Salameh attends Financial Times 'Lebanese Banking Forum' in London

Tue 14 Nov 2017 at 16:52 Economy

NNA - Central Bank Governor, Riad Salameh, met in London with an important number of assets and funds' managers, as well as with managers of foreign banks.

Discussions focused on the financial and economic situation. Emphasis was put on the soundness of the Lebanese pound, BDL high reserves, and particularly the undervalued Lebanese Eurobonds as a result of a thin transaction volume. Besides, it was stated that political tensions were tempered, after Prime Minister Hariri announced that he will return to Lebanon in a few days, and that Banque du Liban has the full capacities to closely follow up the market situation.

Attending the Financial Times "Lebanese Banking Forum" held in cooperation with the Association of Banks in Lebanon, Governor Salameh said in his delivered speech: "Lebanon is going through a political crisis, not a monetary crisis. Evidently, the market in Lebanon is sensitive to this political crisis and to the Government's resignation.

On the domestic and international levels, the President of the Republic has been conducting fruitful discussions that have helped moderate the local political reactions and obtain international backing to Lebanon's stability. Statements were issued by the United States, the European Union, France, and Great Britain, backing Lebanon's stability. These supportive positions had their positive impact. They confined the crisis to its realistic boundaries.
Banque du Liban wants to confirm its willingness and capacity to maintain the stability of the Lebanese pound against the dollar. This stability is beneficial to both the economy and the social stability. The foreign assets of Lebanon, whether held by Banque du Liban or the banking sector, are ample, and our policy of stability is firm.

In the week that followed the resignation of Prime Minister Saad Hariri, the exchange market in Lebanon witnessed normal and expected conversions from Lebanese pound to dollar. However, the amount of daily conversions decreased progressively throughout the week.

In 2016 and 2017, Banque du Liban conducted preemptive financial engineering and financial operations, in anticipation of hard times. As a fact, BDL sets its monetary policy on the basis of financial and economic indicators, but also on the reality of Lebanon where political and security risks are as important as these indicators. These preemptive operations have increased our foreign holdings. BDL foreign-currency-denominated holdings exceed $43 billion, enabling the Central Bank to maintain absolute control over exchange markets.
Last week's increase in yields on Lebanese Republic bonds was overdone. Yields and certificates of deposits moved on thin trading. We consider the prices of these Eurobonds to be undervalued and those of CDs to be excessive.

The Ministry of Finance and Banque du Liban have agreed, previous to the current political crisis and before the IMF and World Bank mid-October meetings in Washington, to proceed to a swap operation whereby the Government will launch a $1.750 billion worth Eurobond issue. The Central Bank will pay for these bonds by transferring LBP-denominated bonds held in its portfolio to the Ministry of Finance. We have already informed the IMF in October in Washington about this operation. That is why the Ministry of Finance has reimbursed in cash the bonds due in October, without issuing to the markets bonds in replacement. Therefore, no Eurobond issue to the markets was projected or will be initiated for this year-end.

The banking sector in Lebanon is well capitalized. The financial engineering of 2016 enabled the banks to constitute the funds needed to meet IFRS 9, to reach a solvency ratio of 15% according to Basle 3, and more particularly to build general reserves. Indeed, BDL required from the 33 banks which participated in the 2016 financial engineering to keep within their capital the returns generated by this operation. The banks are and will remain well provided to meet credit risk in the eventuality of an economic slowdown.

On the other hand, the financial operations of 2017, which are still open, will enable banks to pay higher interest rates to depositors, whether to face the country risk or to face the worldwide rising interest environment, while maintaining their profitability.

Prior to Prime Minister Hariri's resignation, the indicators that we follow were positive: a 6% increase in deposits, a balance of payments in equilibrium, BDL's foreign assets at a record level, a 2.5% growth rate, and a 3% inflation rate.

Lebanon has developed an efficient compliance system. The existing legal and regulatory framework allows us to comply with international laws, as well as with the laws issued by specific countries when we deal in their currency or with their banks. BDL has developed an adequate system for the implementation of sanction laws. This system preserves Lebanon's integration in the financial globalization and insures fairness among Lebanese. New sanction laws will not require extra measures. We will comply with them.

In its recent history, Lebanon has weathered serious political and security crises. You know all about them. Those crises have exposed our financial sector to live stress tests, not to hypothetical ones. But our system proved to be resilient, and will prove it again."


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