tables annexed to the third pillar of Basel II Accord. The implementation of the new system will start from the accounts closing on 6/30/2008, upon the request of the ABL to take the necessary measures in order to have a transitional period to switch to this system (Intermediate Circular No 162, 4/18/2008).

In order to avoid any breaches in the mechanisms of disclosure, the monetary and supervisory authorities underscored the necessity for banks to maintain providing the required audited semi-annual and quarterly reports, since these audited reports represent a main supervisory tool for the banks which expanded abroad, thus helping the authorities to support their process of outward expansion, despite the incumbent cost for auditors and the difficult to accomplish consolidated positions with the current outward expansion.

- Moreover, since transparency is particularly important to get to know the changes in the ownership of banks and holding companies and in order to avoid that monetary authorities be surprised, at a later stage, by a substantial change in the ownership of decision making in these institutions, the BDL published, on 4/18/2008, Intermediate Circular No 161, which enables it to be aware of any transfer of shares exceeding 5% for holding companies and approve it, as for the companies and investment funds underwriting banks capital, since their shares should be nominal. The BDL also published Intermediate Circular No 166, on 6/10/2008, which enables the monetary authorities to be informed of any transfer of shares for financial institutions which may lead, whether directly or indirectly, to the acquisition of more than 10% of the total number of shares of the concerned financial institutions.

Furthermore, the BCC continued to control the degree of readiness and the capacity of banks to implement and execute the new accord. It thus asked from the banks, by virtue of Memoranda No 8/2008 and No 18/2008, to carry out a second and third quantitative test for the solvency ratio, according to the first pillar of Basel II (credit risks, market risks and operational risks). Based on the results of this quantitative test, all banks can achieve the solvency ratio stipulated in Basel II.

It is noteworthy also that the banks managements deployed enormous efforts in order to clean up their balance sheets, through renegotiating the non performing loans, with the follow-up of the BCC. The cases of renegotiations exceeded USD 2600 million, benefiting to 7000 customers, most of them with debts below USD 100 thousand. Moreover, the provisions constituted within the sector represent more than 70% of the value of the bad and doubtful loans. On 9/12/2008, the BCC published Memorandum No 20/2008 about the accounting handling of private reserves which should be provided in return of the portfolio of the doubtful debts which were not renegotiated, according to BDL circular No 73, whose duration of implementation ends on 12/31/2008.

Furthermore, the capitalization of profits, i.e. the non-distribution of profits, remains the main source of capitalization. While the international banks achieved, during the previous period, very

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high rates of profits, distributed over their shareholders, the Lebanese banks earmarked more than 80% of their profits to strengthen their capitals.

Implementing the provisions of Basel II Accord in Lebanon represents a process which has not yet come to an end. On the contrary, it is still at its beginning. The monetary authorities should reconsider the circular pertaining to the classification of credits (Basic Circular No 58) in favor of expanding the categories to more than five. They can also clearly set the rates the banks will adopt with regards to the banks deposits at the BDL and the credits to the public sector in foreign currencies, according to realistic and transparent time schedule. During the meeting between the ABL, officials from the supervisory authorities, and risks managers within the banks, it has been agreed on the necessity to undertake amendments on some circulars, like the BCC circular No 242, Basic Circular No 77/2001, in order to modernize them to include important regulations in the qualitative elements for the evaluation of the capital, like the corporate governance for banking and in order to clarify some of their concepts.

2- With regards to the enactment of lending to the private sector in LBP

At the end of 2008 and in the light of the increase of LBP liquidity and its decrease in USD, due to the huge amounts of deposits transfers from USD to LBP in order to benefit from the difference in interest rates, the ABL suggested to the BDL that it was necessary to enact lending in LBP, and in order to prevent the borrowers from bearing high debtor interests, that all credits in LBP are exempted from the obligatory reserve requirement, especially that the BDL does not welcome the idea of decreasing the creditor interests in LBP.

The Bank of Lebanon encourages such a trend, since it is in the interest of economy, and promises to set up a mechanism to reach such a result, provided that it is applied to new programs to be launched in 2009 and it is planned according to studied interests, whether through the exemption from the obligatory reserve or the expansion of the rates of use of the obligatory reserves applied to productive loans or through the discount of securities at the BDL at a very low cost. Therefore the banks will be able to release liquidity for re-lending or through the expansion of the mechanisms to support interests after reaching an agreement with the Ministry of Finance. The BDL hoped that this requested mechanism will be promptly ready to be in use at the beginning of 2009.

Finally, the BDL asserted that nothing currently prevents

the banks from intensifying lending in favor of housing and productive activities through mechanisms in place: supporting interests, exempting from the obligatory reserves, guarantees, etc. As for the ineligible activities, like trade, a specific mechanism will be set up, at least for the financing of the main equipment.

It is noteworthy, in this regard, that the BDL published, on 8/4/2008, Intermediate Circular No 180 by virtue of which the set ceilings to decrease the obligatory reserves for every category of loans was annulated and replaced by an overall ceiling for all deductions of obligatory reserves, i.e. 75% of the value of these reserves.

3- BDL Circular No 114/2007 and the disclosure requirements for the members of the Board of Directors

After the promulgation of the above-mentioned circular, the ABL wanted to introduce some changes to it, every member of the Board of Directors not being compelled to disclose all his movables and non movables property. This requirement is not requested within the frame of Basel conventions, not even with the requirements of governance. Moreover, it is not in force in most developed countries.

What is asked in the disclosure of movables and immovables is like a networth, which is undertaken upon opening an account in an international bank. Therefore, it has been agreed, in practice, to carry out disclosure in accordance with the best practices, i.e. within a margin, varying, for example, between less than LBP 150 million and more than LBP 750 million, or the equivalent in foreign currencies. Moreover, disclosure is not binding for corporate members of the Board of Directors, except for their representative mandated for one year or more.

On 2/16/2008, the BDL adopted Intermediate Circular No 157, which included the amendments on which BDL agreed with the ABL.

4-BDL Circular No 103/2006 related to granting approval for the exercise of some prerogatives in the financial and banking sectors Since its promulgation, the said circular remained at the heart of a controversy between the banks and the Bank of Lebanon. The problem does not lie in the objectives and the spirit of the


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circular, but in the scope of implementation and the content of the certificates. In 2008, the ABL called upon the BDL to introduce major amendments to it, before the duration of implementation of some of its clauses ends. Although the BDL was serious and determined to put the said circular into execution, it has been agreed that the BCC will be in charge of studying the practical aspects of the circular and the points raised by the ABL through a joint commission between the ABL and the BDL.

The amendments raised by the ABL tackled the four following aspects of the circular:-Eliminating the requirement to send the applications of employees to the BDL, with their CVs, and sending only a list of those exempted, while keeping the applications documented at the Bank and submitting them, upon request, to the observation of the BCC. The joint Commission approved such an amendment. -Reconsidering the duration of implementation of the circular which, in principle, ends on 12/31/2008, the BDL having not finished yet the studying material for the degree related to the Lebanese laws and regulations. Employees, whose number amounts to around 5000, are supposed to study these courses and submit the exams of the requested diploma, for three years at least. Accordingly, the ABL asked for an extension of the Circular duration of implementation till the end of 2011. The joint commission also approved this extension.-Reconsidering some contents of the certificates of Financial Regulations and Securities, to answer the needs of the Lebanese market.-Tightening the range of staff to sit for the certificates of Financial Regulations and Securities, in accordance with the needs of the market in Lebanon and the need of creating branches abroad.

5-Creating a credit bureau

Since 2007, the ABL has been interested in creating a credit bureau in Lebanon, considering its importance to improve the credit risks management, especially individuals and small and medium enterprises. Moreover, the International Financial Corporation IFC submitted to the ABL a feasibility study project, which was discussed by the specialized commissions, and decided, following the deliberations, that the Lebanese financial institution “Société financière du Liban” will handle the achievement of this project. It has started with that, signing with the IFC the terms of references (including the commercial aspect), and exposed its results in February 2009 to the representatives of banks in a public meeting in the headquarters of the ABL, attended by the banks managements, under the sponsorship and in the presence of the Governor

of BDL. On the basis of the results, it has been agreed that “Société financière du Liban” will accomplish this project which is considered of great importance to the banking profession in Lebanon.

II – SOME PROFESSIONAL ISSUES

1-Increasing the 5% tax on the interests and the 2009 public budget draft

With the publication of 2009 public budget law draft in the newspapers, the Association paid attention to a very important item pertaining to the tax on banking interests, noting, in addition to the increase of the tax rate from 5 to 7%, the deduction of this tax from the profits before tax, which are subject again to the commercial profits tax. Therefore, the tax will be double, instead of deducting it from the incumbent tax, as in the past.

The ABL objected before the competent authorities, since the proposed amendment lacks fiscal equity among taxpayers in all economic sectors. Moreover, this approach is a model in the tax paying principles, unprecedented in the world. The analytical study of the effective tax rate to be paid by the banks reveals that the latter varies between 25%, as a minimum, and exceeds 100% over banks with low profits, which incur them additional losses.

In this regard, the ABL sent a letter to the concerned authorities which dealt – and we thank them for that – with the elimination of the unfair amendment towards banks, which does not serve the interest of financial stability, especially in the light of the prevailing international financial and economic crisis.

2-Policy of interests: debtor and creditor interests rates

As it used to be, the ABL continued, throughout 2008, to control and follow-up the developments and repercussions of international interests on the Lebanese market, through regular and exceptional meetings of the Board of Directors, following which periodical recommendations were raised to the banks, about the debtor and the creditor interests.

In the first part of 2008, the Board of Directors examined the downward curve of interest rates on USD on the international

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markets, whereas the creditor interest rates in Lebanon exceeded by far Libor rates. Without resorting to large and quick reductions, the Board considered necessary to adopt a moderate decrease because the margins tightened down whereas the need of banks to constitute provisions and reserves increased, in the light of the enlarging economic recessions and the ongoing political crisis. Accordingly, the Board of Directors recommended, on 4/9/2008, in a circular addressed to the banks, calling them to decrease the creditor interest rate so that they do not exceed 4% for USD deposits and 7.5% for LBP deposits, in order to maintain the profitability of banks in the light of the prevailing difficult circumstances.

With the aggravation of the global financial crisis and the increasing pace of the reduction of USD interest rate on the international markets in the second half of the year, with the Federal Reserve Board decreasing the fed funds interest rates to a margin varying between 0 and 0.25% in December 2008, the creditor USD interest rates decreased in Beirut to 3.33%. On the other hand, the BDL considered necessary to keep the credit interest rates on the LBP and USD markets in Beirut high, compared with the decreasing trend worldwide, since the deposits exchange from foreign currencies to LBP as an evidence of confidence in the monetary stability and the ongoing financial flux into Lebanon, are linked to the interest levels. These transfers are positive, regardless the cost of credits. Since Lebanon is not like London’s market, interests should take into consideration the risks in the country, which are still high, with the prevailing political situation and with the necessity of expect competition on regional markets (the Gulf ) where interests on USD reach 5%, or even 6%.

With regards to debtor interest rates, the ABL adopted, in 2008, a series of monthly recommendations to the banks about the adoption of the prime rate interests, keeping their LBP interest rates unchanged since 2006, i.e. 10.50%., whereas decreasing their USD interest rates from 8.25% on 4/17/2007 to 8% in March 2008. However, according to another circular published by ABL on 1/14/2009, banks recommended to increase the prime rate interest to 8.25% on USD and decrease it to 10.0% on LBP, in order to encourage lending in LBP.

In the light of the increasing divergence between the low global interests and the risks rate on Beirut market, and the lack of realism in continuing to adopt the LIBOR – i.e. the lending rate among banks on London market – as reference for the local interests, the Board of Directors of ABL acknowledged, in its meeting on March 24, 2009, a method of calculation of the Beirut Cost Rate, the banks implementing it starting the beginning of April 2009. A reference rate is adopted in lending contracts, instead of Libor. On the basis of this rate, the banks,

after adding the cost of the financial operations and the banks profitability, can set the prime rate. The ABL, in calculating this reference rate, based itself on the average cost term deposits in USD, in addition to the average operational cost in the Lebanese banking sector to the total deposits.

3- Main resolution draft related to IBAN

The BDL asked the ABL to express its opinion about a circular draft related to IBAN. The adoption of an IBAN number facilitates the cross-border transfers, with a cost within the limits prevailing worldwide.

