Rebuilding Lebanon’s Banking Sector – A POST WAR SUCCESS STORY Najib Choucair Executive Director – Banking Department July 2017

Post Civil War Context & Need for Action 1993 – Lebanese economy emerging from civil war Beirut no longer ME’s financial hub Economy struggling - massive investment needed Lack of trust in banking sector and LBP Banking sector small and not intermediating funds BDL’s MISSION: Rebuild confidence in the banking sector and attract funds to finance GoL & private sector investment needs

BDL’s Strategy 4 Pillars to strengthen & develop the banking sector An effective regulation to rebuild confidence & trust Stable exchange rate has proved to be key in the stability of the financial system Establish an efficient financial infrastructure to improve risk management in order to promote a sound and active banking system -- the bedrock of financial system Use innovative means to incentivize growth & extend reach to support all segments of the economy, including MSMEs

BDL’s Effective Regulation Rebuilt Confidence & Attracted Deposits Supporting regulations for the MERGERS AND ACQUISITIONS OF BANKS Setting CORPORATE GOVERNANCE RULES according to international standards. IMPOSING CAPITAL REQUIREMENTS AND LIQUIDITY RATIOS (in compliance with Basel II, and recently with Basel III). Supporting the ENACTMENT OF THE ANTI-MONEY LAUNDERING LAW (Law n.318/2001) and regulating the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing with a role in fighting corruption.

BDL’s Effective Regulation Rebuilt Confidence & Attracted Deposits Consumer Protection CIRCULAR #124 Compliance CIRCULAR #128 Credit Concentration CIRCULAR #48

Preserving a sound banking sector Stable exchange rate has proved to be key in the stability of the financial system by: Maintaining low rates of inflation Preserving a sound banking sector Boosting the central bank’s foreign reserves Reinforcing Lebanon’s credibility in on the international capital markets scene

Establish An Efficient Financial Infrastructure To Improve Risk Management In Order To Promote A Sound And Active Banking System UPDATING THE PAYMENT SYSTEMS: Regulating CREDIT CARDS, E-PAYMENTS AND E-BANKING. Establishing RTGS and CLEAR systems. Meets INTERNATIONAL STANDARDS & BEST PRACTICES. Enhances SPEED OF MOVEMENT OF MONEY within the national economy, enabling optimum utilization of financial resources. Helps Banks and Financial Institutions to better MANAGE CASH AND REDUCE LIQUIDITY RISK while providing timely and accurate data and statistics to support monetary policy.

Establish An Efficient Financial Infrastructure To Improve Risk Management In Order To Promote A Sound And Active Banking System ENHANCING THE CAPITAL MARKETS: Regulating dealing with foreign financial sectors and avoiding the circulation of highly risky products in the Lebanese markets. Encouraging and regulating the establishment of Financial Institutions and Brokerage Firms. Playing an essential role in the establishment of the Capital Markets Authority (CMA).

Establish An Efficient Financial Infrastructure To Improve Risk Management In Order To Promote A Sound And Active Banking System THE UNPAID CHECKS REGISTRY TO IDENTIFY OFFENDERS ESTABLISHED IN (1996) – has grown from zero to 303,386 of records Names of clients with unpaid checks transmitted to banks to exclude such clients from these payment forms. Helps banks assess client risk by giving lender insight into how clients manage their finances. Returned Checks dropped from more 10% of checks in circulation to less than 2%.

Establish An Efficient Financial Infrastructure To Improve Risk Management In Order To Promote A Sound And Active Banking System The development of the CREDIT REGISTRY to track payment history, improve transparency & assess indebtedness of firms & individuals – now covers 90% of total private debt Established in 1964 and restructured in 2000 provides both positive and negative information which helps to improve the quantity and quality of credit information ALLOWS LENDERS TO: make better-informed assessments, reduce credit risk, Reduce processing time and costs. The result is a more effective and efficient distribution of credit within the domestic system.

SUPPORTING NEW EFFORTS Establish An Efficient Financial Infrastructure To Improve Risk Management In Order To Promote A Sound And Active Banking System SUPPORTING NEW EFFORTS including a COLLATERAL REGISTRY for movable property, bringing MICROFINANCE under Credit Registry to prevent cross lending in this sector.

Use Innovative Means To Incentivize Growth And Increase Access To Finance To Support All Segments Of The Economy, Including MSMEs. Subsidizing loans in several fields (environment, industry…) with sometimes reducing the bank’s reserves requirements when such loans are granted. Granting low (or no) interest loans to banks to be used to boost various sectors (housing, start-ups, knowledge economy…). Subsidizing interest to offset crowding out effect of high interest rate environment due to high Government debt. Giving loans at attractive prices to facilitate increased lending like Student loans, Green loans, and Micro-Credit to reach the smallest borrowers.

Total Clients Declared to the Credit Registry

Total Lending to the Private Sector

Better Risk Management & Growth Dramatically Reduce Sector’s NPLs

Better Risk Management & Growth Dramatically Reduce Sector’s NPLs

Strong Capital Growth Resulting in CAR for Sector of 16.64%

Thank You