Overview of the Recent Monetary, Banking, and Financial Developments in Lebanon

About BDL

Economic & Financial Data

Banque du Liban

The BDL's continuous commitment to the stability of the Lebanese Pound’s exchange rate against the U.S. dollar plays a pivotal role in maintaining financial and price stability. The growing confidence in the local currency generated persistent conversions from the dollar into the Lebanese Pound, thus boosting the BDL foreign assets to a new historical high reaching US$26bn in September 2009. While complying with market tendencies, interest rates are maintained at appropriate levels to spur capital inflows, rapid dedollarization and a strengthening of the external position. The interest rate differential in favor of the Pound brought the level of dollarization from 77% at end-2007 to 69% at end-2008, reaching a low of 66% in September 2009. Remittances from expatriates recorded US$6bn in 2008, leading to a BOP surplus of US$3.4bn. In 2009, the BOP recorded a surplus of US$4.8bn until end of September, which is a record number.

The Lebanese banking system was largely insulated from the effects of the global financial crisis, due to the tradition of conservative regulation by BDL, and prudent supervision by the Banking Control Commission over the last fifteen years. The BDL has regulated structured products and derivatives, forbidding the acquisition of subprime mortgage debt. It has also tackled the problem of non-performing loans and helped weak banks merging with bigger ones, thus mitigating weaknesses that could cause bankruptcies or losses to depositors. In order to maintain high liquidity levels, banks were required to keep at least 30% of their assets in cash. In 2008, the BDL set tight ceilings on loans for real estate projects in order to prevent the formation of a real estate bubble.

Customer deposits, which recorded a high annual growth of 20%, reached about US$97bn in September 2009, around three times the GDP. Total equity of banks stood at around US$7.6bn at end-September 2009 while the average capital adequacy ratio reached 12%, in compliance with Basle II. Loans to the private sector, which grew by 22% in 2008, continued to grow to reach US$28bn at end-September 2009. In order to stimulate lending in Lebanese pounds, the BDL issued in 2009 many new circulars that aim for decreasing the cost of borrowing and reinforcing productive investments by offering new exemptions on obligatory reserves.

Lebanese capital markets were not affected by the global crisis as other emerging markets that witnessed huge sell-offs. While the outlook on Lebanon's sovereign ratings has been improved in December 2008, the country's continuous resilience has also pushed international rating agencies to upgrade Lebanese government bond ratings in 2009.

Lebanon had a good year in 2008, as well as in the first nine months of 2009, both at the real and financial sector levels. Real GDP growth in 2008 reached 8.5%, one of its best performances in more than a decade, while inflation ranged between 8 and 10%. Despite the previous expectations of the slow down of real GDP growth to around 4% in 2009 due to the current global recession, the Lebanese economy is expected to sustain a growth of 7% by end of 2009; inflation rates are expected at around 2.5%.

The Lebanese financial sector will always be marked by soundness and strength, provided the political and security climate remains stable. At present, Lebanon should seize the opportunity to build a modern and dynamic economy that supports productive investments, enhances job creation, and improves the purchasing power. While fiscal finances remain the most significant weak factor, structural reforms should be urgently implemented, coupled with a genuine political will.