After discussing it with the concerned commissions and within the Board of Directors, the ABL approved its structure and its necessity, provided that a sufficient duration is given to inform the customers, adopt it in its regulations and in some of its necessary publications. The BDL, for its part, accepted to extend the duration of execution till mid-2010. The additions and clarifications provided by the Association will be introduced to the circular draft.

III- PARTICIPATION OF THE ASSOCIATION AND COOPERATION WITH ECONOMIC INSTITUTIONS ON THE INTERNAL AND EXTERNAL LEVELS

ABL reiterated its commitment, on the national level, to reinforce its presence and position as one of the major economic instances on the Lebanese scene. For that reason, it has resorted to the following means:- Providing medias, regularly and intensively, with ABL

publications (data, monthly bulletins, leaflets, manuals, files, studies, etc.), as the major source of information regarding several aspects of economic activity in Lebanon in general, and the banking activity in particular.

- Publishing press releases on the national, economic and professional issues which are of interest to the banking community.

- Offering a financial grant amounting to USD 4 million from the banking sector to the association “Always Green” (Akhdar Dayem) to contribute in supporting the joint project with the Ministry of Interior, to fight against fire and protect forests.

- Cooperating with the different Lebanese economic instances


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in order to draft working documents or common conceptions representing the point of view of these institutions, with regards to projects and measures proposed by the official authorities,

- Continuing to cooperate with the different committees with a social, economic, educational, and environmental character, designating the representatives of the banking sector and those of the Association in the following institutions: the banking Commission, the Commission on environment (International Chamber of Commerce – Lebanon); the Lebanese committee for the follow-up of the implementation of the project for the rationalization of the use of energy (Ministry of Water and Electricity Resources); the permanent Lebanese committee of volunteering (Ministry of Social Affairs); the committee for the promotion of the rights of the disabled in the labor market (Ministry of Labor); Lebanese association for scientific, technical, and economic education (The French CNAM and the Lebanese University); the Board of Directors of the Center for Industrial Research (Ministry of Industry); the national Commission to ease transportation and trade (Ministry of Transportation).

- Taking part in sponsoring and/or supporting some major national and economic manifestations, like that of the invitation for the 100-day truce (February 2008), the Arab economic forum periodically organized by the group “Al iktissad wal aamal” (July 2008), and the project “Days of Sciences” organized by the Ministry of Culture (September 2008).

- Taking part in joint annual meetings between the World Bank and the International Monetary Fund (Washington, October 10-13 2008), as well as in other regional and international conferences, like: the 12th EuroMed Economic Conference (Brussels, February 20-21. 2008), the 11th annual meeting of the Executive directors general of banks, organized by the International Institutions of Finance - IIF (Dubai, February 20-21, 2008); the 4th international Islamic economic Forum (Kuwait, April 29-May 1, 2008), the second Lebanese forum on the socio-economic development, organized by the European Commission delegation to Lebanon (Beirut, April 21-22, 2008), the Arab-international banking summit for 2008 (Paris, June 26-27, 2008), and the 18th European Banking Summit in Frankfurt – Germany (November 21, 2008).

- Hosting Arab and international delegations (European Union, International Finance Corporation, International Monetary Fund, US Treasury, Iraqi business banks and bankers…).

On the level of information, the contacts and relations with the officials in charge of economic issues in different Lebanese medias were reinforced, thus ensuring a continuous and full coverage of ABL activities and positions. Moreover, ABL continues to publish its Monthly bulletin (1300 issues per month, distributed equally to subscribers and media representatives in Lebanon), The Economic Letter – in English - including a brief overview of

the evolution of the major sectors of the Lebanese economy, illustrated by statistics, and of which 1100 copies are distributed to banks, individuals and institutions in Lebanon and abroad, in particular. Besides, monthly bulletins on Key Indicators and on the portfolio of Treasury Bills in L.L. and in foreign currencies are still distributed. There is also the Annual report of 2006-2007, in three languages Arab, French and English, in addition to the training program for 2008-2009 and a new file n°23 was also published in the series of ABL files on “The main banking and financial legislations in Lebanon 2007-2008” (in both languages, Arabic and French). Moreover, the Secretariat General published the new Collective Labor Agreement text for 2008 – 2009 in three languages, Arabic, French, and English, and ALMANAC 2008 (Guide of banks for the year 2008).

On the level of documentation and internal library, the ABL continued to update its data bank and press archive (1990-2008) and enrich its library (1475 specialized works and 128 periodicals in Arabic, French, and English). Therefore, the ABL put, at the disposal of banking staff and specialized researchers, a full series of documents and references they may need.

The Association continues to update its Internet site (www.abl.org.lb). The site is available in three languages (Arabic, French, and English) and allows users to obtain information on ABL structure, General Secretariat, Board of Directors, and commissions, as well as its various services, activities and publications. The site also includes the text of the Collective labor convention which governs the professional relationships between banks administrations and their employees.

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PART IIIHUMAN RESSOURCES IN LEBANESE BANKS

RAPPORT ANNUEL 2008

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I- LEBANESE BANKING POPULATION IN 2008

This report describes the employment status in the Lebanese banking sector, in 2008. The first section is a brief overview of the major structural changes in the sector. Section 2 examines the number of banking sector employees in 2008, and the banking population characteristics according to some criteria. Section 3 deals with salaries and wages, as well as other allowances banks’ employees benefit from.

1- Overview of the Evolution of Banks’ Number in Lebanon

By the end of 2008, the number of active banks in Lebanon reached 64, out of which 12 investment banks and 52 commercial banks (of which 8 branches of Arab and foreign banks) .The major changes occurring on the official banks’ list for the year 2008 are as follows: - The removal of the Banque de la Bekaa s.a.l. from the official

list of banks, after its acquisition by Emirates Lebanon Bank s.a.l. (No 92) which acquired, later on, branches of Banque Nationale de Paris Intercontinentale (N° 6), which was accordingly removed from the official list of Banks.

- The deletion of Unicredit Banca di Roma SPA (n° 2) from the official list of banks after the acquisition of its branches by Byblos Bank s.a.l.

It is expected to have more consolidation based on the bank merger law, which its Acting Decree was published in the Official Gazette in February 2009.

2- The banking population characteristics

By the end of 2008, the number of employees working in banks operating in Lebanon reached 18632: 17531 employees of Lebanese commercial banks, 323 employees of branches of Arab banks, 425 employees of branches of foreign banks and 353 employees working in investment banks. The number of employees increased by 968 employees, i.e. an increase of 5.5% in 2008 after an important increase of more than a thousand persons in 2007 during which 17664 employees were recruited against 16538 persons in 2006, meaning that banks in Lebanon hired more employees than those who left the sector, whether because they have reached

their retirement age, or changed work towards different sectors, or had opportunities abroad.It is well-known that the Lebanese banking population is characterized by a high level of education, expertise and experience. Moreover, the Lebanese banking population is recognized to be youth.

For the distribution by sex (or gender), the share of women employees increased to 44.8% of total banking population by the end of 2008 (44% in 2007), against a decrease in the share of men employees reaching 55.2% (56% in 2007). The women share is by far higher than the overall rate of women’s employment in Lebanon, which counts for 24% of the whole Labor Market, according to the national study entitled «Living Conditions of Households in 2007 », prepared in collaboration with the Ministry of Social Affairs, the Central Administration of Statistics, UNDP and the ILO, knowing that women constitute around 50% of the population living in Lebanon. For family status, the percentage of single employees is a significant and continues to increase in the Lebanese banking sector. Single employees registered 38.5% of the overall number of banking population in 2008, against 37.5% in 2007 and 35.7% in 2006. It is due to the recruitment of young graduates in the banking sector. However, the share of married employees was 61.5% by the end of 2008, and their total number of children benefiting from scholarships, family allowances and other benefits provided by banks, reached 18060 children. It is noteworthy that women working in the banking sector, like in all the Lebanese economic sectors, benefit henceforth from the National Social Security Fund allowances for their children, if their husbands are not registered at NSSF (by virtue of Law No 483 ratifying the amendments of some provisions of Article 14 of the Social Security Law).

For age brackets, the percentage of employees aged below 25 is constantly increasing. It represents 15.7% at national level. This bracket reached 10.9% of the overall number of bank employees at the end of 2008, against 8.9% in 2007 and 7.7% in 2006. This confirms that operating banks in Lebanon are recruiting university graduates. On the other hand, the percentage of employees, whose age varies between 25 and 40 years, is declining from 47.5% in 2006 to 46.6% in 2007 and 45.1% in 2008 (this bracket represents 42.3% of the labor market). This age category is more exposed to quit a bank job for another sector or to get a job abroad. By the end of 2008, the percentage of employees who have not reached 40 years represented 56% of the Lebanese banking population against

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RAPPORT ANNUEL 2008PART III HUMAN RESSOURCES IN LEBANESE BANKS

55% during the last four years, which is very close to the share on the national level which is 58% (54.7% for men and 68% for women), according to the national study entitled «Living Conditions of Households in 2007 ». The share of employees whose age varies between 40 and 60 years has slightly decreased to 40.6% by the end of 2008 (this bracket represents 33.1% on the national level) against 41.3% and 41.8% respectively in 2007 and 2006, whereas the share of employees above 60 years remained almost stable; around 3.4% of the overall number of labour force in the banking sector (this bracket represents 8.9% at national level).

For grades, the percentage of staff in management positions – i.e. those filling posts higher than « Principal Supervisor or Principal Controller », represented 13.7% of the overall number of banks’ employees by the end of 2008 (13.6% in 2007), whereas the percentage of senior staff – i.e. those filling the positions of « Principal Supervisor or Principal Controller » and « Supervisor or Controller », and « Department or Section Head » and « Assistant Department or Section Head » – decreased to 31.4% against 32.3% by the end of the above mentioned years. The percentage of ordinary employees – principal employees, 1st and 2nd category employees – moved from 46.3% in 2007 to 48.3% in 2008, and still accounts for the majority of banks’ employees in Lebanon. Also, the percentage of subaltern employees decreased from 7.8% in 2007 to 6.6% by the end of 2008. Moreover, cadres and senior positions in the Lebanese banking sector remain dominated by men, despite an increase of women’s number in these positions. Nevertheless, women concentration is clearly reflected in both senior and principal positions. According to the information provided in the questionnaires for the year 2008, the distribution of positions between men and women shows that men holds 72.1% of leader status against 27.9% for women; those percentages were 73.3% and 26.7% respectively by the end of 2007. Men’s share in the senior staff category has decreased from 47.4% in 2007 to 46.4% in 2008 against a small increase for women to 53.6% in 2008 (52.6% in 2007). Also, in the principal positions, the share of men has decreased from 50.8% to 50.4% against an increase for women from 49.2% to 49.6%. The percentage of subaltern employees is highly detained by men (94% in 2007 against 97.6% by the end of 2008), whereas the tasks require this gender.

For the level of Education, the share of employees holding a university degree significantly increased across the years. Therefore, it accounted for more than 64% of the overall Lebanese banking population by the end of 2008 against 61.3% at end 2007 and 57% by the end of 2006. This is mostly due to the recruitment of university graduates in the sector. In parallel, the percentage of employees’ holders of baccalaureate

or its equivalent (less than a university degree) decreased from 25.6% in 2006 to 22.5% in 2007, then to 21.6% in 2008, and the percentage of employees who did not reach this level of studies has decreased from 17.4% to 16.1% then to 14.3% respectively during these last three years. On the national level, and according to the study entitled «Living Conditions of Households in 2007 », the percentage of employees holding a university degree represents 23.6% of the overall labour force in Lebanon against 18% baccalaureate graduates or equivalent, 22.6% complementary school graduates and 24.1% finished elementary school graduates.

It is noteworthy, in this context, that the training of the Lebanese banking sector population is highly important for banks. It constitutes the base of a solid link between the grade and the position. The bank is likely requested to draw up a training plan which should be in compliance with its needs and to declare it to the concerned employees. Firmly convinced of the important role that human resources play, banks increased their budget allocations to training activities, as it is the case for many banks around the world. In this respect, the Training Department at the Association of Banks in Lebanon has been serving banks since 1991. It holds different training seminars, which closely follow the progress achieved, whether locally or worldwide, to fulfil the training needs of banks. Some banks created their own centre to train their employees. Others send their employees abroad to attend specialized seminars or recruit foreign experts to come to Lebanon, in order to benefit from their expertise and experience. From another perspective, it is worthy to mention that some bank employees follow banking courses at the Centre for Banking Studies, created in May 1967 and managed by Saint–Joseph University of Beirut and the Association of Banks in Lebanon.

