Overview of the Lebanese Economy -...

The Lebanese Economy: Developments and Prospects

2Raed H. Charafeddine Banque du Liban


Raed H. Charafeddine Banque du Liban

New Paradigm for Financial Services : Where does Islamic Finance fit ?


I

II

III

IV

Outline

General Institutional Framework

Lebanon’s Macroeconomic Prospects

Lebanon’s Macroeconomic Developments

Conclusion






Role and Functions of Banque du Liban

According to the article 70 in the Code of Money and Credit, the central bank is in charge of safeguarding the Lebanese currency in order to ensure the basis for sustained social and economic growth.

Its core functions include:

– Safeguarding the Lebanese currency,

– Safeguarding economic stability,

– Development of the money markets and financial markets,

– Safeguarding the soundness of the banking system.

According to the Law No 133/99 dated October 26, 1999 , the central bank is responsible of :

– Developing and regulating payment systems especially with regard to ATMs and payment Cards,

– Developing and regulating transfer payments, including electronic payments,

– Developing and regulating clearing and settlement operations related to payment systems and financial instruments






BDL’s Monetary Policy : Objectives, Targets and Instruments

Objectives Targets Instruments

•Stabilize the

Exchange Rate

•Low Inflation rates

• Reduce

Unemployment and

Promote Growth

Operational Targets

BDL’s Foreign Reserves

Intermediate Targets

Money Aggregates

Interest Rates

Intervention in the FX

market

Changes in reserve

requirements

Open Market Operations

Central Bank Lending

policies (Repo

operations)






BDL’s Organizational Arrangements

The Open Market Committee monitors Money and Capital markets’

developments and recommend appropriate actions.

The Central Council, headed by the Governor and regrouping the four

vice governors, the Director General of the MOF and the Director General

of MOE, sets the monetary and credit policies of the Central Bank,

including reserve requirements, discount and lending rates at BDL.





General Institutional Framework

• The Lebanese banking and financial sectors enjoy the benefits

of a modern legal and regulatory environment, particularly with

respect to :

• Banking secrecy,

• The Free Banking Zone,

• Fiduciary activities,

• Opening Joint Accounts and

• Anti-money laundering measures.






Banking Secrecy Law

Enacted on September 3, 1956

It subjects all banks operating in Lebanon to banking secrecy.

Bank managers and employees engaged in banking activities

are bound to banking secrecy concerning customers’ names and assets.

No disclosure to third parties unless:

• the customer or his/her legatees has given written authorization, or

• a written request has been presented by the judicial authorities in cases of bankruptcy, suspected money laundering, litigation between the bank and the customer, suspected illicit accumulation of wealth.

Allows banks to exchange information on the debtor accounts of their customers through the Credit Risk Office established at BDL.

Raed H. Charafeddine

Banque du Liban





The Free Banking Zone

• On the first of April 1975, decree No. 29 established a free

banking zone by granting the Lebanese government the right to

exempt non residents' deposits and liabilities in foreign

currency from :

– the income tax on interest earned,

– the required reserves imposed by the Banque Du Liban by

virtue of article 76 of the Code of Money and Credit,

– the premium of deposit guarantee imposed on bank

deposits to the profit of the National Deposit Guarantee

Institution


http://www.bdl.gov.lb/circ/lawpdf/CMC.pdf







Tax Exemptions

• Both article 16 of law No. 282 dated December 30, 1993 and

article 12 of decree No. 5451 dated August 26. 1994, offer

exemptions from income tax on all interest and revenues

earned on all types of accounts opened in Lebanese banks.






The Fiduciary Operations Law

• Enacted on June 6, 1996

• Allows Banks and Financial Institutions to carry out off-balance

sheet business.

• Fiduciary operations with trustees and beneficiaries.

• Banks are also required to ensure transparency and

creditworthiness with respect to these operations which have

to be conducted under qualified management.






Opening Joint Accounts

• The law of December 1961 allows for the opening of joint

accounts.

• These accounts are opened in the name of several persons and

can be used by any one of these persons.

• In case of death of any one of the account owners, his/her

partner can use the account without being subject to heirs

procedures.

• In case one of the account holders is declared bankrupt, the

account becomes the ownership of the bankrupt party, unless

it is proven otherwise.






