BEIRUT: A leading banker warned Thursday against “moral hazards” if the government continues to burden the Central Bank with all the economic and financial problems facing the country. “Moral hazards would result when the government decides not to bear its full responsibilities, hoping that the Central Bank works continuously on repairing monetary and financial issues in the country,” BLOM Bank Chair Saad Azhari said.
Azhari’s comments came during a session of “Planet Lebanon,” a conference organized by the Lebanese International Business Council to discuss topics related to Lebanese emigrants.
Azhari called on the Cabinet to draft a strategy to specify the responsibilities of the government’s various public departments.
“For instance, the Finance Ministry has to draft a financial policy aimed at rationalizing expenditures and reducing the public debt while improving tax collection, and most importantly to reform the end of service indemnities,” he said. The banker added that the economy minister must take measures to improve the environment for investment and doing business in Lebanon while the Energy Ministry is responsible for reforming the electricity sector.
“Such reforms would increase the competitiveness of economic sectors while paving the way for the Central Bank and commercial banks to activate their monetary policies and preserve monetary stability in a more effective way,” he said.
Nassib Ghobril, head of the research department at Byblos Bank, reiterated Azhari’s comments, adding that the government has a lot to do in order to attract emigrants to come back start to businesses in their country. Ghobril quoted a study by the World Bank that 66 percent of the countries listed on the ease of doing business index have better working environments than Lebanon.
“Also, 53 percent of Arab countries have better working environments than Lebanon,” he said. “We should not feel surprised that Lebanese emigrants do not come and invest the way that is expected by officials without undergoing the necessary reforms and increasing economic competitiveness.”
Ghobril also noted that a study by the World Bank states that 54 percent of Lebanese emigrants believe that the poor investment environment is the main obstacle to investing in Lebanon.
The World Bank study, according to Ghobril, added that 47 percent of emigrants consider political instability as the main obstacle to investment. “Around 29 percent say that the absence of proper economic figures and information about the economy and investment opportunities is the main reason for not investing in Lebanon, while 23 percent see economic slowdown and the absence of reforms as the main obstacles to investment, with 22 percent seeing the lack of proper infrastructure as a big problem,” he said.
Ghobril added that Lebanese expatriates play a great role in supporting the banking system despite the crises taking place in the region.
“Expatriates’ remittances to Lebanon stand at $7.2 billion yearly despite the crises taking place in the region, such as the international drop in oil prices,” he said.
Economist Ghazi Wazni repeated Ghobril’s comments, saying that Lebanese remittances remained between $7.2 billion and $7.5 billion despite all challenges.
He said that Lebanon’s banking sector is facing several challenges.
One of the challenges, according to Wazni, is U.S. sanctions against Hezbollah, which started in late 2015. “The banking sector of Lebanon has to comply with those U.S. sanctions if it wants to stay within the global banking system” he said, while adding that 66 percent of Lebanese banks’ deposits are in U.S. dollars and most of remittances are in U.S. dollars. “Also, 80 percent of credits are in U.S. dollars; 75 percent of exports are in U.S. dollars; our public debt is mostly in U.S. dollars and even our Lebanese pound is tied to the U.S. dollar. We do not have any other options but to comply with the U.S. sanctions.”
Another challenge, Wazni said, is the need to comply with international standards, as is the case with all banks worldwide. “Lebanon should comply with laws for countering terrorism and this is an external challenge facing the banking sector and its secrecy, which is vanishing gradually in Lebanon,” he said.
“Moreover, interest rates in the U.S. are between 1 percent and 1.25 percent and they might reach 2.5 percent to 3 percent in coming years, which would impact interest rates adopted by BDL in Lebanon,” he said, referring to the central bank by its initials.
For his part, the Central Bank’s Vice Gov. Saad Andari said that the banking system in Lebanon had adopted at least five principles of responsible banking.
Among these five principles is to advocate transparency. “Our banks have for some time been applying governance programs passed by BDL, emphasizing that interests of shareholders and management are aligned to the long-term strategic emphasis on core activities. Under the oversight of our regulatory authority, board members join orientation programs to attune to latest developments in corporate governance,” he said.
“Banks have also started preparing for the application of IFRS 9 in early 2018, standards which need the incorporation of forward-looking information, and are already compliant with its disclosure requirements. Banks are now required to explain their assumptions as to how macroeconomic factors will affect their expected credit losses’ requirements. This should provide greater transparency over a bank’s credit risk and provisioning procedures,” he said.