3- Salaries and Wages In 2008, the overall amounts (salaries and various allowances) allocated by banks to their employees amounted to LBP 1005.3 billion against LBP 802.2 billion in 2007 and LBP 758.9 billion in 2006. This increase of LBP 203.1 billion and 25.3% in 2008 against a lower increase of 5.7% in 2006 and 2007, is explained by the following factors: First, the increase in the number of newly employed persons mainly university graduates, second, the annual raise given by banks to their employees according to the Collective Labor Agreement, third, the governmental Acting Decree of the salary raise entering into force in May 1st, 2008, and finally transportation allowances and the revision of scholarship allowances granted by the banks to their employees.


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The average annual cost of a bank employee reached LBP 54 millions in 2008 (i.e. LBP 4496 thousand per month, on the basis of 12 months) against LBP 45.5 millions (i.e. LBP 3789 thousand per month, on the basis of 12 months) in 2007, knowing that there is a difference between the employees of different categories for the amount of allowances, which are function of several criteria, among which ranking, seniority, level of education, family status, salaries policy of the bank, and banks’ category and size.

Moreover, basic salaries without allowances decreased to 57.9% of the total cost in 2008 (62.2% in 2007). These salaries valued LBP 582.2 billion against LBP 498.6 billion in 2007, i.e. an increase of 16.8%. This is due to the increase in the number of newly employed persons mainly university graduates, the annual raise given by banks to their employees according to the Collective Labor Agreement and the governmental decree of the raise of salary entering in force in May 1st, 2008. Therefore, the average of the annual basic salary of a bank employee increased in 2008 to LBP 1953 thousand per month, on the basis of 16 months against LBP 1764 thousand per month, on the basis of 16 months in 2007.

The family allowances represented 2.9% of total cost in 2008 (3.3% in 2007) amounting to LBP 28.9 billion against LBP 26.6 billion in 2007, i.e. an increase of 8.6%. These allowances are composed of contributions to the National Social Security Fund related to employee salaries. The rate applied to that division and settled by banks has been 6% since the beginning of April 2001 (no amendment occurred despite the raise of the minimum salary). The difference (surplus) is an amount not covered by NSSF and paid by banks to their employees. It is worthy to note that banks pay in addition to the contributions required by NSSF, additional allowances for children of 50%, and for the spouse of 75%. In 2008, the surplus rate increased by 1.4% whereas the contributions to the NSSF increased by 13.1%, in compliance with the raise of number of employees, whereas women can benefit now from family allowances if the conditions are fulfilled.

Banks’ contributions to health allowances, represented 4.4% of the total cost in 2008 (4.8% in 2007), amounting to LBP 44.3 billion against LBP 38.7 billion in 2007, i.e. an increase of 14.5%. These allowances include contributions paid by banks to the NSSF, knowing that the rate applied to that division has been 7% since April 2001 (2% deducted from the employee’s salary) and the surplus, which is not covered by the NSSF and granted by the banks to their employees. In 2008, the increase of contributions was 15.3% and of the surplus 13.5%. This is due to the increase of the number of employees and the number of children in charge. The rate applied to that division of the NSSF

is still the same even though some claims requested the raise of all contribution rates in order to compensate deficit registered in the NSSF family and sickness division.

The end-of-service indemnities represented 15.5% of total cost by the end of 2008 (12.5% in 2007), amounting to LBP 156.2 billion against LBP 100.2 billion in 2007, i.e. an increase of 55.9%. Banks’ contributions to the NSSF increased by 21.6% due to the number of newly recruited employees, and the provisions increased by 84.3%. It is noteworthy that the contribution rate paid by banks to NSSF for end-of-service indemnities is 8.5%.

Finally, the amount of other indemnities paid by banks to their employees represented 19.3% of the overall cost by the end of 2008 (17.2% in 2007), amounting LBP 193.7 billion against LBP 138 billion in 2007, i.e. an increase of 40.4%. These indemnities include scholarships (22.4% of total indemnities in 2008), transportation allowances (20.2%) cashier allowances, marriage, birth and other representation fees and bonuses.

- Scholarships: They reached LBP 46.7 billion in 2008 against LBP 42.3 billion in 2007, (+10.4%). In 2008, the number of children of banks’ employees registered in private schools were 11993, and the scholarship fees paid by banks to their employees amounted to LBP 35.7 billion, i.e. an average of LBP 2980 thousand per student. The children registered in private universities were 2464, and the fees paid by banks to their employees amounted to LBP 10.4 billion, i.e. an average of LBP 4200 thousand per student. Children of employees registered in public schools were utmost 135, thus the fees paid by banks to their employees amounted to LBP 153 millions, i.e. an average of LBP 1100 thousand per student. Parents of adults registered in the Lebanese University (286 students) benefited from a total amount of LBP 499 millions, i.e. LBP 1700 thousand per student. These figures indicate that some banks are granting scholarship indemnities exceeding the amounts stated in the Collective Labor Agreement.

- Transportation indemnities: Their value increased from LBP 29.8 billion in 2007 to LBP 39.2 billion in 2008 (+31.5%). This is due, on one hand, to the increase of number of employees, and on the other hand, to the rise of the average price of a gas oil can, notified by the Association of Banks in Lebanon to its members on a monthly basis (LBP 27.3 thousand in 2008 against LBP 23 thousand in 2007).

It is worthy to mention that the latest Collective Labor Agreement, that is usually reviewed and updated every two years, and published in its final version (2008-2009), has been in force since January 1st, 2008. It sets the relationship between

119


the administrations of bank members of ABL, on the one hand, and employees of banks in Lebanon, on the other. This agreement determines, in its various chapters and annexes, all that is related to allowances, benefits, indemnities, raises, leaves,

medical care, salary scale and different relevant topics. New amendments have been made such as the job description to be prepared within two years starting signature date; the additional increase regarding scholarships and the new salary scale.

Table No 2: Evolution of salaries and allowances in the Lebanese banking sector 2005 – 2008 (billion L.L.)

2005 2006 2007 2008

Total 719.1 758.9 802.2 1005.2Salaries 437.2 461.5 498.6 582.2Family allowances 24.9 26.1 26.6 28.9End-of-service indemnities 100.9 105.6 100.2 156.2Health allowances 37.8 37.7 38.7 44.3Other indemnities 118.3 128.0 138.1 193.0

* Sources: Forms filled by banks and sent to ABL.

Statistical annex *Table No 1: Evolution of characteristics of the Lebanese banking population 2005 - 2008

2005 2006 2007 2008

Overall number of employees 15993 16538 17664 18632Increase rate 3.2% 3.4% 6.8% 5.5%1-By sex

Women (%) 43.6 43.4 44.0 44.8Men (%) 56.4 56.6 56.0 55.2

2-By age Below 25 (%) 7.1 7.7 8.9 10.925-40 years (%) 47.9 47.5 46.5 45.140-60 years (%) 42.1 41.8 41.3 40.6Above 60 years (%) 2.9 3.0 3.3 3.4

3-By civil status Single (%) 34.9 35.7 37.5 38.5Married (%) 65.1 64.3 62.5 61.5

4-By rank Managing staff (%) 14.1 13.5 13.6 13.7Cadres (%) 29.8 32.6 32.3 31.4Ordinary employees (%) 47.8 45.4 46.3 48.3Subaltern employees (%) 8.3 9.8 7.8 6.6

5-By level of studies Lower than baccalaureate (%) 17.5 17.4 16.1 14.3Baccalaureate or equivalent (%) 26.7 25.6 22.6 21.3University degree (%) 55.8 57.0 61.3 64.1

Sources: BDL, ABL


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II - ACTIVITIES OF THE TRAINING DEPARTMENT

1- General overviewSince its establishment in 1991, the Training Department at the Association of Banks in Lebanon (ABL) organizes general inter-banking training programs as well as tailored in-house training to banks requesting such service, for the purpose of enhancing banks’ performance and therefore, improving the quality of banking services. Of course, over all this period of time, many training activities have been organized and banks have invested a lot of money in this field to meet the sector’s needs and requests.

No doubt that the interest of Lebanese banks in training is increasing year after year and many efforts have been deployed in this context, which places the Lebanese banking sector in a leading position at the national level. In the same context, the new “Collective Labor Agreement” (2008-2009) emphasizes on encouraging training, especially through ABL. Moreover, in our opinion, the interest of banks, as well as of their employees in training and in acquiring the required skills to fit to their functions and to perform best quality banking services will keep on growing.

As in previous years, the training activities are divided into 4 categories: conferences, intensive training sessions and workshops, specialized training and in-house sessions. During 2008, the training activities attracted 2255 participants and focused on achieving programs related to risk management and business continuity planning which had already started in 2007, as well as taxation, bank’s financial analysis, IAS/IFRS, developing personal skills through public presentation and communication, project management and leadership. The Training Department has also developed its classical programs such as legal aspects of banking operations, loans’ classification, remedial and recovery loans management, information systems security and other. New themes have been developed such as Identity and Access Management, Environmental Health, Security and Risk Management, Business Process Engineering, Career Planning & Development and Developing Arabic Writing Skills.

2- Distribution of the Training Department activities

a- Seminars and conferencesThese activities attracted 191 participants, of which 65

participants from two different banks attended two conferences about Fighting Money Laundering. Among the most important activities held during 2008 were:• Within the framework of the protocol signed by ABL and

the Ministry of Finance, a conference on “Public debt and ways of financing budget deficit” has been prepared for the second year in a row for the new recruited that are following special training in the Institute of Finance to fill the position of financial controllers in the above Ministry.

• A closing dialogue following the “Credit Risk” seminar with Dr. Amine Awad, member of the Banking Control Commission (BCC), where opinions were exchanged about credit risks in banks.

• A dialogue between human resources managers and representatives from banks during which a presentation was made on the Human Resources Management under the competency approach and the updating of the “Job description and competencies handbook” which had been prepared during 2000 and 2004, in addition to the launching of the new guide concerning jobs specific competencies.

b- Intensive training sessionsThe number of participants in these sessions reached 810 employees, compared to 1080 employees during 2007. This difference is obviously due to the massive participation of banks, in 2007, at the seminar on “investigating in suspicious money laundering operations (case studies)” organized in cooperation with the Special Investigation Commission, and in the seminar on “Implementing Basel II” held in cooperation with the BCC. The intensive sessions in 2008 covered 14 different topics, among which “Operational risk”, and “Loans classification” in cooperation with the BCC were held for the first time in 2007 and repeated in 2008 due to the big number of participants. Also, a seminar on “Credit risk” was held in cooperation with the BCC for 2 groups of almost 100 participants in total. Finally, the cooperation with AFPI led to the organization of a seminar on “Information systems security”. c- Specialized training sessions1081 employees participated in these sessions. 27.19% among them attended the Banking English Training Program, which represents approximately half the pertained percentage in 2007 (45.9%), knowing that the Training Department continued to organize one Banking English class in Saida. It is remarkable that 7 topics among 16 were organized twice and 2 topics were organized for 3 times as shown in the annex. The repetition of these sessions reflects the success in choosing topics that meet the training needs of the banks.

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d- Internal sessions17 activities were organized during 2008 and covered 4 different topics which were all repeated from twice to ten times. 297 employees attended these sessions from three different banks.

3- Participants’ characteristics

The table below summarizes the characteristics of participants to all training sessions except conferences and Banking English sessions.