Opening Joint Accounts(2)

• The bank can't do any clearing for the different accounts of any

account holder without the written approval of all other

partners.

• The lifting of bank secrecy on the account is non operational

without it being declared by all partners.

• In case any litigation occurs among the different holders of the

account, the bank shall freeze the account from the day it

receives notification of the litigation and until it is settled by the

courts.






Fighting money laundering

• Law enacted on April 20, 2001

• Designed to comply with the FATF recommendations

• The law provides for the creation of an independent legal entity

with judicial status known as the “Special Investigation

Commission (SIC)”, Lebanon’s financial intelligence unit.






Fighting money laundering (2)

• Its tasks include:

– receiving and analyzing Suspicious Transaction Reports (STRs)

– conducting financial investigations,

– lifting banking secrecy,

– freezing accounts,

– sharing intelligence with its counterparts,

– coordinating with foreign/local law enforcement authorities on

Request Of Assistance (ROAs),

– not to mention introducing additional AML/CFT regulations and

ensuring compliance of banks and other reporting entities with

existing regulations.





SIC : Cases Received

63%

37%

Local Foreign





SIC : Status of Cases Received

38%

33%

29%

Passed On Not Passed On Pending





SIC : Bank Secrecy Lifted

Bank SecrecyLifted

InformationProvided

Pending Cases

InvestigatedCases

0

10

20

30

40

50

60

70

80

90

Local

Foreign

12

2 9

54

41 18

86

57





SIC : Cases by Predicate Offense

39

2 5

3 1 2

0

44

2

12

7

1 2 5

1

45

Local Foreign





SIC : Terrorism or Terrorism finance related cases

Police 14%

UN 43%

Embassies 14%

FIUs 29%

Local Foreign





SIC : Source of Foreign ROAs

Europe 50%

North America 11%

South America 11%

Middle East & Gulf 9%

United Nations 9%

Asia 6%

Australia 2%

Africa 2%





SIC : Nature of Specified Crimes 2001-2009

Forgery 39%

Trade of Narcotics

12%

Embezzlement of Private/Public

Funds 23%

Illegal Arms Trade

1%

Organized Crime 3%

Terrorism or Financing of

Terrorism 22%





SIC : Forgery 2001-2009

Transfers 8%

Checks 54%

Banknotes 10%

Identification Documents

12%

Loan Instruments

10%

Other 6%






LEBANON’s Macroeconomic Developments

• Uneven Economic Growth

• Exchange Rate Stability

• Reduced Inflation

• Large Capital Inflows & Remittances

• Reconstruction

• Large budget deficits & Public debt accumulation

• Public Finance Reform & Public Debt Restructuring; the Paris

III process






Main Features I

• Private sector-based Economy

• Finance of Reconstruction

• Large Budget Deficits

• Dollarized Economy: – payments,

– assets and liabilities of banking system;

– corporate sector

• Open Economy: – freedom of payments and capital flows;

– limited protection

• Multi-currency payment system

• Independent Central Bank

• Independent Banking Control and Supervision






Main Features II

• Introduction of New Laws and Modernization of Existing legislation to

deal with structural and institutional issues and change

• Money market and financial market instruments: CD’s, Repos’, Swaps

• Flexibility: BDL and BCC issue regulations to manage, organize,

supervise

• Comprehensive view: fiscal policy, monetary policy, exchange rate

policy, payment system, banking and financial sector





Macroeconomic Overview

1. Real Sector a. Real GDP

b. Coincident Indicator

2. External Sector a. X and M

b. BOP

c. FDI

d. Remittances

e. BDL FX reserves

f. Gold

3. Fiscal Sector a. Budget

b. Fiscal Deficit

c. Debt

4. Monetary Sector a. M3

b. FSI of Banking Sector

1. Inflation Rate

2. Exchange Rate

3. Interest Rates







Nominal GDP Growth Rate

2,719 2,811

4,452 5,545

7,535 9,112

11,122

12,997

14,865 16,168 16,491 16,491 16,740

17,376 18,123

21,790 21,861 22,437

25,044

29,620

33,000

3

58

25

36

21 22

17 14

9

2 0 2

4 4

20

0 3

12

18

11

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

198919901991199219931994199519961997199819992000200120022003200420052006200720082009 e

