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François S. Bassil

LEBANON - Finance

Money Matters

President, The Association of Banks in Lebanon


François S. Bassil was born in Lebanon in 1934. He is the holder of a Doctorate in Law from Louvain University in Belgium. Bassil has been working in the banking sector since 1962 and contributed to establishing Byblos Bank, where he currently holds the positions of Chairman of the Board of Directors and General Manager. He is also Chairman of the Board of Directors of Byblos Bank Africa. Bassil also sits on the Boards of Byblos Bank Europe, Byblos Bank Syria, and Byblos Bank Armenia. In addition, he serves as Chairman of the Board of Directors and General Manager of Byblos Invest Holding Luxembourg. He has served three terms as Chairman of the Board of Directors of the Association of Banks in Lebanon and was elected for a fourth term on July 5, 2013.

"Lebanese banks managed to contain the deceleration in economic activity, as they are well equipped and experienced."

The political and economic problems in the region have hindered economic activity in Lebanon and reflected negatively on the profitability of most sectors. How did the Lebanese banks manage to contain these negative indicators, and were they compelled to increase provisions on non-performing loans (NPLs)?

The deterioration of political and security conditions in Lebanon and in the region over the last two years has had a negative impact on economic activity, as well as the profitability of many sectors. Real GDP grew by an annual average of 8.3% between 2007 and 2010 and retreated to an estimated average of 1.5% a year in 2011 and 2012. This weak economic growth is attributed to a declining level of consumer confidence and investor sentiment, as well as to lower GCC demand for our goods and services, while Lebanon’s tourism, migrant transfers, FDI, and non-resident capital inflows are generated mostly from GCC countries. Still, the growth of the past two years was mainly supported by domestic bank credit to the private and public sectors, as credit grew by an average of 7.8% per year, with bank credit to the private sector expanding at a much higher rate. However, the deceleration in economic activity is projected to continue throughout 2013. Lebanese banks managed to contain the deceleration in economic activity, as they are well equipped and experienced in rapidly adapting to changes in business cycles. Further, the Lebanese banking sector has shown over many decades its ability to adjust successfully and to withstand domestic or external financial and economic shocks, in addition to an increased capacity to face and overcome challenges and uncertainties. Specifically, Lebanese banks managed to absorb the economic slowdown in foreign markets, as they are operating in many regional countries such as Iraq, Turkey, Jordan, Egypt, Sudan, and Algeria, as well as in international markets such as France, Switzerland, Belgium, and the UK. In 2012, the quality of banks’ loans in some Arab countries, especially in Syria, was adversely affected by developments in these economies. However, the credit risks for Lebanon remained to a large extent under control despite the deceleration in economic growth. Also, banks are continuously trying to improve the quality of their loan portfolio and to take provisions, as the ratio of doubtful loans-to-net total loans dropped to 3.5% at the end of 2012 and the provisions on doubtful debt stood at 75%.

What actions have banks recently taken to tighten banking supervision, and do you believe that the Lebanese-Canadian Bank experience will not be repeated again?

The Lebanese banking system has made great strides toward strengthening its compliance with international anti-money laundering and combating the financing of terrorism (AML/CFT) standards. The sector is driven by the desire to maintain its credibility in the international community, in particular with its correspondent banks; as well as to reassure its depositors, largely Lebanese citizens in the country and from the Diaspora, that their funds will not be jeopardized by inadequate monitoring or compliance practices. In fact, the banks are the custodians of depositors’ funds and fully realize that safeguarding these deposits is an utmost priority. Over the last decade, the Lebanese Parliament ratified a number of laws related to AML/CFT. As the legislative process tends to advance slowly, the Banque du Liban (BDL), the central bank, took the initiative by issuing circulars and regulations to address urgent issues, as guidance from the BDL is often issued before the laws themselves are enacted. Some of the important circulars include, for example, Basic Circular No. 126, issued on April 5, 2012, which requires Lebanese banks to implement strict, risk-based know-your-customer (KYC) methodologies for vetting customers’ identities, particularly regarding cross-border transactions. It also requires banks to be fully informed about the laws and regulations that govern correspondent banks abroad and to transact business in accordance with such laws, regulations, and procedures adopted by international legal organizations or by the sovereign authorities in the correspondents’ home countries. Also, the Lebanese government approved in mid-March 2012 three important related laws. The first includes an amendment to the law on fighting money laundering. The government expanded the scope of Law 318 to include most financial crimes, the protection of intellectual property, the obligation of AML reporting to new categories and sectors (property developers, lawyers, and others), and modified procedures to improve the efficiency of the Special Investigation Commission. The second law deals with the declaration of cross-border money transfers, while the third law addresses exchanging tax information. The draft law on cross-border money transfers included a definition of money that covers, in addition to cash, other means of transactional payment such as commercial debentures and financial papers. According to the parliamentary committee debating this law, persons carrying cash in excess of $20,000 have to declare these funds to Lebanese customs. The third law concerns the exchange of information related to tax evasion and fraud, and gives Lebanon the legal basis to abide by OECD norms adopted by the G20 countries. In addition, Lebanese authorities are developing additional draft laws as necessary in order to eliminate any remaining legal shortcomings.