Specialized sessions Intensive sessions Internal sessions

Female 50.68% 41.85% 48.48%Male 49.32% 58.15% 51.52% Employees 72.40% 55.31% 83.17%Middle management 14.00% 22.23% 11.11%Senior management 13.60% 22.46% 5.72%

Total 100% 100% 100%

EmEmplployoyeeees s 7272.4.40% 55.3131% % 8383.17%Midddlele m mananagagememeent 1414.0.00%0% 22.233% % 11.11%Seninioror m mananagageement 1313.6.60%0% 22.466% % 5.72%

4- Other activities

a- Project of linking the grade to the function:The Training Department followed the negotiation rounds between ABL and Banks’ Employees Syndicate about the updating of the Collective Labor Agreement, especially when it came to the subject of linking the grade to the function that has suggested by the ABL’s Human Resources and Social Affairs Commission at ABL to the Board of Directors and has been adopted in the new Collective Agreement (2008-2009).

b- Organization of the international exam “CDCS”:The Training Department continued to organize the Certified Documentary Credit Specialist “CDCS” exam in cooperation with the “Institute of Financial Services” affiliated to the “Chartered Institute of Bankers”. 15 candidates presented the exam in April 2008, among whom 12 passed, bringing the total number of the holders of this certificate in Beirut to 66.

c- Following up of the European Banking Training Network “EBTN” activities:The Training Department has followed up EBTN activities since ABL joined this network. The last one was a seminar on “The Competencies Approach” for 3 banking functions: branch manager, customer relationship officer and compliance officer, to which the Training Department has participated in Belgium, during December 2008 as part of the Leonardo Da Vinci European program.

d- A study on women’s banking behavior:The Training Department continued to follow up the preparation of the questionnaire related to the study conducted by “Bahithat” during summer 2008, as well as the choice of the sample and guaranteed the filling up of questionnaires by 500 branches’ customers divided between 350 women and 150 men. The Training Department made sure that the sample included branches distributed all over Lebanese territory. e- “Job description and competencies” handbook:The Training Department finished the updating of the “Job description and competencies” handbook in cooperation with the French consulting firm “Maestro Consulting”. A committee designated by four banks’ human resources departments also participated to the completion of this project. Due to the importance of the use of these tools in human resources departments, especially in implementing the new Collective Agreement, a meeting with all human resources departments was planned in December 2008 to announce the completion of this work and the readiness to use it. This will be followed by a meeting with 4 human resources managers chosen from banks that have already started applying the first chapter of the new Collective Labor Agreement who will explain the steps they went through in their departments and the constraints they faced to be avoided by others if possible.


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f- Participation in the first forum for technical learning and professional training in European and Middle Eastern countries:The Training Department participated in the forum held in Marseilles on 18 December 2008 where a discussion was brought up about the quality of the existing technical learning and professional training and their matching to the market’s needs; whereas the professional training constitutes a basic challenge to develop economic and industrial relationships among participating Mediterranean countries and diversify their economies, and it is necessary to change its image in some communities and give it the importance it deserves.

5- Evaluation of trainingWith regards to the position that ABL occupies in the banking sector, especially that it gathers all banks working in Lebanon, along with some representative offices of foreign American and European banks, it is directly linked to the sector’s strategic goals and defends its interests. Moreover, it ensures that its training programs are suitable to the sector’s needs and of high quality.

Thus, ABL’s General Secretariat gives a lot of importance to the following up of the Training Department’s activities. Every time a training activity ends, participants fill out an evaluation form, rating different aspects of the activity.

When reviewing the evaluation reports of the year 2008, it is clear that the selection of the parties that ABL cooperated with for delivering training was appreciated and the choice of subjects has fitted banks’ needs. Also, the ABL’s Human Resources and Social Affairs Commission evaluated the training activities at the end of 2008, in an official manner for the first time, and their comments were positive and encouraging.

The Training Department will take care, in the future, to better perform the organizational and administrative aspects of its activities, taking into consideration the comments of the Commission’s members. And finally, it will do its best to pursue its cooperation with banks’ Human Resources departments especially in specifying new requests and providing pertained high quality training.

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RAPPORT ANNUEL 2008PART III HUMAN RESSOURCES IN LEBANESE BANKSD

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124

III – ACTIVITIES OF THE CENTRE FOR BANKING STUDIES – ACADEMIC YEAR 2007 – 2008

IntroductionThe Association of Banks in Lebanon (ABL) and the Saint Joseph University (USJ) have agreed during the last meeting of the Board of Centre for Banking Studies (CBS), which took place on January 30th 2009, on changing the Centre’s status into a higher academic Institute. Therefore, both parties, as partners, will present an official request to the Ministry of Higher Education in order to obtain the full and official rights to inaugurate the new institute. This institute will award diplomas such as bachelor and master degrees in banking studies and its programs will be prepared and delivered in tight collaboration with the Faculty of Business Adminiatration and Management in the USJ.

The Centre for Banking Studies (CBS) has continued to offer its services and know-how during the 2007-2008 academic year as it has done, for the past 40 years, in the framework of professional training for banks’ employees in Lebanon.

This type of professionnal training includes, beside the two major diplomas in banking studies, the Specialized Diploma in Banking Studies (known as DESB) and the Advanced Diploma in Bank Management (known as DSGB), specialised training in credit, management, human ressources management and financial markets.

We summarize, here below, the Centre’s activities during the academic year 2007/2008, knowing that all information on the

Centre will be henceforth available on the ABL website www.abl.org.lb or on USJ’s www.usj.edu.lb and will constantly be updated.

1- Specialized Diploma in Banking Studies, known in French as Diplôme d’Études Spécialisées de Banque (DESB).

a- The objective of the Specialized Diploma in Banking StudiesThe Specialized Diploma in Banking Studies targets participants from baccalaureate to higher education, and is recommended to the new banks’ employees.This program facilitates the integration of the candidates, and helps them promote their skills by updating their information related to banks’ environment and new banking techniques.

b- RegistrationThe number of registered students at the CBS for the academic year 2007/2008, during the three years of the curriculum, amounted to 129 employees. These students were distributed among different academic years and sections, as shown in the following table:

Number of registered 2007 – 2008

Year Section Nbr. of registered Nbr. of accepted

Preparatory Arabic – French 19 17 Arabic – English 14 14

First Arabic – French 26 24 Arabic - English 16 15

Second Arabic – French 31 31 Arabic - English 23 23

Total A/E and A/F 129 124

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Nbr. of Registered Nbr. of Admitted

Arabic – French section 40 31Arabic – English Section 22 19

Total 62 50

c- Holders of the Specialized Diploma in Banking Studies54 students have become holders of this diploma at the end of the 2007/2008 academic year. The total number of students holding the DESB since 1998/1999 is 528 students.

d- Entrance exam for the preparatory year 2008/2009The entrance exam for the academic year 2008/2009 was

One candidate admitted in the French section and two candidates from the English section had withdrawn before the final registration.

2- Advanced Diploma in Bank Management, known in French as Diplôme Supérieur en Gestion Bancaire (DSGB).

a- The objective of the Advanced Diploma in Bank ManagementThis program aims at rehabilitating competent middle managers and targets the officers with a global banking knowledge, enhancing their administrative and professional performance, and giving them the opportunity to adapt to developments

held on September 18, 2008. 76 people, 12 of which were not working from any institution and 64 applying from 24 different banks, have participated.

Among 76 candidates, 64 were admitted and distributed as following:

and changes in order to better assume their responsibilities. The DSGB targets bank employees with a multilateral banking experience of more than six years and holders of a university degree (baccalaureate + 3 years minimum) or the Specialized Diploma in Banking Studies.

b- Entrance exam for the academic year 2008/2009The entrance exam for the DSGB program for the academic year 2008/2009 was held on November 19, 2007. Among the 55 who submitted the written exam and carried out the interview, 39 candidates were selected. They are distributed into two groups: 19 in the French section and 20 in the English section.

c- RegistrationThe number of registered candidates to this program, since the beginning of the application of the new curriculum in the year 2001, amounts to 235 employees, distributed as following:

Academic year French section English section

2001/2002 15 -2002/2003 16 10*2003/2004 19 112004/2005 15 122005/2006 18* 10*2006/2007 18* 14*2007/2008 19* 19*2008/2009 19 20

*On the drafting date of the present report, it was incumbent upon some registered students for to submit their research project stipulated in the program to get their DSGB.


126

3- Programs of Specialized Certificates

a- ACI Dealing Certificate Because of the great success of the preparatory session for the international exam of « ACI Dealing Certificate » which took place in the past years and recently in 2007, the Centre for Banking Studies renewed its collaboration with the Financial Markets Association - Lebanon (ACI) in order to organize the same program that was delivered twice at the Centre, between May 13th and July 3rd 2008. 22 candidates from different banks and financial institutions have participated in these sessions.

b- The “Credit” CertificateBecause of the success of the first Credit session organized in 2005 and again in 2007, the Centre for Banking Studies has launched a similar session for 2008. This certificate, conceived by the Centre for Banking Studies, consists of 2 separate certificates:

1) Credit for Individuals and SME (50 hours).This certificate is composed of 2 parts. a) Credit for Individuals and SME (34 hours) b) Bad debt recovery (16 hours)In order to obtain this certificate, the candidate should pass the exam of the two parts above-mentioned. Two groups of candidates have attended those two parts.

2) Credit for corporations (36 hours)Those who want to follow the program of the second certificate must pass the 2 exams expected in the program of the first certificate. Only one group of 30 candidates has attended this part.The Credit program for this year was organized at the Centre for Banking Studies as following:

c- Certificate in Human Ressources ManagementThis program has been conceived in 2007 by the Centre for Banking Studies, in collaboration with experts in the Human Ressources field. Two different certificates have been provided within the context of this program; the first in human resources management and the second in strategical human resources management. The distinction between those two certificates is made by examining the candidates with final exams at each of the three parts of the seminar:

- The role of human resources management (16 hours) which went on from November 9th till November 23rd 2007. 18 candidates have attended this first part and have presented its final exam.

- Human resources developpement (24 hours) which went on from January 15th till February 22nd 2008. 18 candidates have attended this second part and have presented its final exam.

- Legislative foundations, clearing, relations between employees, work environment (27 hours) which went on from April 4th till May 23rd 2008. 17 candidates have attended this third part and have presented its final exam.

Following all three of the final exams and the make up exam which took place on July 4th 2008 for those who have been delayed in one or more of the three final exams, 15 candidates have received certificates in Human Ressources Management, one of which is in strategical management.

4- Current and future projects

The academic year 2008/2009 is full of new projects at the Centre:

- The Centre’s administration is currently devoting itself for the preparation of all required documents to present to the Ministry of Higher Education in order to officialize the creation of the Higher Academic Institute for Banking Studies.

- The Centre’s administration is currently working on a draft for the first EFCB Certificate exam (European Foundation Certificate in Banking) which will take place in fall 2009. In fact,

Part Date Registered Number Admitted Number

1-a-1 February 18th – March 7th 29 431-a-2 February 19th – March 12th 29 1-b-1 April 2nd – April 11th 21 321-b-2 April 3rd – April 14th 22 2 May 19th – June 16th 30 24

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the Centre has been officially informed of its accreditation in order to deliver this specific certificate in December 2008.

- The Centre’s administration is planning on publishing a third booklet titled nº2-2009 that includes a selection of three research papers accomplished by students in the French section of the “Advanced Diploma in Bank Management” of the last two years.Let’s note that in 2007, the Centre for Banking Studies administration published its first booklet, nº1-2007, which includes a selection of three research papers accomplished by

students in the English section of the same program, and that another publication relating 40 years of the CEB has already been prepared and will be distributed on February 11th 2009, during the ceremony celebrating this event. The declaration of the new ABL-USJ parterniship will also be highlighted during this event.

- The Centre’s administration will work on the accomplishment of the archiving project that has started during the year 2006/2008.