in %

Nominal GDP Change in Nominal GDP





BDL’s Coincident Indicator


-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

50

70

90

110

130

150

170

190

210

230

250

Ja

n-9

3

Se

p-9

3

Ma

y-9

4

Ja

n-9

5

Se

p-9

5

Ma

y-9

6

Ja

n-9

7

Se

p-9

7

Ma

y-9

8

Ja

n-9

9

Se

p-9

9

Ma

y-0

0

Ja

n-0

1

Se

p-0

1

Ma

y-0

2

Ja

n-0

3

Se

p-0

3

Ma

y-0

4

Ja

n-0

5

Se

p-0

5

Ma

y-0

6

Ja

n-0

7

Se

p-0

7

Ma

y-0

8

Ja

n-0

9

Se

p-0

9

Coincident Indicator Percent Change





External Sector : Lebanon’s exchange and external

payments environment

Main Characteristics:

– Free exchange rate system

• No restrictions on purchases or sales of foreign currencies

• Lebanese Lira is fully convertible and can be exchanges freely with

any other currency (with the exception of one single currency)

– Free movement of capital with no restrictions on flows into or out

of the Lebanese markets.

– Multicurrency system in which foreign currencies circulate in the

market.






Balance of Payment (Net of Valuation Changes)


382.2

30 109 101.8

403.3

-132.2

99.8

-133.5

253.4

1133.1

131.1

400.8

598.1

-169.2

864.3 714.3

1610

-1000

-500

0

500

1000

1500

2000

In M

illio

ns U

SD

Central Bank Banks & Financial Institutions Total





Trade Balance


-488

-536

-556

-654

-582

-539

-463

-530

-501

-446 -529 -684

-655

-699

-823

-885

-1,016

-1200

-1000

-800

-600

-400

-200

0

0

200

400

600

800

1000

1200

1400

1600

In M

illio

ns U

SD

Exports Imports Trade Balance





Imports by regions (2008)


Arab Countries 13%

South East Asia 15%

Other Asian Countries

10% EU 34%

Other European countries

11% North America

(Nafta) 12%

Other South America

3%

African Countries 1%

Oceania 0%

Others 1%





Exports by regions (2008)






Direct Investment





Workers’ Remittances





Compensation of Employees





Gross Reserves Minus Gold






Gold


0

1

2

3

4

5

6

7

8

9

10

0

2000

4000

6000

8000

10000

12000Jan-9

3

No

v-9

3

Sep-9

4

Jul-95

May-9

6

Mar-

97

Jan-9

8

Nov-9

8

Sep-9

9

Jul-00

May-0

1

Mar-

02

Ja

n-0

3

Nov-0

3

Sep-0

4

Jul-05

May-0

6

Mar-

07

Jan-0

8

Nov-0

8

Sep-0

9

in M

illio

ns O

un

ces

in M

illio

ns U

SD

Gold according to national valuation Gold Fine Troy





Fiscal Sector : 2009 Budget Proposal






Fiscal Performance






Fiscal Sector : Debt Record

• The Republic had little public external debt prior to 1975 and,

with one minor exception, has been current on its debt service,

including during the 1975-1990 period of conflict.

• The only instance of arrears was in respect of a debt to the

United States Commodity Credit Corporation, which financed a

sale on concessional terms in 1970. The loan fell into arrears in

April 1986 as the Ministry of Finance, which coordinates

external debt service, was then unaware of its existence due to

loss of records during the conflict period. The loan was not

accelerated. The Ministry of Finance assumed responsibility

for the debt and the arrears (amounting to U.S. $5.5 million in

principal and accrued interest and U.S. $713,000 in late interest)

were cleared in 1995.

• The Republic has never conducted a Paris Club or London

Club rescheduling of its external debt.