“Lebanese banks managed to contain the deceleration in economic activity, as they are well equipped and experienced.”

What does it mean for the Lebanese to be ahead of countries in the region for Basel III?

Banks in Lebanon are currently implementing the Basel II Capital Adequacy Framework and are required to implement Basel III by the end of 2015. In comparison, the international deadline for the implementation of Basel III is 2019. The BDL issued Intermediary Circular No. 282 requesting banks to reach a ratio of 12% of total core capital-to-total risk weighted assets by the end of 2015, compared to the Basel III-mandated ratio of 10.5% by 2019. To be ahead of countries in the region, and even internationally, means that the Lebanese banking sector is solvent and liquid and is ready to rapidly implement the new capital regulations. The sector will be sending a signal to the international community about its swift adherence to international banking rules and regulations as well as to best industry practices. According to the latest available statistics, the solvency ratio of the Lebanese banking sector exceeded 12% at the end of 2012 (calculated in line with Basel II Accord), which is well above the level of 8% required by the Basel Committee on Banking Supervision. However, large banks in the country have much higher ratios.

The central bank is lending to private banks at 1% interest to stimulate loan growth. What segments of the population will see this money?

In early 2013, the BDL launched an incentive program for loans that covered most of the economic sectors, but particularly the housing sector, in an attempt to support economic growth through banking loans denominated in Lebanese pounds at favorable interest rates. As such, the BDL placed $1.4 billion at the disposal of banks at an interest rate of 1%, which means that banks can extend loans to institutions and households at reduced interest rates through this new mechanism, after the amount of a previous mechanism was fully utilized. The banks and the market responded positively to the program to the extent that the amounts allocated for new projects and a large portion of the amounts allocated for housing loans were rapidly utilized.

At Byblos Bank, how has your product portfolio evolved over the past five years, and what has been the main focus of your growth strategy?

Byblos Bank’s strategy has always been focused on growing its portfolio in a balanced and healthy manner. Our retail portfolio recorded significant growth during the last five years and jumped from $620 million as of December 2008 to reach $1.5 billion as of June 2013, representing a compounded annual growth rate (CAGR) of 21.7%. This increase is the result of both our efforts to cater to an ever-growing clientele with innovative products and services, as well as to the rise in market demand. For example, the increase in the demand for residential apartments in recent years has contributed to the expansion of our housing loan portfolio, which currently amounts to almost 44% of our overall retail portfolio. In parallel, Byblos Bank’s efforts to promote subsidized loans for the productive and innovative sectors reflect the Bank’s determination to support SMEs to overcome the challenges of accessing credit and to grow adequately, most importantly in rural Lebanon. In fact, Byblos Bank tops the list of Lebanese banks in offering loans that are subsidized by the Kafalat Corporation, with a market share exceeding 22%. The plan is to continue this growth trend and to attract customers seeking loans for start-up businesses in ICT. In addition to loans, Byblos Bank offers an array of credit, debit, and charge cards tailored to the needs of its clients. In 2011, we launched the first E-Branch in Lebanon and we are now implementing other innovative banking technologies aimed at transforming our branches into advice and consultancy centers to better engage with our customers and provide them other personalized services. Besides consumer banking, Byblos Bank is also one of the key players in commercial banking, as it continues to maintain a dominant position in the Lebanese market. Our figures clearly show that corporate lending has been steadily increasing, reflecting in large part rising local demand and our determination to meet this demand with expert advice and tailored financing facilities to corporate clientele. On the international level, Byblos Bank continues to expand through its subsidiaries, yet adapting to regional developments and mitigating risks through diversification and continuous financial scrutiny. As the recent turmoil has heavily weighted on the economies of countries such as Syria, Byblos Bank has readjusted its strategy and is targeting instead countries that enjoy relative stability.

© The Business Year – November 2013



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