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Table no 1: List of banks having registered employees at the CBS different programs in 2007 – 2008

Name of the bank DESB DSGB CS 3 years 07/08 08/09 ACI Credit HR

AL-AHLI INTERNATIONAL BANK SAL - - - 4 -AL-BARAKA BANK LEBANON SAL (B.B.L.) (Islamic Bank) - - - - 2Al-MAWARID BANK SAL - 1 - - -ARAB BANK p.l.c. - 1 - 4 -ARAB FINANCE HOUSE SAL 1 - - 2 -ASSOCIATION DES BANQUES DU LIBAN - - - - 1BANK AUDI SAL – AUDI SARADAR GROUP 23 7 1 18 -BANK OF BEIRUT SAL 6 2 - 4 -BANK OF KUWAIT & THE ARAB WORLD SAL 2 3 - 2 2BANKMED SAL 5 4 1 - -BANQUE BEMO SAL 5 1 1 - -BANQUE LATI SAL 1 - - - -BANQUE LIBANO-FRANCAISE SAL 3 - - 4 -BANQUE MISR LIBAN SAL - 1 2 4 1BANQUE NATIONALE DE PARIS INTERCONTINENTALE - 3 - - 1BANQUE PHARAON ET CHIHA SAL 5 1 - -BBAC SAL 6 - 2 4 -BLOM BANK SAL 10 6 1 - -BYBLOS BANK SAL 7 14 3 2 3CREDIT LIBANAIS SAL 6 1 - - 2CREDITBANK SAL 2 - - 6 -FEDERAL BANK OF LEBANON SAL - 1 1 - 1FINANCE BANK SAL - - - 2 -FIRST NATIONAL BANK SAL 1 1 3 2 -FRANSABANK SAL 10 6 - 5 1HSBC BANK MIDDLE EAST 1 - - 2 -INTERCONTINENTAL BANK OF LEBANON SAL 1 1 - 4 -JAMMAL TRUST BANK SAL 1 - 2 2 -LEBANESE CANADIAN BANK SAL 10 7 - - 2LEBANON AND GULF BANK SAL - - 5 1MIDDLE EAST AND AFRICA BANK SAL 2 - - - -NATIONAL BANK OF KUWAIT (LEBANON) SAL 3 - - - -NEAR ESAT COMMERCIAL BANK SAL - - - - 1NORTH AFRICA COMMERCIAL BANK SAL - - 1 - -SOCIETE NOUVELLE DE LA BANQUE DE SYRIE ET DU LIBAN SAL 1 8 - 2 1STANDARD CHARTERED BANK SAL - 3 - 2 -SYRIAN LEBANSE COMMERCIAL BANK SAL 1 - - - -THE SAUDI NATIONAL COMMERCIAL BANK 1 - - - 1BANQUE DU LIBAN 1 - - - -GULF FINANCE AND INVESTMENT COMPANY - - 2 - -ENTREPRISES PRIVEES 1 - DEMANDES LIBRES 14 1 1 - -

TOTAL 129 73 22 80 20

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Table no 2: Evolution of the number of students in the DESB program 1998 – 2008

Academic year Section Preparatory 1st year 2nd year Total Admitted year

1998-1999 arabic - french 51 37 34 122 34 arabic – english 11 21 16 48 16 Total 62 58 50 170 501999-2000 arabic - french 53 46 31 129 31 arabic – english 21 9 19 50 17 Total 74 55 50 179 482000-2001 arabic - french 44 48 44 136 43 arabic – english 15 24 8 47 8 Total 59 72 52 183 512001-2002 arabic - french 32 40 48 120 48 arabic – english 21 17 23 61 23 Total 53 57 71 181 712002-2003 arabic - french 31 34 38 103 38 arabic – english 11 18 17 46 17 Total 42 52 55 149 552003-2004 arabic - french 24 31 31 86 31 arabic – english 22 19 15 56 15 Total 46 50 46 142 462004-2005 arabic - french 31 30 27 88 27 arabic – english 22 20 17 59 17 Total 53 50 44 147 442005-2006 arabic - french 24 36 28 88 28 arabic – english 18 30 20 68 20 Total 42 66 48 156 482006-2007 arabic - french 26 31 34 91 33 arabic – english 16 29 28 73 28 Total 42 60 62 164 612007-2008 arabic - french 19 26 31 76 72 arabic – english 14 16 23 53 52 Total 33 42 54 129 124

Part IVACTIVTY AND PERFORMANCE OF THE LEBANESE BANKINGSECTOR IN 2008

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PART IV

ACTIVTY AND PERFORMANCE OF THE LEBANESE BANKING SECTOR IN 2008

First: Introduction

Banks in Lebanon remained to a large extent shielded from the global financial crisis, which aggravated in September 2008, as evidenced by the following. The government did not intervene to support financial intermediation, the Banque du Liban did not pump additional liquidity, and interest rates of monetary policy instruments were unchanged. Additionally, no imbalances occured in the interbank market and no measures were put in place in favor of restructuring and recapitalizing banks, providing needed liquidity, and dealing with bad assets, as it happened abroad. On the contrary, deposits at banks significantly increased to reach 15.6% and the Lebanese banking sector proved that it is a safe haven for savings looking for stable placement opportunities. Lending activities did not slow down; profits did not regress. In fact, credits to the private sector increased by 22.6% whereas those to the public sector increased by 18.2%. Net profits also increased by nearly 30%.

The Lebanese banking sector was able to avoid the global financial crisis due to several factors, among which: first, banks operate within regulations and ceilings they have set for themselves, and other regulations and ceilings set by the monetary and supervisory authorities. Hence, a conservative policy has been applied regarding banks’ investments in assets backed securities and in high-risk financial derivatives and the necessity to maintain a certain threshold of liquidity. Second, uses of funds diversification and no concentration of placements in the international financial institutions and mo investments in international banks which went no bankrupt. Third, Lebanese banks rely mainly on deposits as a main source of funds, which represent 84% of the total assets/liabilities and not on the Financial/credit markets in advanced countries. Fourth, maintaining a high liquidity in LBP and in foreign currencies in the sector played a substantial role in safeguarding the banking sector, in addition to a good level of capital accounts and high solvency in the sector, achieved throughout long years of continuous work between BDL and banks, and the continuous improvement of the quality of the loans portfolio. Finally, while the global financial crisis was fundamentally provoked by the subprime mortgage market in the U. S., the Lebanese real estate sector witnessed a normal growth in the previous years, dictated by demand and supply. It is noteworthy that real estate credits (other than housing loans for individuals) constitute 5% of the overall assets. Moreover, the BDL adopted strict measures, calling upon the borrower to ensure a minimum level (threshold) of the value of the real estate project.

Instability on the global financial markets represented a new incentive for banks’ managements and concerned authorities

to pursue efforts in order to enhance the capacity of the banking and financial sector to withstand any potential shock and to closely follow up all developments or negative effects on its portfolios, which may be linked to slowing overall economic activity or corrections in some sectors, in addition to consolidating the prudential and supervisory measures. Moreover, the monetary authorities called on banks to limit the distribution of profits to 25% in 2008 and reactivated the law on bank merger. The growth rate of the banking sector and its profits in 2009 are expected to slow down, because of the eventual decline in the local economic activity, as well as the activities of the Arab and international economic, which could lead to lower revenues and transfers to Lebanon in addition to the regression of direct foreign investments and foreign demand on Lebanese goods and services. Also, the weakness of the economies in the region and the continuing turmoil on the global financial markets can adversely affect loans portfolios, financial instruments which are evaluated at market prices, the revenues of investment funds linked to banks, the revenues on private banking, the return on foreign investments, and other income.

II- Characteristics of the Lebanese banking sector

At the end of 2008, the number of operating banks in Lebanon was 64, distributed between 52 commercial banks (four of which are Islamic banks) and 12 investment / medium and long term credit banks, while the number of operating branches of commercial banks in Lebanon reached 860 branches; that of investment banks 17. In Lebanon, there are more than 2 branches per 10 thousand inhabitants, implying a high rate of banking services extension in comparison with the Arab and emerging countries, but quasi – equivalent to that in the developed economies. The spread of bank branches among the Lebanese regions corresponds to the geographic distribution of the economic activities.

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RAPPORT ANNUEL 2008Part IV ACTIVTY AND PERFORMANCE OF THE LEBANESE BANKING SECTOR IN 2008

Source: BDL


The offering of banking services is not limited to the large network of branches. By the end of 2008, the number of Automatic Teller Machines (ATMs) put at the service of customers reached 1 140 machines (around 300 machines per one million person), dispersed among the Lebanese regions. The number of credit and payment cards in circulation reached 1563958 cards (around 415 cards for every one thousand persons) and the number of electronic payment terminals (POS) reached 13332 machines. Besides, banks continue to offer diversified electronic and phone banking services.

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Part IV ACTIVTY AND PERFORMANCE OF THE LEBANESE BANKING SECTOR IN 2008

Main Banking Services

Retail Banking Insurance ServicesCorporate Banking Consultancy ServicesPrivate Banking Fiduciary OperationsIslamic Banking Financial MarketsElectronic Banking & Cards Services Commercial Finance

Within this framework, the Lebanese banking sector in 2008 continued its regional expansion, with the support and encouragement of the monetary authorities in order to diversify their services in accordance with the developments of the global banking industry, ensure the diversification of risks and revenue sources and types, and increase their market share and profits. External expansion is characterized by the opening of branches, representative offices, investment funds, and financial companies in African countries. It is also illustrated by the rising presence in the Gulf markets, like Qatar, the Kingdom of Saudi Arabia, the United Arab Emirates, which have always been distinguished by a high volume of operations, liquidity, high bank margins, and the intense Lebanese Labor presence, this is in addition to their presence in the neighboring Arab countries, like Syria, Jordan and Egypt. It is noteworthy that the Banque du Liban and the Banking Control Commission go in pair with this expansion, through strict control and regulatory procedures. According to the latest data, there are 17 Lebanese banks abroad in 25 countries, operating through 79 entities (28 Lebanese bank branches, 29 affiliated banks, 2 sister banks, 2 branches in the free zone in Syria and 18 representative offices). Affiliated or sister banks have 141 branches in the above-

In addition to that, the Lebanese banking sector is integrated, to a large extent, into the Lebanese economy. It is considered to be the main source to finance the national economy, with its public and private sectors. The share of the banks invested assets within the Lebanese economy, including the deposits at the Banque du Liban, amounted to 80% of the overall assets at the end of 2008 (i.e. LBP 113 256 billion) compared to 20% of investments abroad. The proportion of foreign investments exceeded 35%, if we take into consideration the investments of the Banque du Liban abroad. The rate of banking resources whose return stems from outside the Lebanese economy even exceeds 40%. This explains

mentioned countries, which are all detailed in Table No 20 of the Statistical Annex.

Lebanese banks offer a large range of banking services to individuals and firms, traditional and modern banking services, including private, consultancy, insurance, investment, and retail banking services, in addition to the management of modern payment means. The number of banks known as Universal Banks has increased, in view of the advancement of financial intermediation services, investment and insurance services, and other modern financial services they offer.

Since the beginning of 2004, the Lebanese market has been opened to Islamic banking and to the implementation of its principles and rules through fiduciary contracts, and the law for creation of Islamic banks. The Banque du Liban has also taken many additional measures regarding the creation of Islamic banks, their activities and operations, their financial status, and their respect of international standards in Islamic banking, including those related to good corporate governance, “Know Your Customer”, and transparency. These services are not restricted to Muslims only, but are opened to the public.

the capacity of banks to surpass in volume the Gross Domestic Product.

Credits to the economy reached 46.5 billion dollars at the end of 2008. Commercial banks remain the main sector for attracting savings. The deposits’ base which increased to 79 billion USD at the end of 2008, i.e. 265% of GDP, is a proof of evidence. Banks represent a main bridge for the entry of capitals into Lebanon and the financing of a great part of the deficit in the current accounts balance. The banking sector holds the largest part of Lebanon’s foreign assets.

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The banking sector contributes to 4.8% of the GDP, whereas it uses a low proportion not exceeding 2% of the total Lebanese labor force, which reveals the high productivity of the sector. The Lebanese banking sector attracts people with expertise, competence and high qualifications, as evidenced by the rising number of employees holding university degrees, exceeding 64% of the total number of employees in the sector. Banks are highly interested to enhance the competence of their employees, of all levels of administration, through informing them about all the

issues which are relevant to banking, through training sessions within the bank or outside the bank, among which the training sessions which are organized by the Association of Banks in Lebanon (Cf. Part III of the present report).

In the previous years, the monetary and supervisory authorities as well as the banks’ managements have taken several measures, most of them in harmony with the adopted norms and rules and those to be adopted by the global banking industry, which are published by the BIS, the IMF, and the GAFI, in addition to other parties concerned with the international financial stability. Lebanese banks are known to be committed to the international banking industry standards. These measures revolve around pursuing the fight against money laundering, expanding the implementation scope of international accounting and auditing rules, and developing administrative and accounting work in favor of improving transparency and corporate governance. It is noteworthy, in this regard, that the current financial disclosure in Lebanon is considered to be good, according to international references, and in compliance with the best global practices, which also reflects banks openness to the public and market supervision. During the last few years, banks granted an increasing importance to the measures of fighting money laundering through creating a special department within each bank in charge of the fight against money laundering, respecting the circulars published by the Banque du Liban of Lebanon and the Special Investigation Commission (SIC), applying the standards “Know Your Customer”, and organizing intensive training sessions in this domain. The SIC received 249 notifications related to 226 cases in 2008, related to crimes of counterfeiting and forgery, terrorism, embezzlement of private and public funds and drugs. Commercial banks remain the main source of information and reported 62 notifications in the same year.