Raed H. Charafeddine

Banque du Liban





Domestic and Foreign Debt


5,803 9,348 11,997

17,229 19,787

21,686

25,383

27,161

28,214

25,302

26,843

26,371

29,141

30,204

31,373

39,007

735 1,449

2,145

2,960 3,713

6,283

8,351 10,828

14,467 21,974 23,442

27,711 28,844

30,647 31,977

31,881

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

In b

illio

n L

BP

I. Gross domestic debt II. Gross Foreign debt(2)





Gross Total Debt


6,538

37,989

70,888

50%

71% 78%

99%

98%

109%

132%

151%

166%

168%

168%

167%

176%

180%

168%

160%

40%

60%

80%

100%

120%

140%

160%

180%

200%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

in %

of

GD

P

in B

illi

on

LB

P

Gross total debt Gross Public debt as Percentage of GDP





Composition of Foreign Debt


24,743 26,441 27,099 26,817

3,682 3,787

4,459 4,645 419 419

419 419

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2006 2007 2008

In B

illio

n L

BP

Eurobonds Loans Other debt





Breakdown of Loans


893 932 907 748

0 0 603 1,095 703 714

759 745

1,928 2,026

2,104 2,002 158 115

86 54

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2005 2006 2007 2008

in b

illio

n L

BP

Paris II loans Paris III loans(4)

Bilateral loans (non-Paris II and III) Multilateral loans (non-Paris II and III)

Foreign Private Sector Loans





Breakdown of Eurobonds


18,729 20,399 20,779 20,925

5,608 5,608 5,156 4,708

0 0 754 754

406 434 410 430

0

5,000

10,000

15,000

20,000

25,000

30,000

1 2 3 4

in B

illio

n L

BP

Accrued Interest on Eurobonds

Eurobonds: Of which, Paris III at preferential rates(3)

Eurobonds: Of which, Paris II at preferential rates(2)

Eurobonds





The monetary policy for 2010

In the context of the liquidity surplus, the main targets for the monetary

policy are :

– Controlling Inflation, and

– Limiting speculation

Therefore BDL will be monitoring carefully the impact of the excess

liquidity in the market on the prices of assets & services.

o The inflation target set by BDL for 2010 is 4%, while

o The liquidity made available for credits is 15 Billions USD.







Monetary Aggregates

BDL’s Definition International Definition

M1 Currency in Circulation +

Demand Deposits in LPB

Currency in circulation + Commercial bank demand deposits + NOW (negotiable order of withdrawal) and ATS (automatic transfer from savings) accounts + credit union share drafts +mutual savings bank demand deposits + nonbank travelers checks

M2 M1 + Other deposits in LPB M1 + Overnight repurchase agreements issued by commercial banks + Overnight Eurodollars + Savings accounts + Time deposits under $ 100,000 + Money market mutual funds shares

M3

M2 + Deposits in FX M2 + time deposits over $ 100,000 + term repurchase agreements

M4

Or

L

M3 + TBs held by non

banking system including

accrued interests

M3 and other liquid assets such as: Treasury bills, savings bonds, commercial paper , bankers’ acceptances, Eurodollar holdings of United States residents (nonbank).





Monetary Sector


0

50000

100000

150000

200000

250000

300000

Ja

n-9

5

Ju

l-9

5

Ja

n-9

6

Ju

l-9

6

Ja

n-9

7

Ju

l-9

7

Ja

n-9

8

Ju

l-9

8

Ja

n-9

9

Ju

l-9

9

Ja

n-0

0

Jul-00

Ja

n-0

1

Ju

l-0

1

Jan-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

in B

illi

on

s o

f L

BP

M1 M2 M3 M4






BDL’s View on Banking Policy

Liquidity

Solvency (Capital Gearing)

Profitability






Overview of the Major Banking Regulations

• Setting a ceiling of 60% on bank loans for real estate projects (excluding housing

loans) to avoid a real estate bubble.

• Setting a ceiling of 50% on the value of an equity portfolio with the requirement to

cover losses immediately if the decrease in the portfolio's market value reaches 25%

of its initial value. This protected the Lebanese banking sector from sharp speculation

on stocks as witnessed in many regional and international markets.

• Regulating Bank’s dealing with derivatives and structured products through

Central Council’s prior approval . Restricting the Lebanese banks to deal in

derivatives for their own accounts.

• Forbidding the acquisition of subprime mortgage debt and high risk assets which

triggered the current global crisis.

• Requiring that banks maintain high levels of liquidity 30%.






Overview of the Major Banking Regulations(2)

• Requiring that banks maintain a high capital adequacy ratio, which reached 12%

in 2008.

