BEIRUT: Commercial and investment banks have to adapt to a new reality which requires them to absorb higher liquidity faster while being effective in their investments to avoid risks, Riad Salameh, Lebanon’s Central Bank governor, told Arab bankers Thursday. Salameh was speaking at the Annual Union of Arab Banks conference held in Beirut and attended by Prime Minister Tammam Salam.
According to Salameh, “central banks around the world and in the MENA region are carrying new responsibilities that sometimes force them to expand their balance sheets, which may expose the markets in which they operate to sharp fluctuations as a result of higher liquidity.”
“The breather for these fluctuations is the proper management of liquidity and the introduction of new tools by the central bank for the purpose of absorbing this level of liquidity in the absence of an ability to move interest rates after they reached 0 percent in many countries,” he added.
Salameh urged economic sectors to “use currencies in a safe way to protect their incomes given significant fluctuations in prices of major global currencies.”
The governor also called for regulating shadow banks, which he said now hold a large segment of the credit market, and for using them to incentivize credit creation.
Lebanon’s Central Bank recently announced a third stimulus package, this time for 2015, aimed at stimulating loan activity. The Central Bank will offer banks around $1 billion at 1 percent to be used for loans to residential projects, startups, and in the environmental and education sectors.
Loans to the resident private sector increased by $2.7 billion in the first nine months of 2014 to reach $44.2 billion by the end of September, in line with growth over the same period in each of 2013 and 2012, according to data by the Association of Banks in Lebanon via Economena Analytics.
Salameh said the Central Bank has also been purchasing sovereign paper, investing in the private sector, and buying real estate from banks to provide liquidity as part of its policy of maintaining stability in credit markets and in exchange rates.
“We will continue with this policy which has now been adopted globally, and we will continue to incentivize banks to invest in the knowledge economy ... Banque du Liban will maintain its policy of keeping the exchange rate at LL1,501-1,514 to the dollar,” Salameh said.
He described several recent initiatives adopted by the Central Bank to safeguard Lebanon’s reputation and financial stability, including the establishment of a Consumer Protection Unit and a Financial Stability Unit. He also pointed to recent circulars that regulate consumer loans, which he said make up 28 percent of commercial bank portfolios.
“We also added criteria for foreign investments of Lebanese banks including limits on leverage on financial products,” Salameh said.
“We are fully confident that our financial system and banking sector will remain the main driver of Lebanon’s economy and the sector will remain an active part of the global financial system,” he added.
Other speakers raised the issue of risks in the global financial system.
Remaining part of the global financial system, however, is becoming increasingly burdensome, explained Joseph Torbey, chairman of the World Union of Arab Bankers.
“Some of the most important global conferences organized by developed countries are focusing on sharing with banks the burden of combating financial crimes, which are originally the responsibility of security agencies, tax departments and law enforcement agencies,” Torbey said.
“The world has changed over the past 20 years. I would not be exaggerating if I said the main headline of these changes is compliance with a set of international rules and regulations about the way banks are required to conduct their business and the procedures to combat financial crimes like money laundering and financing of terrorism, in addition to information sharing and combating tax evasion,” he added.
Torbey predicted that “international pressure on Arab banks and on Arab leaders will not stop until they are forced to comply and until they amend their laws to promote financial information sharing under the risk of exposing Arab financial institutions to sanctions.”
“We should not underestimate the impact of these changes on our banks and economies,” Torbey said.
Separately, Francois Bassil, president of the Association of Banks in Lebanon, said the unhealthy domestic and regional environment was not having a significant impact on banking activity.
Bassil attributed part of the sector’s strength to its “abiding by international standards, especially the fight against money laundering and terrorism financing, in addition to compliance with international sanctions on some of the countries in the region.”
He said Lebanese banks had accepted “humble profits of no more than 12 percent of capital in a bid to protect their foreign currency liquidity and their depositors.”
Bassil also warned of dangerous ramifications from the continued presidential vacuum in Lebanon and of the rise in political and social extremism in the region.