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Table No 1: Sources of funds of the banking sector at the end of the period (Billion LBP and percentages)

2006 2007 2008 Value Share Value Share Value Share

Deposits of the resident private sector 77366 69.1 86981 70.2 99908 70.3Deposits of the public sector 1579 1.4 1163 0.9 1331 0.9Deposits of the non-resident private sector 14128 12.6 14454 11.7 17345 12.2Deposits of non-resident banks 4236 3.8 6108 4.9 6490 4.6Capital accounts 8718 7.8 9439 7.6 10705 7.5Other liabilities 5937 5.3 5854 4.7 6311 4.5

Total 111964 100.0 123999 100.0 142090 100.0

III: Banking Activity At the end of 2008, the total consolidated assets/liabilities of commercial banks operating in Lebanon reached LBP 142090 billion (the equivalent of USD 94.3 billion), compared to LBP 123999 billion at the end of 2007. Therefore, total assets/liabilities increased by 14.6% in 2008 compared to 10.7% in 2007. The size of the banking sector is considered large, compared to the size of the Lebanese economy (around 320%), which reveals the high capacities of banks to attract savings from inside and abroad. It also explains the outward expansion of banks, the pace of which increased during the past years.

Source: BDL

*The banking sector in this report means the commercial banks operating in Leba-non only, without the investment banks. The overall balance sheet of investment banks reached LBP 6271 billion at the end of 2008 compared to LBP 5041 billion at the end of 2007 and LBP 4975 billion at the end of 2006.

1- Sources of Funds*Deposits of customers remain the main source of funds to commercial banks operating in Lebanon and constitute the main engine of the total balance sheet of banks, representing 83.5% of total assets at the end of 2008. This important share of deposits shielded Lebanese banks against the crisis of credit, trust, and liquidity on the global financial markets, as we have already mentioned. Given the nature of deposits, which are of relatively short term, currently with an average of 90 days, thus rapidly convertible from one currency to another, banks adopt a placement policy based on maintaining high liquidity ratios in the Lebanese and foreign currencies.

It is worth to mention that banks continuously attempt to increase their medium and long-term resources in order to reinvest them in various productive sectors and housing, and also to boost their private capital and consequently better mitigate maturity mismatch risks. Banks act therefore through the issuance of certificates of deposits and other debt instruments, the use of medium to long term lines of credit guaranteed by some Arab and international funds and institutions, and the issuance of Global Deposit Receipts GDRs, subordinated bonds and notes, and common and preferred shares, among which what was signed following Paris 3.

The table below shows the evolution of the main items of commercial banks’ liabilities, considering their absolute value and their relative importance with regard to the total, between the end of 2006 and the end of 2008.

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1-1- Deposits

At the end of 2008, total deposits at commercial banks, i.e. deposits of the resident and non-resident private sector and those of the public sector, reached LBP 118 584 billion (USD 78.7 billion), compared to LBP 102 598 billion at the end of 2007 (USD 68.1 billion). Thus, deposits recorded a notable increase of 15.6% in 2008 against a 10.2% growth in 2007. In 2009, the pace of capital inflows, transfers and deposits growth is expected to decelerate due to world economic recession, rising unemployment rates, and the economic slowdown in the Gulf region. This latter is likely to have negative consequence on the employment of the Lebanese labor force, abundant liquidity, internal and foreign direct investments.

Large amounts of deposits entered into Lebanon in 2008, especially in the second quarter of it, some being for residents which were deposited abroad and came back, fearing a deterioration of the situation there, and some being for non-residents, attracted by the return and the safe haven. Huge amounts of exchange operations from USD into LBP were recorded, to benefit from the difference in interest rates between LBP and USD on Beirut market, in the light of monetary stability. Therefore, the total deposits increased by USD 5.7 billion in the second quarter of 2008, stemming from the increase in deposits in LBP by a value of USD 5.4 billion compared to an increase in foreign currencies deposits by USD 312 million only.

The portfolio of the certificates of deposits issued by banks, which is a part of total deposits, amounted to USD 783 million at the end of 2008 against USD 853 million at the end of 2007.

In analyzing the deposits of the resident and non-resident private sector, it appears that the deposits in LBP increased by 55.2% in 2008 compared to a lower increase of 5.6% in 2007, whereas deposits in foreign currencies only grew by 4% in 2008, compared to a rise of 12.5% in 2007. Therefore, the dollarization rate of deposits of the private sector (resident and non-resident) significantly and gradually decreased to reach 69.6% at the end of December 2008 compared to 77.3% at the end of 2007. The recoil of dollarization characterized 2008 on the monetary level.

Deposits’ of customers continue to be concentrated in Beirut city and its suburbs. The share of this area constituted, in fact, 67.2% of total deposits at the end of September 2008 (according to the most recent data), distributed on 50.3% of the total number of depositors, whereas 32.8% of total deposits belong to the other areas, distributed on 49.7% of the total number of depositors. This indicates a difference at the level of average deposits between the town of Beirut and its suburbs, on the one hand, and the remaining of the Lebanese areas, on the other hand.

Source: BDL

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Source: BDL

On the concentration issue also, the first 10 banks operating in Lebanon attracted nearly 80.9% of the total customers’ deposits in 2007; the share of the first five banks accounted for approximately 59.5%.

• Development of credit interest ratesThe average credit rate on new or renewed deposits in Lebanese pounds has slightly and gradually regressed from the beginning of 2007 till December 2008, varying in 2008 on a monthly average between 7.18% and 7.35%, and reaching 7.22% in December 2008. As for the average credit rate on new or renewed deposits in USD, it had a downward trend at a pace higher than the decrease of interest on LBP, passing from 4.69% in December 2007 to 3.33% in December 2008. This trend moved in line with the evolution of interest rates on the international markets, which were affected by the successive cuts by the Fed of the basic interest rate since September 2007, to fall sharply from 5.25% to a margin varying between zero and 0.25% in December 2008.

It should be noted that the Board of Directors of the Association of Banks in Lebanon (ABL) recommended member banks in its last circular promulgated in January 2009, to respect a credit interest rate ceiling of 4% on the new and renewed deposits in USD amounting to one million USD or more, and with maturity equal or less than six months. The Board hopes that

this ceiling will decrease gradually, taking into consideration the accelerating pace of the rate decrease internationally, amounting currently to 0.3%-0.4%. As for the LBP deposits, the Board of Directors recommended an interest rate ceiling of 7.5% for deposits amounting to or exceeding LBP 500 million and with maturity equal or less than 6 months. The Board of Directors also hoped that these rates will diminish, in line with the return on the certificates of deposits issued by the Banque du Liban and the return on Treasury Bills for maturities between one month and six months.

1-2- Capital accounts In 2008, capital accounts increased by 13.4% after an increase of 8.3% in 2007. Capital accounts represented 7.5% of the total consolidated balance sheet at the end of 2008 and 28.4% of the total credits to the private sector, whereas the average ratio of capital accounts to total assets did not exceed before the global financial crisis 5% for the five largest American and international banks.

Source: BDL

Source: BDL

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Source: BDL

The capital to risk weighted assets solvency ratio, calculated in accordance with Basel I Accord, surpassed the 18% in the Lebanese banking sector in 2008, compared to an average of 11 to 12% for the largest international banks before the financial crisis. This is a high ratio, which exceeds by far the minimum required level (8%) by the Basel Committee and the Lebanese monetary authorities. The solvency ratio, calculated on the basis of Basel II, is around 12%, knowing that the level of required solvency according to the new Accord is still 8%, but with a different approach to banking risks. It is worth to mention that following the last global credit crisis and its repercussions, many called for supervisory stricter measures and on review of capital requirements, corresponding to the structured products and for those off the balance sheet and of the reinforcement of the three pillars of Basel II Accord.

It is worth noting also that banks increase the amount of their capital and provisions in parallel to the expansion in the value and nature of their credit notably that to which one attaches high risk weight coefficients such as credit granted to the private sector. This is in order to meet the Basel requirements, increase the confidence of investors and depositors, and finance their geographical expansion in the area. This increase is done through widening their ownership bases to new shareholders through issuing ordinary and preferred shares and through retained earnings to strengthen the capital. More

than 80% of the banks’ profits were reinvested to strengthen the capital accounts during the last 15 years. Banks also resort to issuing global depository receipts and other subordinated notes, knowing that these are still low in relation to total capital accounts (4.9% at the end of 2008). In a preventive measure, the Banque du Liban called upon banks to retain the largest share of their profits in 2008 to reinforce their capital.

2- Uses of FundsCommercial banks operating in Lebanon use their resources, on the basis of prudent risk taking policies and strict supervisory rules, and according to the requirements of liquidity, solvency, profitability, risk diversification, and placement opportunities. They also ensure, in the management of their resources, an adequate level of liquidity in Lebanese pounds and foreign currencies, in order to reinforce the confidence granted to the banking sector and to allow banks to react quickly to unforeseen situations to which the country is confronted. This policy of maintaining high liquidity has proven its efficiency in the light of the latest global instability which happened suddenly and quickly. Liquidity level in 2008 slightly decreased because of the increase of credits granted to the private sector.

The most significant element in the uses of funds is the large exposure to sovereign risks, as the share of their credits to the public sector and their deposits at the Banque du Liban amounted to 54.3% of the total uses of funds at the end of 2008, compared to 50.0% at the end of 2007. That means that banks in Lebanon increased in 2008 their sovereign placements whereas the largest international banks were relying on liquidity and capital injection from their governments and their central banks to prevent their failure. Banks in Lebanon ensure also the necessary financing of the private sector and the loans which they have granted to the resident private sector, individuals and institutions, represented nearly 73% of the GDP in 2008.

Table Nº 2 reveals the development of assets’ items of commercial banks, considering their absolute value and their relative importance regarding the total, between the end of 2006 and the end of 2008. It indicates an increase in the share of cash and deposits at BDL, credits to the resident private sector, and credits to the public sector at the end of 2008, against a decrease in the share of foreign assets, with a significant drop in their return.

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The dollarization rate of claims remained elevated, attaining 84.0% at the end of 2008 against 84.3% at the end of 2007 and 84.0% at the end of 2006. It reflects, to a large extent, the high level of dollarization of the economy. It is noteworthy that the ratio of credits/deposits in foreign currencies increased from 33.9% at the end of 2007 to 40.1% at the end of 2008, particularly because of the increase in the volume of credits and the quasi-stability of deposits in foreign currencies.

2-1 Claims on the resident private sector

At the end of 2008, claims on the resident private sector, governed by strict credit standards as we have already mentioned, rose to USD 21 062 million, thus recording a significant increase of 18.6% in 2008 against also a large increase of 15.9% in 2007. The major improvement in these claims in 2007 and 2008 is attributed to the financing by the banks of Lebanese companies and businessmen in their regional expansion, in addition to the financing of dynamic economic activities in Lebanon and resident individuals. The evolution of claims on the private sector is related to the existing and anticipated economic activity in the country, which influences in turn the demand for credit from the private sector and the credit policies practiced by banks. The volume of these credits is also influenced by the interest rate levels and other possible profitable uses.

Taking into consideration the credits granted to the non-residents, the total credits to the private sector increased by 22.6% in 2008 compared to an increase by 20.0% in 2007. However, these growth rates are expected to regress in 2009, with an eventual decline of the global, regional, and local economic activity, and its consequences on credit demand, the financing of trade activities, and banks desire to grant loans with the increase of credit risk.

It is useful to mention in this respect that these claims are net of unearned interests on sub-standard loans and doubtful loans by virtue of the BDL Intermediary Circular No 138 dated May 24, 2007.