• Building adequate provisions against Non Performing assets.

• Abiding by international standards on fighting money laundering, good

governance, transparency and capitalization requirements.

• Allowing banks to carry out lending operations depending on their level of capital

adequacy.

• Adopting lending policies that balance between the commercial purpose of the

loan and risk management.

• Prohibiting excessive financial leverage in the Lebanese economy, with credits to

the private sector representing around 3 times the private equity of banks,

while this ratio exceeds 20 and even 40 times in many countries in the world

and in the region.






Overview of the Major Banking Regulations(3)

Consequently, the Lebanese banking sector

o carries no toxic assets in its balance sheet,

o didn't incur any losses similar to those incurred in many

international banks that have excessively invested in shady

financial assets and subprime securities.

o Confidence and good credit reputation of the Lebanese banking

sector are reflected in various positive indicators in 2008 and 2009.



Banking Sector : Total Assets

61,589

70,59573,565

78,855

88,853

101,862

124,457

15%

4%

22%

15%

7%

13%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2003 2004 2005 2006 2007 2008 2009 (P)

in M

illio

ns o

f U

SD

0.000

0.050

0.100

0.150

0.200

0.250

in %

Assets (in millions of U.S. dollars) Assets Growth Rate



Banking Sector : CAR

22.321.2

22.9

25

12.511.8

12.4

0

5

10

15

20

25

30

2003 2004 2005 2006 2007 2008 Jun-09

in %

Capital adequacy ratio 1/ 2/



Banking Sector: Capital to Asset Ratio

6.9 6.8

7.5

9.18.9

7.8

7

0

1

2

3

4

5

6

7

8

9

10

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Capital to asset ratio



Banking Sector: Net Problem Loans

12.8

10.6

9.1

6.8

4.7

3.1

2.2

0

2

4

6

8

10

12

14

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Net problem loans/Net total loans



Banking Sector: Net Problem Loans (2)

46.3 46.149

54.456.9

61

64.4

0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Provisions against problem loans/Problem loans



Banking Sector: Provisions

53.157.3

63.3

72.476.8

85.6

98.4

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Total provisions/Problem loans



Banking Sector: Claims on Government and on BDL

23.2 23.6

25.2

27.9

26.127

24.2

31.3

28.629.9

27

24.7

27.829.3

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Share of claims on government Share of claims on BdL



Banking Sector: ROA and ROE

0.7 0.7 0.7 0.9 1 1.1 1.05

10.9

9.3

11

10.1

12.1

1414.39

0

2

4

6

8

10

12

14

16

2003 2004 2005 2006 2007 2008 2009 (P)

in %

Average return on assets (post tax) Average return on equity (post tax)



Banking Sector: Dollarization Rates

63

70.1

75.977

69.2

73.2

66.2

87 86.4 86.6 87.1 87.5 87.6

84.7

50

55

60

65

70

75

80

85

90

2003 2004 2005 2006 2007 2008 2009 (P)

in %

FC deposits/total deposits FC loans/total loans






USD/LBP Exchange Rate

842.00 879.00

1838.00

1711.00

1647.00

1596.00 1552.00

1527.00 1508.00 1507.50 1507.50

600.00

800.00

1000.00

1200.00

1400.00

1600.00

1800.00

2000.00

MARKET RATE, END OF PERIOD MARKET RATE, PERIOD AVERAGE





Nominal Effective Exchange Rate


100.00

100.27

98.22

90.07

88

90

92

94

96

98

100

102

2005 2006 2007 2008

Nominal Effective Exchange Rate (2005=100): Period Averages





The Real Estate Sector: Supply and Demand

SUPPLY DEMAND

Construction permits grew (+78%) in

2008 and dropped in 2009 (-11%).

Excluding the effect of Dec 2008

rush in registrations, 2009 figures

are reliable.

Mount and North Lebanon’s share is

on the rise since 2007 whereas

Beirut’s share decreased by -5% in

2008 and by -3.5% in 2009

Cement deliveries increased (+7%) in

2008 and (+16%) in 2009 thus actually

fuelling supply

Registered sales soared in 2008

(+58%) and modestly increased in

2009(+4.5%)

2009 Weak performance was caused

by a drop in sales in Jan-May period.

