Lebanon's Banks Brace for New Era
The prime minister is launching a $30 billion reconstruction plan to rebuild Lebanon as a regional banking center in the Middle East
AFTER 15 years of civil war shattered Lebanon's status as a regional banking center, it is trying to establish itself as a regional banking capital and financial-market center in the Middle East.Skip to next paragraph
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The country's banking sector is bracing itself for a new era as Lebanon's billionaire prime minister, Rafiq Hariri, forges ahead with a $30 billion reconstruction program. Analysts are calling it one of the most ambitious rebuilding efforts since restoring Europe after World War II.
Once a leading recycling mechanism for petrodollars from the Gulf states, Lebanon's banks are gearing up for a period of expansion and restructuring that will place them in sharp competition with foreign banks, which have have trickled back into the country in the past three years.
''In the past, Lebanon played a regional and international role as a commercial-banking center,'' says Nasser Saidi, vice governor of the country's central bank, the Bank of Lebanon.
''But I don't think we can go back to playing the commercial-banking role we did in the past,'' Mr. Saidi said in an interview in his plush office in downtown Beirut.
''Rather than being a conduit for funds flowing out of the region, we are now poised to play the reverse role of attracting funds from the rest of the world - Arab funds and expatriate Lebanese funds - to be invested in Lebanon for reconstruction and in other parts of the region,'' he says.
''This will be a radical departure from the role we played in the past.''
Since Mr. Hariri took over in 1992, the Lebanese currency has stabilized from a low of 2,800 Lebanese pounds to the dollar to its present level of 1,600 to the dollar.
Inflation, which hit a peak of more than 100 percent in 1992, has dropped back to 12 percent in (Lebanese) pound terms and 16.4 percent in United States dollar terms. Growth for 1995 and '96 is forecast at between 8 percent and 8.5 percent of gross domestic product.
But the predicted levels of foreign investment and the repatriation of expatriate capital, estimated at $40 billion, has not materialized. Part of the reason, analysts say, is ongoing political instability despite five years of relative peace and the fact that Lebanon remains outside the Middle East peace process.
Cyprus and Gulf states like Dubai and Bahrain have taken over as regional banking centers in recent years. But analysts say Lebanon is well-placed to build up its banking center if it can raise the capital and restructure its financial services to meet with international standards.
There is no exchange control in Lebanon and few impediments to foreign investors. The highest taxes are 10 percent, and foreigners are not subject to taxation.
Lebanon's banking center - one of the most profitable in the world - is made up of 70 banks with 565 branches and total assets worth $15.6 billion. The country's banks have a return on equity of 31.4 percent, compared with 11.38 percent for top international banks.
But their structure has not yet caught up with the needs of investors, who are showing interest in a restructured Lebanon. ''The government is doing what it can to create capital and financial markets,'' says Finance Minister Fuad Siniora. ''But it is not something you can achieve overnight.''
Mr. Siniora says there has been a 33 percent increase in revenue to the treasury this year over last.
The stone age
When he arrived at the finance ministry in 1992, Siniora says, there was not a single calculator in the building. ''We started from the Stone Age, but now things are changing,'' he says.
The changes most needed, Saidi says, were in organizing and restructuring the banking sector. ''If we want to play a role as a regional capital-markets center, we must develop well-defined market instruments based on international accounting standards,'' he says.
''You also need a layer of regulation. We are in the process of proposing a capital-markets law, which will also establish a new Beirut stock exchange,'' he says, adding that the exchange should be operative by the fall.
''We are heading towards a specialized financial system rather than a universal banking system like you find in the United States,'' he says.
On the day of this interview, Saidi and his fellow managers were the only staff in the central bank because of a national work strike by the trade-union federation, which was protesting a 37 percent hike in taxes on gasoline.
It was a stark reminder of the pain the Lebanese economy is experiencing in funding the ambitious reconstruction program.
But Saidi says he is confident that the economy can withstand the strain, despite the undercurrent of public grievances born of unfulfilled expectations.
''We are almost entirely dependent on domestic resources. It is difficult trying to rebuild without external aid,'' he says.
''But, since 1990,'' Saidi says, ''we have achieved an average growth rate of 12 percent without international aid.''
''This is a remarkable achievement, which shows the dynamic nature of the private sector,'' he says, conceding that social conditions would remain difficult for some time.