Table No 2: Assets of commercial banks at the end of the period (Billion LBP – percentages)

2006 2007 2008 Value Share Value Share Value Share

Cash and deposits at the Banque du Liban 29338 26.2 29851 24.1 39113 27.5Claims on the resident private sector 23091 20.6 26762 21.6 31750 22.3Claims on the public sector 31193 27.9 32423 26.1 38314 27.0Foreign Assets 24746 22.1 31220 25.2 28834 20.3Other assets 3596 3.2 3743 3.0 4078 2.9

Total 111964 100.0 123999 100,0 142090 100.0

Source: BDL

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Table No 3: Subsidized loans benefiting from deduction in reserve requirements(end of period – billion LBP)

Source: BDL

a-Subsidized-interest loans and loans benefiting from reserve requirement exemptions and facilities

The government has been lately working, in cooperation and coordination with the Banque du Liban, on the adoption of certain financial measures, in addition to social and fiscal measures, to face the potential negative and indirect implications of the global financial crisis on Lebanon, including the return of the Lebanese people working in the Arab and international markets. Some of these measures aim at boosting credits, particularly in LBP with better conditions through subsidizing interest on loans in LBP for new projects and effecting new exemptions on the compulsory reserves. As such credits in LBP are expected to increase with declining dollarization rate of deposits, thus creating jobs and assisting economic growth.

These measures are complementary to many measures and schemes taken and implemented at a previous stage in order

1-Subsidized medium & long term Loans2-Subsidized-interest loans guaranteed by Kafalat3-Subsidized-interest loans under the protocol signed with the EIB4-Subsidized-interest loans granted by Leasing companies5-Subsidized-interest loans guaranted by IFC6-Subsidized-interest loans guaranted to finance working capital7-Subsidized-interest loans granted by AFD

TOTAL (1+2+3+4+5+6+7)

Utilized credits benefiting from deductions in banks liabilitiesUtilized credits benefiting from deductions in reserve requirements

2006

17964669682---

2440

10801347

2007

200559811898---

2819

12841723

Sept 2008

224373919910939100,3

3319

13852116

to help productive sectors, support the housing loans, and facilitate the mechanism of loans granted to small and medium-sized companies and guaranteed by the company “Kafalat”, and all this through the reduction of the cost of credit granted.

As a reminder, shortly after the July 2006 war, the monetary and fiscal authorities have taken, in cooperation with banks, many measures aiming at assisting residences and establishments’ owners that have suffered damage caused directly or indirectly by the Israeli aggression, and at maintaining the quality of banks portfolios. Among these measures: the possibility of re-scheduling the credits guaranteed by the company “Kafalat” over one or two additional years; the one year extension of other subsidized loans; and the financial structure established by the Banque du Liban permitting to cover 60% of the reconstruction cost of institutions which suffered physical damage. The following table displays the evolution of subsidized interest loans and those benefiting from reserve requirements exemptions.

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• Nature and distribution of credits

Statistics related to the nature of credits granted by the financial sector reveal that the major part of these credits is in the form of overdrafts, representing 35% of the total utilized facilities at the end of September 2008, followed by advances against real estate (22%).

As for the statistics related to the distribution of credits among the economic sectors, loans remain concentrated in the trade and services sector, despite the decrease of its share to 41.0% at the end of 2008, compared to that at the end of 2007. Moreover, the share of personal loans regressed to 18.3%, and that of industry to 12.8%, against an increase in the share of construction and building to 15.5% and that of financial intermediation to 7.4, with a quasi-stability of the share of agriculture (1.0%), which remain low, knowing that the banking credits to this sector

which reflect the direct loans, not the indirect ones linked to cooperatives and importers, increased by 17.7% in 2008. It is noteworthy that banking credits to agriculture do not include credits granted to wholesale trade of agricultural products, animals and pesticides nor those granted to retail trade of agricultural machinery and equipment. Agricultural loans include medium and long term subsidized loans and those subsidized and guaranteed by Kafalat, in addition to those provided by virtue of the Protocol signed with the European Investment Bank and the International Financial Corporation, which all increased by 19% during the first nine months of 2008. That means that the network of banks in Lebanon is efficiently managing and successfully contributing to the success of the interest subsidized financing mechanisms or schemes, whether originated domestically or from abroad, not for the agriculture sector only, but for other productive sectors also, like industry, tourism, handicraft production, and specialized techniques.

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Table 4: Distribution of bank credits among the economic sectors (end of period)

December 2006 December 2007 December 2008 Value Share (%) Value Share (%) Value Share (%) (billion LBP) (billion LBP) (billion LBP)

Trade & services 12387 42.31 14952 43.04 17266 41.02Construction & building 4317 14.75 4757 13.69 6502 15.45Industry 4058 13.86 4650 13,39 5403 12.84Personal credits 5613 19.17 6770 19.49 7707 18.31Financial intermediation 1385 4.73 1870 5.38 3105 7.38Agriculture 328 1.12 362 1.04 426 1.01Other sectors 1187 4.06 1376 3.96 1683 4.00

Total 29275 100.00 34737 100.00 42092 100.00

Source: BDL

Source: BDL

Source: BDL

Regarding the distribution of credits among the regions and beneficiaries, and due to the concentration of the population and the economic activity in Beirut and its suburbs, the credits remain largely concentrated in this region and in the hands of its inhabitants: 82.7% of the total value of credits and 58.9% of the number of beneficiaries at the end of September 2008.

Concerning the distribution of credits by value categories, the statistics at the end of September 2008 show that the credits, which values exceed 1 billion LBP represent around 76% of the total value of credits, distributed among 2.1% only of the beneficiaries, the number of which amounts to 4368 individuals, small enterprises, and medium and large firms.

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Finally, with regard to activity concentration, the share of the first ten banks reached 78.9% of the total value of bank credits granted to the private sector in 2007, knowing that the share of the first five banks was around 58.8%.

• Lending interest rates

In 2008, the interest rates on new or renewed credits in Lebanese pounds witnessed a slight decrease, compared to the previous year, after a quasi-stability in 2007. This is explained by the same path evolution of interest rates on deposits in LBP. The average lending interest rate reached 9.96% in 2008 against 10.26% in 2006 and 2007.

The average interest rate on new and renewed credits in dollars continued to decrease in 2008, a decrease which started in 2007, but at a quicker pace, in parallel with the regression of deposit rate on dollars on Beirut’s market. The average lending rate reached 7.48% in 2008 against 8.32% in 2007.

From its part, the ABL recommend periodically to member banks to adopt a prime lending rate on the Lebanese pound and the U.S. dollar determined on the basis of a study of the interest rates on the Beirut market, taking into account the cost components in the banking sector, and moving in line with the changes prevailing on the markets of deposits in Lebanese pounds and dollars in Beirut. In its latest circular issued in this respect on January 14, 2009, the ABL recommended to adopt a debit rate “prime rate” on the Lebanese pound of 10.0% and on the U.S dollar of 8.25%.

With the encouragement and upon the request of Banque du Liban to set up a reference for interests on U.S. dollar on Beirut market to replace the LIBOR as a reference for credit contracts, which is not expressing anymore the cost of dollar and banking investment in Lebanon, the ABL decided to calculate a reference cost rate on Beirut market for U.S. dollar known as (Beirut Cost Rate – BCR), encompassing in addition to the average cost of deposits in dollar, the average operating cost in the sector. This rate was set at 5.56% and circulated to banks, to be adopted starting April 1st, 2009. This rate will serve, later on, as a basis for the calculation of the prime rate.

2-2- Claims on the public sector

The banking sector has been for long time contributing to the financing of a principal part of the public sector needs. The volume of this financing varies from one period to another, depending on several factors, among which the public sector necessities and liquidity availability at banks.

At the end of 2008, claims on the public sector increased to reach the equivalent of LBP 38 314 billion (USD 25.4 billion), against LBP 32 423 billion (USD 21.5 billion) at the end of 2007. These credits grew, thus, significantly by 18.2% in 2008, in parallel to the important rise in banks’ resources in LBP, against a slight increase by 3.9% only in 2007, with the lesser availability of liquidity in LBP.

It is noteworthy that banks have subscribed during the two months of October and November 2007 to Treasury bills in

Table 7: Distribution of credits according to the value and the beneficiaries (in percentage – end September 2008)

By value By number of beneficiaries

Below 5 million L.L. 0.04 3.395 – 25 million L.L. 3.68 53.8025 – 100 million L.L. 7.58 31.25100 – 500 million L.L. 8.26 8.26500 – 1000 million L.L. 4.26 1.211000 – 5000 million L.L. 16.81 1.495000 – 10000 million L.L. 10.21 0.2910000 million LBP and above 49.16 0.31

Total 100.00 100.00

Source: BDL

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Lebanese pounds of the 60 month-category in exchange of certificates of deposits in LBP that matured and were issued by BDL within its policy framework aiming at reducing its part in the financing of the Public debt.

In view of the increase of the banks portfolio of Treasury Bills in LBP reaching LBP 22 607 billion at the end of 2008, against LBP 15 664 billion at the end of 2007 and the regression of their Eurobonds portfolio to LBP 15 608 billion, against LBP 16696 billion on the two above-mentioned dates respectively, the share of credits in LBP from the total credits to the public sector increased from 48.5% at the end of 2007 to 59.3% at the end of 2008, whereas the share of credits in foreign currencies decreased from 51.5% to 40.7% at the end of the two above-mentioned dates respectively.

2-3 Foreign Assets

Foreign assets represent an essential part of placements of commercial banks, the share of which amounting to 20.3% of the total assets at the end of 2008, against 25.2% at the end of the previous year. Foreign assets of banks, mainly composed of deposits placed with non-resident banks, attained USD 19 127 million at the end of 2008, against USD 20 710 million at the end of 2007. These assets decreased, therefore, by 7.6% in 2008 after an increase of 26.2% in 2007.

Deposits placed with non-resident banks, in spite of their relatively low return, remain a pillar for banks in their management of liquidity, since they are regarded as an essential means of protection against any crisis of confidence, which can involve a withdrawal of a part of deposits out of the banking system, as it happened in 2005 and 2006. In fact, these liquid assets have played an important role in limiting the operations of withdrawal and in the progressive return of the withdrawn deposits. At the end of 2008, deposits placed with non-resident banks decreased to USD 11390 million against USD 14 553 million at the end of 2007. Therefore, these deposits decreased by 21.7% in 2008, affected by the decline of international interest rates and the existence of other useful placements in dollars, illustrated mainly in the increase of credits at a time when resources in foreign currencies slightly increased.

However, deposits placed with non resident banks significantly increased by 18.9% in 2007, caused by a remarkable increase in deposits in foreign currencies at banks at a time when the Banque du Liban was not in need of issuing certificates of deposits in USD. It is noteworthy that the banks deposits at the correspondent banks, net of foreign liabilities, are still high, amounting to USD 7085 million at the end of 2008 to cover around 13.1% of the total deposits in foreign currencies.

Other foreign assets of banks increased by 7.9% in 2008, against an increase of 40.4% in 2007. They reached USD 3759 million at the end of 2008 against USD 3484 million at the end of 2007. Most of these assets are composed of banks’ placements in sister or affiliated banks (in Egypt, Syria, Jordan, Sudan, Algeria, Turkey, etc.) Moreover, the credits of the non-resident private sector increased to reach USD 3978 million at the end of 2008 against USD 2673 million at the end of 2007, to increase by 48.9% in 2008, after an increase of 57.4% in 2007, due to banks’ financing to non resident individuals and projects abroad.

2-4- Deposits at the Banque du Liban

Deposits of commercial banks at the Banque du Liban, composed of sight and term deposits (of which certificates of deposits) in Lebanese pounds and foreign currencies and also of obligatory reserves and deposits, constitute one of the principal banking placements, the share of which amounted to 27.3% of the total assets at the end of 2008, against 23.9% at the end of 2007. Deposits of commercial banks at the Banque du Liban reached LBP 38 790 billion at the end of 2008, against LBP 29 589 billion at the end of 2007, thus significantly increasing by 31.1% in 2008 against an increase of 1.6% only in 2007. The share of these deposits in foreign currencies represents over 60% of the total.

In 2008, these deposits were affected by the issuance by the Banque du Liban of certificates of deposits in LBP and in USD, to which commercial banks subscribed, on the one hand, and by the significant increase of deposits at commercial banks (particularly in LBP), implying larger volume of obligatory reserves and deposits at BDL, on the other. These deposits were also affected by the remarkable decrease of the interest rates on banks’ deposits at the correspondent banks abroad.