Recovery only started afterwards and

is so far sustained with better figures

than that witnessed in 2008.

Sections and built lots sales are

healthy and improving. Raw lands are

facing either price pressure or

reallocation into cheaper areas or

both.






The Real Estate Sector: Supply and Demand

SUPPLY DEMAND

According to Banque de L’habitat :

• Foreign and Expatriates are active

in the market and their acquisitions are

on the rise since 2007

• Monthly housing loans soared to

almost double in the last quarter of

2009 compared to the historical

average ( 20 Billion LBP/Month vs. 8

Billion LBP/ Month)






BDL’s view on the evolution of the real estate sector


• BDL is confident about the evolution of the real estate sector in

Lebanon

• There is no room for a real estate bubble since speculation is

bounded by the credit ruling i.e. all real estate projects loans

are being granted on a 40% collateral basis and therefore the

financing part is limited to 60% of the total real estate value.

• The increase in prices is driven by a strong demand owing to :

– The correction of agents expectations , especially in the context of

a more stable political and security environment

– Increase of the number of residents in Lebanon

– Improvement of economic conditions



Evolution of Real Estate Loans

in Millions LBP 2008 2009

Growth Rate

E01

Residential

Buildings

803,453

1,293,467 61%

E02

Commercial

Buildings

1,554,528

1,798,167 16%

K01

Real Estate

Services

2,290,239

2,633,715 15%

R02

Personal

Mortgages

2,665,244

4,228,357 59%

7,313,464

9,953,706 36% Source: BDL – Centrale Des Risques



BDL’s New Incentives

in Millions LBP

Total Amount

approved

Balance of

Granted

Credits as of

31/12/20009

Education Loans 105,100 4,565

Other Loans 583,800 421,653

• Commercial Loans in LBP 265,391

• Commercial Loans in FX 13,220

• Non-Subsidized Productive Loans in

LBP 15,087

• First Housing Loans 127,955



BDL’s New Incentives: Balance As of End 2009

Education Loans

1%

Commercial Loans in

FX

3%

Non-Subsidized

Productive Loans in

LBP

4%

Commercial Loans in

LBP

62%

First Housing Loans

30%

Education Loans Commercial Loans in LBPCommercial Loans in FX Non-Subsidized Productive Loans in LBPFirst Housing Loans





Population


2.97 3.05 3.16

3.28 3.39

3.49 3.57 3.63 3.67 3.72 3.77 3.83 3.90 3.97 4.03 4.08 4.13 4.16 4.19

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

in M

illio

ns





USD Interest Rates – End of period


12.19 11.74 11.69

11.3 10.87 11.15

10.14 9.62

8.81

7.98 8.38 8.55

8.02 7.473

7.28

5.46 5.62 5.9 5.67 5.63 6.03

4.21 4 3.43 3.25

4.09 4.76 4.69

3.33 3.05

6.73

6.12 5.79 5.63

5.24 5.12

5.93 5.62

5.38

4.73

4.29

3.79

3.33 4.143 4.23

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In 1

00

bas

is p

oin

ts

in %

Commercial Banks -US$: Discount and Loans (Weighted Average)

Commercial Banks -US$: Average Rate on Deposits (Weighted Average)

Spread





LBP Interest Rates


28.99

24.68

20.28 20.04 18.38 17.94

16.76 16.1

11.32 10.48 10.12 10.37 10.1 9.95 9.04

17.12

14.69 12.97 12.61

11.3 10.44 10.15 9.83 7.79 7.01 7.7 7.49 7.4 7.22 6.75

11.87

9.99

7.31 7.43 7.08

7.5

6.61 6.27

3.53 3.47

2.42 2.88 2.7 2.73

2.29

0

2

4

6

8

10

12

14

0

5

10

15

20

25

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

in 1

00

basis

po

ints

in %

Commercial Banks -LBP: Discount and Loans (Weighted Average)

Commercial Banks -LBP: Average Rate on Deposits (Weighted average)

