Some Arab banks are facing difficulties in dealing withUS banks despite having fulfilled all international requirements on supervision and compliance, a leading Arab banker said Tuesday.
“Despite their adoption of international best practices, some of our Arab banks encounter difficulties in conducting correspondent banking relationships with the U.S. banks, and face a gradual decline in transactions – and sometimes even the termination of correspondent relationships – at times due to the assumed high cost of the application of compliance procedures,” Joseph Torbey, the president ofAssociation of Banks inLebanon and chairman of World Union of Arab Bankers, told a two-day conference on banking regulatory and supervisory challenges which was held at the Phoenicia Hotel.
The conference was organized by theUnion of Arab Banks and the U.S. Federal Reserve System in cooperation with the Banking Control Commission of Lebanon.
Torbey warned that this policy could threaten the stability of some of these Arab banks and complicate trade finances services.
“That of course threatens the ability of small banks to provide trade finance services, thus putting an end to their business activities, and stops them from playing their role in providing essential services to their markets and economies, at a time where Arab banks need solidarity steps with them to support their role in providing stability and economic growth in a region where turmoil is feared to spill over other countries in the world,” Torbey stressed.
He repeated that Lebanese and Arab banks are fully committed to the international decisions and recommendations pertaining to tight supervision, terrorist financing and money laundering.
“Since banks in general, and Lebanese ones in particular, face great dangers because of the growing geopolitical risks in some Arab countries, these banks, in a bid to protect their activities, are more diligent in compliance and risk-management functions, and other requirements for fighting money laundering and financing of terrorism [such as the] ‘know your customer’ rules,” Torbey stressed.
All of the speakers underscored the need to constantly upgrade the rules and regulations to further protect the banking sector and its clients.
Wissam Fattouh, the secretary-general of the Union of Arab Banks, emphasized the importance of the ongoing dialogue between Arab and American banks.
He added that Arab banks are exerting strenuous efforts to comply with all international procedures and rules.
Samir Hammoud, the president of the Lebanese Banking Control Commission, called on Parliament to pass crucial bills pertaining to controlling cash movement across the borders, protecting intellectual property, the exchange of tax information, and privatizing and reactivating the bourse.
Hammoud said financial authorities are about to issue important circulars and memos aimed at strengthening the banking sector and increasing confidence in the industry.
“The financial authorities are looking forward to issuing new circulars to address debts without resorting to courts, in addition to expanding the capital base and listing part of it in the financial market,” he explained.
Hammoud said the circulars would also include expanding the capital adequacy framework and reducing the credit risk requirements in case these debts contribute to increasing production and generate more job opportunities.
He added that risk weights of small- and medium-sized enterprises (SMEs) should stand between 90 percent and 130 percent, while the risk weight of big companies should be increased between 60 percent and 300 percent if the balance sheets are not audited by internationally recognized auditing firms.
Echoing Hammoud, Mohammad Baasiri, deputy governor at the Central Bank of Lebanon, said that the Parliament must approve pending laws drafted by the Central Bank in order to safeguard the health of the banking sector.
“Laws that need to be passed relate to monitoring cross-border cash transfers, tax-information sharing, the ratification of the 1999 U.N. convention regarding the suppression of terror financing, and the amendment of the anti-money laundering law,” he said.
Baasiri said that the Central Bank is keen on preserving the financial integrity of the banking sector in Lebanon. “The Central Bank has, for so many years, been active in combatting money laundering and fighting against terror financing by issuing laws focused on these purposes,” he said. “Lebanon is also a member of the newly established Counter ISIS Finance Group, which is the acting floor for combatting ISIS-financing groups, and which includes 26 member countries.”
Alongside the worldwide cooperation in fighting against financial crimes, Sarkis Yoghourtdjian, senior adviser at the Federal Reserve board in Washington, believes that four measures need to be taken in order to restore confidence in the financial system for the long term.
“The first step that should be taken into account is the need for banks to avoid growing to an extent where they end up dominating the financial sector. Greed is typically what drives growth in the banking sector ... no single institution should be allowed to dominate the financial sector in any economy,” he said.
“When a financial institution reaches a point where it accounts for more than a specified target of the financial turnover in the country, certain triggers need to be set in motion to curtail its growth,” he added.
Yoghourtdjian cited the example of big U.S. banks that have become even bigger since the 2008 financial crisis. He said that the six largest banks in the U.S. have more assets today than they did before the crisis.
“They have witnessed an increase of 41.4 percent in total assets while enjoying an increase of 82.4 percent in deposits,” he said. “These six institutions have 400 percent more cash today and they have more trading influence today than they did before the crisis.”
Yoghourtdjian said that banks should also avoid building up risks.
“Continued high expectations of return on equity and return on assets mean that banks need to chase high returns by engaging in higher risks and by undertaking higher trading activities,” he said.
He added that banks need to avoid complexity.
“We must make the overall system simpler, less leverage and more transparent and accountable,” he said.
According to Yoghourtdjian, banks should never be viewed as purely commercial entities in the traditional sense. “We need to reboot the culture of banking and finance,” he said.
“The reason why banks were created was to serve the real economy and not the other way around.”
He said that banks must lend to people and businesses, which will in turn create jobs and growth.
“Even though banks are now larger than before, we are still seeing that access to credit by individuals and small businesses remains quite tight, while borrowers such as SMEs and individuals create the majority of jobs in any economy,” he said. “So as long as lending to SMEs and individuals remain tight, economic growth will remain below its desired long-term trend.”
By Dana Halawi
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