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IV – Banks and Risks Management

1 – Maturity mismatch and interest rate risks

The maturity mismatch risk associated with the portfolios of bank loans granted to the private sector is considered weak and largely controlled. Although deposits at banks are, in their majority, of short term (over 75% are with a maturity of less than three months), credits granted to the private sector are mostly current by nature, and the corresponding interest rates are hence revised periodically. The situation is different with regard to bank loans granted to the public sector, which represent an important part of banks’ uses of funds and can engender a cost to banks in case of rising interest rates on the Lebanese pound and the dollar (which is not currently the case). This is because these loans have relatively longer maturities: about 622 days for Treasury bills in Lebanese pounds at the end of 2008 and around 4.7 years for Eurobonds issued outside Paris 2 and Paris 3, knowing that these latter represent around 16% of the total assets of banks in foreign currencies and 100% for their equity. However, despite the short-term nature of deposits at banks, the deposits base remained in its largest part stable even in critical periods, hence reflecting the loyalty of the depositor and his confidence in its bank, which equates to deposits placed on the long term.

During the two years 2007 and 2008, deposit rates on the Lebanese pound remained almost stable with a slight downward trend, while yields on investments in the Lebanese pound slightly improved in 2007, before slightly decreasing in 2008, causing thus a limited improvement in the margins of banks on the Lebanese pound, in the two above-mentioned years, from 0.9% to 1.2%. As for the margins on the dollar, they fell in 2007 because of the rise in interest paid on foreign currencies deposits at banks, accompanied by a slight decrease in the yields on the foreign currency placements. But in 2008, the margins on dollar stabilized with the drop in yields on the uses in foreign currencies accompanied by declining interest paid on foreign currencies deposits, at the same pace approximatively.

2- Exchange rate riskThese risks remain largely controlled thanks to the measures taken earlier by the BDL regarding foreign exchange positions that prohibit banks in Lebanon to take foreign exchange positions other than structural and operational positions for the protection of bank capital. The open foreign exchange

position cannot exceed 1% of core capital. Also, banks are allowed to constitute a maximum of 60% of core capital in foreign currencies. But banks remain exposed to the indirect exchange rate risk on loans made in foreign currencies to customers whose incomes are in Lebanese pounds, whether individuals or corporations. However, banks are taking against these credits the necessary collateral that is initially valued in foreign currencies. In addition, banks remain exposed to the exchange rate risk on foreign currencies loans granted to the public sector as the share of government revenues in foreign currencies in total government revenues is not that important. However, the risk of the LBP exchange rate depreciation is not currently evoked with the actual monetary stability, and in the light of the firm policy position taken by the government and the monetary authorities to stabilize the exchange rate and in the light of the historical levels of official foreign currencies reserves.

3- Credit riskBanks work at different levels to contain the credit risk. They adopt prudent policies in granting credits, constitute a rich database on clients, and consolidate the role of their risk management units. Banks also request the necessary guarantees, constitute the adequate provisions for these credits, and revise the classification of their loans periodically in accordance with the instructions of the monetary and supervisory authorities. They also strengthen their capital which covered 28.4% of the claims on the resident and non-resident private sector at the end of 2008. There is no doubt that the creation of a credit bureau, in cooperation with IFC, in parallel and complementary to the “Centrale des Risques”, providing information about categories of customers not covered and types of information and analysis which are not performed by the said “Centrale”, will definitely and efficiently contribute to the evaluation of credit risks for a loan claim and a credit portfolio clean up. It is noteworthy in this respect that, monetary and supervisory authorities have acted earlier to clean up the portfolios of banks from non-performing loans (NPL) related to private sector institutions. Moreover, the BDL has previously allowed banks to remove bad debts fully provisioned off their balance sheets. Thus, the quality of credit portfolios improved and the ratio of loans classified as nonperforming (NPL) net of provisions and unrealized interest to total net loans is currently estimated at 4% compared to higher rates in the previous years. Moreover, the provisions constituted by banks practically cover more than 70% of their doubtful loans. However, credit risks may increase with the

147


rising doubtful loans, provoked by the expected economic slowdown in Lebanon and in the region, as it was previously mentioned, following the significant increase of the private sector credits in 2007 and 2008. This necessitates additional provisions and the non-distribution of profits. In addition, the banks’ sovereign risks exposure increased in 2008, as stated earlier. In fact, the share of claims on the public sector and deposits at the Banque du Liban reached 54.3% of the total assets at the end of 2008, following a regression at the end of 2007 to 50.0% compared to the end of 2006 (53.6%). Knowing that most of the increase was in credit denominated in LBP whereas claims in foreign currencies decreased in absolute and relative terms.

4- Liquidity riskThe Lebanese banking sector is distinguished by its high levels of liquidity, by all standards, and thus the liquidity risk is well controlled. Maintaining a high liquidity is a strategy adopted by banks for a long time, for safeguarding and strengthening the confidence in the banking sector, on the one hand, and dealing with the negative changes which may occur suddenly. The importance of maintaining a high liquidity became clear during the developments in 2005 and 2006, as well as amid the global financial crisis, as the high liquidity of banks in foreign currencies has helped preserve the confidence of depositors in the banking sector, limit transfers abroad, and maintain monetary stability. The overall liquidity in Lebanese pounds and foreign currencies including reserves, the portfolio of treasury bills and bonds in Lebanese pounds and foreign currencies with remaining maturity of less than a year, and foreign assets other than loans granted to the non-resident private sector, covered about 57 % of total deposits and other liabilities at the end of 2008.

5-Solvency riskThe banking sector is characterized by a high solvency ratio, according to Basel standards and best practices and criteria adopted in the banking industry worldwide. In 2008, the solvency ratio reached 18% if calculated according to Basel I Accord, and 12% if calculated according to Basel II Accord, well above therefore, the required level (8%) by the Basel Committee on Banking Supervision. As a reminder, the solvency ratio calculated on the basis of Basel II Accord, risk weight claims on the public sector and placements at BDL in foreign currency in accordance with the sovereign risk rating of Lebanon, that is 100% (instead of 20% and 0%). It should be noted that banks operating in Lebanon have made in the recent few years the necessary preparations to implement the Basel II Accord at all

levels, mainly: increasing capital accounts through the issuance of regular and preferred shares, retaining a large share of profits, improving risk management (credit risk, market risk and operational risk), consolidating internal control, strengthening the role of audit units, improving the principals and methods of administration and management, promoting transparency through the improvement of banks’ disclosure of their financial status, in addition to other factors within Basel II framework.

V- Banking Sector Performance

The banking sector achieved a good performance in 2008, despite the global financial and economic crisis during the last quarter of the mentioned year. Banks’ profits increased by more than 27% in 2008 compared to the results of 2007 exceeding one billion dollars according to the non-final figures. The return on average assets reached 1.17% approximately and the return on average equity was close to 15.58%. The growth in profits is due to combined price and volume factors as the consolidated balance sheet of banks increased, with the increase of the total net margin. The positive growth of interest margins may reverse in 2009, especially with the decrease of interest rates worldwide in the light of several programs aiming at reviving credit extensions. Such a situation may lead to the decrease of return on liquid placements abroad for Lebanese banks. In addition, the eventual regression of profits in 2009 could be linked to some losses in the managed assets, with a drop in prices, an increase in the credit risks, an increase in provisions, and a decline in commissions and revenues on a number of banking services.

According to the figures published for a representative sample of large-size Lebanese banks whose assets constitute 82% of the total assets of the sector, the net profits growth in 2008 reached 33%, stemming from an increase in the interest margins by more than 30% and the increase of commissions and other revenues by more than 20%, against an increase of general operating expenses by around 25% and an increase of net provisions, following a considerable decrease in 2007, in addition to an increase of tax on profits. This is an additional proof that the performance of the Lebanese banking sector was not affected by the global financial crisis, which has negatively impacted the profits and growth of financial institutions abroad. Available data also show a drop in the cost to revenue ratio.

Based on the figures published by the Banque du Liban, the net profits of banks operating in Lebanon increased by 27% in each of 2006 and 2007. The net profits of banks reached LBP 1281

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billion (i.e. USD 850 million) in 2007 against LBP 1007 billion (i.e. USD 668 million) in 2006. The increase in 2007 is mainly due to an increase of net interest received, net commissions, and other revenues.

The return on average assets (ROA) after tax increased from 0.89% in 2006 to 1.04% in 2007, and the return on average shareholders’ equity (ROE) after tax increased from 12.46% to 13.42% and 15.58% in the two mentioned years respectively, knowing that these ratios may be higher at large banks. However, comparing the two indicators of return on average assets before tax (ROA) and return on average shareholders’ equity before tax (ROE) between Lebanon, on the one hand, and

the first 100 Arab banks and the top 100 banks worldwide, on the other hand, indicates that the measures of profitability for Lebanese banks remain, despite their improvement, especially at the level of return on average shareholders’ equity (ROE), lower than the profitability measures of the 100 largest Arab or world banks for the concerned period. However, the collapse of large international banks in 2008, that have incurred significant losses and had capital erosion, proved that this comparison is no more suitable to highlight the soundness of the banking institution, its viability and capacity to prosper, and attract new investors, without controlling other criteria related to balance sheet and off balance sheet risks.

The ratio of cost-to-income, as measured by the ratio of staff expenses and other general expenses to the net operating income, decreased from 58.5% in 2006 to 55.2% in 2007. It is noteworthy that banking expenses are, in part, related to the opening of new branches and investments in information technology, sales and marketing.

The table below details the evolution of operating income and

Table No 6: Return (before tax) on average assets and average shareholders’ equity

ROA ROE 2007 2008 2007 2008 (not final) (not final)

Lebanese banking sector 1.04% 1.17% 13.42% 15.58%First 100 Arab banks 2.61% 24.1% Top 100 World banks 1.08% 27.3%

its distribution. The total income of banks increased from LBP 8466 billion in 2006 to LBP 9385 billion in 2007; an increase of 10.9%. This rise is mainly due to higher interest income, which constitutes 90% of total revenues, including income generated on treasury bills in the first place, then on the accounts at banks, and lastly on loans to clients.

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The net commissions and other net income increased from LBP 774 billion in 2006 to LBP 1006 billion in 2007, an increase of 30.0%. Banks attach great importance to the diversification of their services, including retail banking, capital markets, and advisory services that earn commissions. The share of net commissions and other income increased from 26.2% of net operating income in 2006 (9.1% of total revenues) to 30.3% in 2007 (10.7% of total revenues).

Table Nº 8 below describes the evolution of expenses and their allocation. Expenses increased from LBP 7459 billion in 2006 to LBP 8103 billion in 2007, representing an increase of 8.6%, mainly due to higher interest paid on deposits of customers at banks.

Table No 7: Income distribution (LBP billion)

Change in value % 2006 2007 2007/2006

Interest received 7692 8378 +8.9o/w on accounts at banks 3203 3464 +8.1 on loans to customers 1758 2013 +14.5 on Treasury bills 2414 2604 +7.9Net commissions received 417 527 +26.4Other net income received 357 479 +34.2

Total income 8466 9385 +10.9

Source: BDL

Table No 8: Expenses allocation (LBP billion)

Change in value % 2006 2007 2007/2006

Interest paid 5357 5965 +11.3Net provisions 165 71 -57.0General operating expenses 1501 1622 +8.1o/w Staff expenses 850 933 +9.8Other operating expenses 225 214 -4.9Tax on profits 211 231 +9.5

Total expenses 7459 8103 +8.6

Source: BDL

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Table No 9: Profit & Loss Accounts of the banking sector (LBP billion)

2006 20071- Interest received 7692 83782- Interest paid 5357 59653- Interest margin (1)-(2) 2335 24134- Net provisions 165 715- Net interest received (3)-(4) 2170 23426-Net commissions & other net income 779 9827-Net financial income (5)+(6) 2949 33248-Operating expenses 1726 18369-Tax on profits -5 +2410-Net profits (7)-(8)-(9) 1218 151211- Tax on profits 211 23112-Net profits (10) – (11) 1007 1281

Source: BDL

The net provisions for doubtful debts and financial assets fell from LBP 165 billion in 2006 to LBP 71 billion in 2007, as banks no longer needed to constitute additional provisions with the improvement of the quality of their loans portfolios.

Administrative and general expenses have increased by nearly LBP 121 billion or the equivalent of 8.1%, mainly due to the increase of the number of workers in the banking sector (from

16 538 employees in 2006 to 17 664 employees in 2007). Staff expenses accounted for 57.0% of operating expenses during 2006 and 2007. As for other operating expenses, they are assumed by banks to cover the operations of modernization and development required to stay in harmony with the evolution of the international banking activity. In addition, the value of the tax on profits grew by LBP 20 billion to reach LBP 231 billion and register a growth rate of 9.5 %

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