Spread





Currency Spread


17.12

14.69

12.97 12.61

11.3 10.44 10.15 9.83

7.79 7.01

7.7 7.49 7.4 7.22 6.75

5.46 5.62 5.9 5.67 5.63 6.03

4.21 4 3.43 3.25

4.09 4.76 4.69

3.33 3.05

11.66

9.07

7.07 6.94

5.67

4.41

5.94 5.83

4.36 3.76 3.61

2.73 2.71

3.89 3.7

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

16

18

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

in 1

00

basis

po

ints

in %

Commercial Banks -LBP: Average Rate on Deposits (Weighted average)

Commercial Banks -US$: Average Rate on Deposits (Weighted Average)

Currency Spread





Repo Rates


30

25

20

12 10

0

5

10

15

20

25

30

35

Dec-9

7

Jul-98

Fe

b-9

9

Sep

-99

Apr-

00

Nov-0

0

Jun-0

1

Jan-0

2

Aug

-02

Mar-

03

Oct-

03

Ma

y-0

4

Dec-0

4

Jul-05

Fe

b-0

6

Sep

-06

Apr-

07

Nov-0

7

Jun-0

8

Jan-0

9

Aug

-09

In %





LB TBs Yields


0

5

10

15

20

25

30

35

40Jan-9

0

Nov-9

0

Sep-9

1

Jul-92

May-9

3

Mar-

94

Jan-9

5

Nov-9

5

Sep-9

6

Jul-97

May-9

8

Mar-

99

Jan-0

0

Nov-0

0

Sep-0

1

Jul-02

May-0

3

Mar-

04

Jan-0

5

Nov-0

5

Sep-0

6

Jul-07

May-0

8

Mar-

09

In %

Treasury Bills - 3 months Treasury Bills - 6 months

Treasury Bills - 12 months Treasury Bills - 24 months





Consumer Price Index





Credit Default Swap





Investments Opportunities in Lebanon

1. Tourism The industry has the potential to grow since :

Historical Natural Sites are only paralleled by Egypt in the region

Hotels Occupancy rates increased from 25-35 % in 2005-2006 to 85-95% in 2009

Touristic Services Capacities should be increased to accommodate with the increasing Demand (for eg. Hotels, Tour Operators etc…)

2. Medical Tourism Lebanon used to play the role of the “Medical Center” of the Middle East

owing to the superior quality of its services and the higher qualification of its Human Ressources.

Hospitalization sector, Dentistry, Laboratory, Para-medical services and more sophisticated surgeries can be developed given the continued attractiveness of the sector to regional users as these specialized services remains under-developed in the area.

Lebanese market has a competitive edge in terms of cost effectiveness. Medical packages are offered at an attractive price to quality proportion






3. Education • Mainly academic with over 40 Universities and Academic Institutions, some of them

with over 100 years of experience covering a broad spectrum of specialization

• Limited technical education, which represents a scope for new technical colleges to train people in much needed vocations

4. Financial Sector • Traditional banking is recognized to be among the best in the world

• Monetary sector is well developed and the volume of its assets runs 3.5 times GDP at a time where the international benchmark is at 1-1.5 times GDP.

• Existence of a niche of specialized institutions which offers Investment Banking services : Corporate Debt Structuring and Re-structuring, M&A, IPOs, Venture Capitalist, Private Equity Institutions.

• Insurers and Reinsurers should cater for attractive opportunities in the markets which are in the scope of activity for the traditional Lebanese banks ( Egypt, Jordan, Syria, Iraq, Turkey …) as well as all Western Africa without the hindrance that is encountered by the US Institutions such as the Credit rating and its impact on the solvency of these institutions.

• Lebanese Banks handle it in a smart way by inviting local participation to overcome this constraint.






5. Other Services • Stock exchange is one area which need support (possibly from the SEC in NY)

since it is grossly underdeveloped

• Software development and design: Murex, a single enterprise, has been very successful in serving international financial institutions.

• Nascent experiment in developing the software service for a technology incubator : Berytech, which is helping several young companies to address opportunities which are not yet properly tapped.

6. Energy • Shortage of electricity production

• We are looking for new technologies with efficient and clean energy resources. The central bank issued a circular which encourages the lending to the environmental-friendly projects in Lebanon. Major focus in the implementation of the new measures and policies undertaken by the central bank.

7. Real Estate • Real Estate remains lucrative.

• Prices adjusted to their historical rates after a period of stagnation

• Sector prospects remains promising

Overview of the Lebanese Economy -...

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