BEIRUT: Lebanese commercial banks will not be authorized to pour investments into potential public-private partnerships, Central Bank Governor Riad Salameh said Tuesday, adding that capital markets and financial institutions would fill the gap.
“Commercial banks are responsible for lending and not investing,” Salameh told The Daily Star on the sidelines of “Partnership between Financing & Investment” conference organized by First Protocol. “In accordance with Basel III [Capital Adequacy Ratio] requirements; their funds must be of high quality and ideally should remain liquid.”
Lebanon has taken steps toward passing a PPP law but after an original draft was shelved by the Parliament in 2007, the efforts have lagged.
PPPs entail long-term contracts between the state and private companies that bankroll infrastructure megaprojects in return for a cut from the revenues.
Caretaker Prime Minister Najib Mikati has been a strong advocate for the PPP program, saying that the state should not directly finance all of the major projects in the country such as electricity plants and water dams.
Some advocates of PPPs stress that these programs help the government cut spending without pursuing controversial privatization of state firms.
“Banking sector funds should not be invested into similar long-term instruments; particularly if these investments are not liquid, [which is] necessary in case there is a need to put them up for sale,” he added.
While Salameh ruled out allowing commercial banks to participate in any such program, the governor said that investment banks, financial institutions and brokerage firms could play an important role in funding PPPs, particularly as the Central Bank mulled developing Lebanon’s capital markets.
“We are highly interested in kick-starting capital markets soon in order to have a market for such instruments,” the governor added.
During the opening of the conference Salameh stressed that resorting to PPPs was a much needed step for Lebanon:
“Lebanon has no choice except to seek partnerships with the private sector to fund the development of infrastructure ... without increasing public debt.”
Keeping government borrowing under control takes on additional importance as regional and global economies weaken, Salameh argued.
“There are repercussions from what is happening around us in the region. The crises are affecting trust and credit worthiness in economies much bigger than Lebanon,” he said.
Salameh said a $1.46 billion Central Bank stimulus package, which included credit facilities to commercial banks at a 1 percent interest rate, had been almost used up.
Out of the package, 70 percent of the loans reserved for housing and the entire amount intended for business start-ups have already been expended.
The governor also highlighted other challenges to public-private partnerships. Weaving a political consensus around the project, he said, would be a difficult but necessary step.
“The private sector is also hesitant to enter partnerships with the public sector because of the fear that the government may cancel partnership contracts,” he added.
Head of the Association of Banks in Lebanon Joseph Torbey echoed Salameh’s views. Estimating that Lebanon needs over $20 billion in investment expenditures over the next seven years, Torbey said that Lebanese banks could not provide such funds.
“Lebanese banks are looking to invest in profitable projects that boost GDP ... but [funding PPPs] will lead into difficulties ... because of long-term financing needs and the short-term nature of Lebanese deposits,” he said.
“Banks can play a major role in evaluating projects and in marketing them with private investors.”
Saad Azhari, chairman of BLOM Bank, said Lebanese banks could not increase exposure to the public sector, while also ruling out direct banking sector investments into PPPs.
“It is much healthier to rely on funds from international developmental banks that specialized in such operations,” he said.