Lebanese banks have been performing well as most pass Basel III requirements. The Association of Banks in Lebanon outlines the plan to continue on a steady route of growth and expansion in this article.

The banks operating in Lebanon continued in 2013 to play a vital role in reviving the domestic economy through the provisioning of a major part of the financial needs necessary for stimulating growth. Banks lent the private and public sectors with needed and sufficient amounts of money and provided the government with an important part of its revenue by paying their due taxes. They also created job opportunities for the Lebanese youth and continued to raise the standards of banking performance by improving the capabilities and skills of human resources. It is also necessary to mention that university graduates represent, at this stage, over 73% of the sector's labor force.

As far as banking structure is concerned, the number of banks operating in Lebanon reached 73 at the end of 2013, distributed among 56 commercial banks and 17 investment banks. Lebanon has a high bancarization rate, as there is one bank branch for every 5,000 people.

In the framework of historical openness to the world, there are 14 branches for Arab and foreign commercial banks operating in Lebanon. In addition, there are 11 foreign banks operating in Lebanon owning major shares in large and deep-rooted Lebanese banks with Lebanese management, along with 10 representative offices of foreign banks. Banks operating in Lebanon also deal with more than 228 correspondent banks spread in 88 cities around the world to facilitate international financial transactions.

The Lebanese banks developed a wide external expansion network relative to their activities and in the form of various legal entities from representative offices and wholly owned branches, to associate, subsidiary, and sister banks. Thus, according to the latest available data, there are 17 Lebanese banks representing around 86% of the sector spread worldwide in 31 countries covering important Arab markets such as Syria, Jordan, Iraq, Egypt, Sudan, Algeria, Saudi Arabia, the UAE, Bahrain, Qatar, Oman, and other important regional economic markets such as Turkey. Additionally, Lebanese banks have expanded in the European continent starting with Switzerland, France, the UK, Germany, Luxembourg, Monaco, and passing through Romania, Belarus, Armenia, Belgium, and Cyprus. Lebanese banks have also expanded toward the American continent (Canada), and also Africa (Ivory Coast, Nigeria, Congo, Senegal), and finally Australia.

Banks continued coordination with the concerned monetary and governmental authorities in 2013 to develop systems and legislation capable of improving the banking profession and to present their views on proposals and laws related to financial and banking matters. Given that banks are involved in global matters and concerned about safeguarding the reputation of the banking sector, they are committed to the application of international standards, including those on combating money laundering and terrorist financing. The Banque du Liban (BDL) and banks operating in Lebanon continue the efforts they started years ago to fight money laundering and terrorist financing and to help align Lebanon with international standards. During the last few years, these efforts increased, particularly with the strict application of sanctions imposed by the US and the EU on Syria and Iran.

At the end of 2013, the total assets of commercial banks operating in Lebanon reached around $164.8 billion in comparison to $151.9 billion in 2012. Hence, total assets rose by a significant amount of 8.5% in 2013 compared to an increase of 8% in 2012.

Lebanese banks enjoy a strong fixed deposit base that represents the main source of funds to commercial banks operating in Lebanon. Total deposits represented 84.5% of the total assets by the end of 2013, making the banks part of what is known as Deposit-Rich-Banks, or banks that rely to a great extent on deposits to finance placements. At the end of 2013, the total value of deposits, which includes the deposits of the resident and non-resident private sectors and deposits of the public sector, reached more than $139.2 billion. This reflects an increase of 9% in 2013, slightly exceeding its rate of increase of 8.5% in 2012. The share of the resident private sector reached 77.4% of the total value of deposits, while the share of the non-resident private sector represented 20.5%, and that of the public sector 2.1% in 2013.

In 2013, bank loans to the resident and non-resident private sectors continued to increase, reaching an average of $47.4 billion at the end of the year, against $43.5 billion at the end of 2012. The increase that happened at a slower pace of 9% in 2013 in comparison to 10.4% in 2012 remains good and acceptable due to the low rate of economic growth in the country. Furthermore, loans granted to the non-resident private sector, of which a large part is related to the financing of projects for Lebanese businesses abroad, particularly in Arab and African countries, represented 12.4% of the total of loans granted to the private sector at the end of 2013. Loans granted to the resident and non-resident private sectors represented the equivalent of 105% of GDP (according to estimations) at the end of 2013; hence, a considerably high ratio compared to many emerging countries. This relatively high ratio in Lebanon resulted, on the one hand, from the enormity of private demand, a large part of which is financed by loans to individuals and corporations, for investments and particularly consumption. On the other hand, it resulted from the low capital of the corporate sector, its weak capacity for self-financing, and its excessive reliability on banks' financing, in the absence of stocks and bonds markets in Lebanon.

The Lebanese banking sector's high liquidity, whether in LBP or foreign currencies, keeps the liquidity risk under control. Maintaining a minimum level of liquidity in LBP and particularly in foreign currencies has been a strategy adopted by banks for many years, in order to boost and safeguard confidence in the banking sector, on the one hand, and to deal with the adverse changes that may suddenly occur, on the other. This strategy has proven its efficiency in overcoming many crises, strengthening confidence in the sector and in contributing to monetary stability. At the end of 2013, the ratio of overall liquidity in LBP and foreign currencies, i.e. reserves and portfolio of Treasury bills in LBP and foreign currencies of less than one-year maturity and foreign assets, excluding claims on the non-resident private sector, reached over 56% of total deposits and other liabilities, which is the highest in the region, against over 58% at the end of 2012. Moreover, the ratio of primary liquidity in foreign currencies (deposits at BDL and banks abroad) reached around 44% of total deposits and other liabilities in these currencies, knowing that such a level is necessary for good management of deposits in foreign currencies, in the absence of lender of last resort.

The banking sector is characterized by a high solvency ratio, in compliance with Basel standards, and conformity with the best practices and criteria adopted in the banking industry worldwide. According to the monetary and supervisory authorities' latest available statistics, the solvency ratio of total capital/risk weighted assets was around 12.2% at the end of 2013, well above the required minimum level of 10.5% based on Basel III. The leverage ratio (Tier I to non-risk adjusted assets) reached 7%, which is considered good compared to a suggested minimum of 3% in Basel III. The regulatory authorities in Lebanon are following banks to enhance their capitalization by imposing minimum levels for capital ratios exceeding the ones imposed by Basel III and there is a time frame to comply with the new capital ratios. This means reaching 8% at the end of 2015 for common shares, 10.5 % for Tier I capital, and 12% for total capital. Furthermore, the banking sector worked in tandem with international measures and procedures that were recently raised to boost the level of quality and transparency in the capital base and enhance the level of risk coverage and controlling the excess borrowing, or the ratio of debt to bank capital.

According to the monetary authorities, the Lebanese banking sector would not face difficulties related to the implementation of Basel III. The BDL issued intermediary circular No. 282, where it requested that banks reach a ratio of 12% of total core capital/total assets at the end of 2015, knowing that the deadline set by Basel III to reach a ratio of 10.5% is the year 2019. The monetary authorities believe that these ratios will be reached through retaining part of the profits in capital and through the issuance of shares leading to the strengthening of core capital, as was the case recently.