SPURRING INCLUSIVE GROWTH

Lebanon 2018 | FINANCE | INTERVIEW

TBY talks to Riad T. Salamé, Governor of Banque Du Liban (BDL), on incentivizing the private sector, investing in the equity of innovative startups, and innovative technological payment system breakthroughs.

Riad T. Salamé
BIOGRAPHY
Born in 1950, Riad T. Salamé graduated with a degree in economics from the American University of Beirut. He has been the Governor of Banque du Liban (BDL) since 1993, having been reappointed for three consecutive terms in 1999, 2005, and 2011. In this capacity, he chairs the BDL Central Council, the Higher Banking Commission, the AML/CFT Special Investigation Commission, and the Capital Markets Authority. Additionally, he is member of the Board of Governors at the IMF and the Arab Monetary Fund (AMF). In 2012, he chaired the IMF and World Bank Boards of Governors held in Tokyo. In his earlier career, he acquired experience at Merrill Lynch in Beirut and Paris between 1973 and 1985, and from 1985 to 1993 was Vice-President and Financial Advisor.

What is BDL's role in spurring continued economic growth?

BDL is not only devoted to ensuring the soundness of the banking sector, but is equally dedicated to fostering economic and social stability. It has taken a leading role in stimulating the Lebanese economy through promoting growth and employment. To secure adequate financing in the economy, the BDL has long resorted to unconventional monetary policy tools by providing incentives to the private sector offered through banks. These have played a key role in boosting and supporting the numerous segments of the Lebanese economy: fostering traditional sectors through productive loans; developing human capital and entrepreneurship through education, research and development, and knowledge and innovation loans; reinforcing the middle class through housing loans; and preserving the environment through green incentives. The importance of these catalysts lies in their sizable contribution to real GDP, and their momentum in job creation. The BDL has also been focusing on developing Lebanon's highly qualified human capital, which is apt to effectively turn innovative ideas into successful businesses by creating room for new employment opportunities, expanding the country's GDP, and ensuring sustainable development. With the issuance of Intermediate Circular 331 in 2013, the BDL has enabled Lebanese banks to invest in the equity of innovative startups, boosting job creation, and increasing national wealth. The BDL expects this sector to grow strongly in the coming years, which will ultimately create inclusive growth in Lebanon.

What is the state of market liquidity and capital adequacy, and how will they evolve in 2018?

BDL has developed proper strategies to keep liquidity adequate in the Lebanese economy. Banks are enjoying high levels of liquidity that enable commercial banks to finance the government and private sector needs while maintaining a stable interest rate structure. In terms of capitalization, Lebanese banks' capital-adequacy ratios are reasonably high by international standards. In fact, Lebanese banks are exceeding the required ratios as stated by Basel III: the capital adequacy ratio in the Lebanese banking sector is currently 15.77%. BDL has been keen to reinforce banks' capitalization in a way that enables banking institutions to pursue their lending activities. According to international banking regulations, the lending limit of a bank is closely correlated to its capital.

What effects do banks' exposure to sovereign debt has on the overall Lebanese economy?

This is not a cause for concern. As we have already mentioned, liquidity to fund the economy remains available, and the banking sector is apt to respond to the needs of the private and public sectors alike. We are still witnessing surpluses in the auctions of treasury bills and in Eurobonds, a testament to the market's confidence in the Lebanese pound and the bills themselves. Moreover, lending to the private sector is currently twice that of the public sector, an indicator of a healthy banking sector. Private sector deposits are still on an upward trend, in addition to total banking activity. The Lebanese economy remains resilient and continues to grow year-on-year. Even if we are below our desired growth rates, we remain optimistic about the Lebanese economy's prospects of persevering and grow further this year.

What does the new “Lebanon National Payment System" consist of, and what other technological advancements has BDL been part of in the past year?

The core infrastructural elements of the Lebanese National Payment System are threefold: The first is the Real-Time Gross Settlement System, or BDL-RTGS, which offers a secure, reliable, and real-time method of payment that adheres to international standards and was successfully implemented in July 2012. It currently includes more than 70 participants, comprising all the banks operating in Lebanon, and any transaction settled on the BDL-RTGS is final and irrevocable. The second component is the automated Retail Payment & Clearing System (BDL-CLEAR) for clearing retail payments, including checks, direct debits, and card transactions. The third is the payment system for government transactions (BDL-PayGov), which will be operational later this year.