Lebanese Central Bank governor, Riyad Salameh, declared that the bank’s policy of strengthening the Lebanese banking sector consists of improving capitalization, containing its risk exposure and following international standards.
Salameh said that the policy to improve capitalization resulted in the increase in total shareholders’ equity from $260 million in 1993 to $2.8 billion at the end of July 2000. In turn, this improved confidence and led to a growth of total deposits from $9 billion to $37 billion during the same period. Likewise, total credits to the private sector increased from $3.5 billion in 1993 to $14 billion in July 2000, driving the ratio of total credit to GDP to 88 percent.
Moreover, market capitalization of banks listed on the Beirut stock exchange amounted to $1.2 billion at the end of August 2000. Banks were required to have a minimum capital adequacy ratio of 10 percent by the end of 2000 and 12 percent by the end of 2001. Further, a proposed draft law to unify bank shares under one category will encourage investment in the banking sector.
In terms of risk management, the Central Bank issued a series of circulars to implement precautionary banking measures to hedge against risk. Banks were required to provision for undetermined risks of 0.2 percent of risk-weighted assets per year in light of the expansion in the volume of consumer credit.
The bank also developed a mechanism for the liquidation of real estate acquired in settlement of bad debts. It is currently establishing a central office for the rating of enterprises and is working on the introduction of new banking practices. — (Lebanon Invest)