In the last meeting between the BDL and the Association of Banks in Lebanon (ABL), Governor Riad Salamé indicated the need to re-launch subsidized loans given their importance in stimulating economic activity and given that banks have lent all their freed reserve requirements. He noted that the Central Bank is studying a new framework for subsidized loans based on providing credit lines to banks. He added that the framework will be submitted to the Central Bank's Central Council for approval before the end of the year.
Further, Governor Salamé stated that banks took adequate provisions related to their exposure to the Syrian market and to Syrian clients, and that the banking sector has overcome the pressures to comply with international sanctions on certain countries. Also, he noted that the Central Bank did not inject foreign currency in the exchange market since August 2011. He highlighted the need to maintain interest rates at their current levels in order to attract and maintain deposits at banks, and due to their positive effect on liquidity.
He attributed the $2bn deficit in the balance of payments to the increase in imports that might be related to re-export activity to Syria. He added that capital inflows that would cover the re-export activity are not reflected in the balance of payments.
In parallel, he attributed the Central Bank's decision to reduce the limit of total credits granted by a bank to its board members, largest shareholders and their families from 5% to 2% of its shareholders' equity to the need to increase governance and transparency, as well as to unacceptable excesses at some banks. He added that the limit will be reduced to 1% of shareholders' equity in case a bank does not comply with the new measures. He also stressed that financial collateral and guarantees submitted by related parties should not bear interest rates.
Lebanon This Week – Byblos Bank Research