Contrary to the situation that prevailed before 1975, Lebanese banks dominate the scene. A number of foreign institutions remain active however such as HSBC and BNPI, as well as a number of Arab financial concerns. At the same time, Lebanese banks have expanded abroad, particularly in Syria, Jordan and France. Thus, in 2006 eighteen Lebanese banks are active in one way or another in sixteen foreign countries.
The sector has witnessed a consolidation process. Since 1993, nearly 30 banks have ceased to exist mainly as a result of mergers and acquisitions made easier by a set of legislations that were adopted to this end. The Central Bank made sure that no depositor lost money during that period even in cases of virtual bankruptcies. Only Bank Al Madina, which witnessed a major embezzlement linked to the Syrian-Lebanese corruption, was impounded in 2003 and even in that case, depositors were entirely refunded.
At present, about 63 banks are operational on the market, quite a large number in view of the country’s size but this apparent fragmentation is relative since the top fifteen banks account for 75% of the market.
As far as deposits are concerned, the sector can boast a world record since they amounted – in 2006 – to around $65 billion, or over three times the country’s GNP. Non-resident deposits account for about $10 billion. The deposits dollarization rate varies between 70 and 75% as a result of the major devaluation suffered by the Lebanese Lira (pound) during the 80’s.
Public credits granted to the State to finance its recurring deficits have long represented a major source of profit, despite the sovereign risk involved. Up until now, the State’s debt to the banks amounts to $18 billion. Private credits are about the same size and are granted first to commerce and services, followed by construction then industry. Private concerns however have had to pay a high money rate for years (up to 18 to 20%) as a result of a similar yield by Treasury bonds. Since 2003 the rates have decreased mainly because a system of credit subsidy was set up.
Banks are also trying to diversify their sources of profit through expansion and the offer of new products such as “bank-insurance” facilitated by the fact that several top ten banks already own an insurance company whereas others have entered into partnerships with independent insurers.
Insurances controlled by banks
| Bank |
Insurance Company |
| BLOM |
Arope |
| MedBank |
Medgulf |
| Byblos |
ADIR |
| Jammal Trust Bank |
Trust Insurance |
| BLF |
Bancassurance |
| Fransabank |
Bancassurance |
| Crédit Libanais |
CLA |
| SGBL |
Sogecap |
| Audi |
Libano-Arabe |
| BBAC |
Capital |
| Al-Baraka Lebanon |
Amana Takaful |
However, business banking remains limited although a specific legislation is under study to promote that sector. Three banks are specialized in leasing.
Another field of specialization has recently seen the adoption of related legislation, namely Islamic banking. Islamic banking prohibits interests and operates in accordance with Sharia (Islamic law). Its activities (called mudaraba, musharaka, etc) are related to various forms of partnerships with producers or traders. Four Islamic banks are currently operational in Lebanon and the field is expected to develop considerably in line with the current trend in the Arab and Islamic world.
A far as reputation and solidity are concerned, the Lebanese baking sector maintains a high level of cash flow and solvency to ward off any risks in the volatile Lebanese and regional environments. The sector has already passed the international test of cooperation in the struggle against money laundering, having adopted specific legislation without having to alter significantly its system of banking secrecy.
However, it must prepare to implement new banking norms in accordance with the Basel II Capital Accord, even if this implementation will not be as strict as in other countries. The Bank of Lebanon allows banks not to calculate sovereign risk coefficients along the lines of Basel II general stipulations.
