Banking and
Finance

QUICK NUMBERS

1507.5


US$ vs. LBP mid
1507.5


USD vs. LBP mid
1507.5


US$ vs. LBP mid
1507.5


US$ vs. LBP mid
1507.5


US$ vs. LBP mid
1507.5


US$ vs. LBP mid
 

History

After the first World War and under the French mandate, the banking system in Lebanon was dominated by the presence of branches of foreign institutions. These foreign banks focused on the financing of Lebanon's foreign trade, leaving the domestic financing to local banks whose capital was limited and scope of activities restricted to the region of their establishment. They mainly engaged in discounting of short term bills of exchange, provided collateral loans and advances against goods or in the form of current accounts, and engaged in foreign exchange trading. They also accepted deposit.On the other hand, local banks greatly relied on the receipt of deposits offering higher deposit rates of interest. However, a great proportion of funds were retained with foreign banks abroad. Local banks also provided advances in the form of current accounts and discounting of local bills of exchange, and engaged in foreign exchange operations. Discount houses also existed and their main operations revolved around discounting and rediscounting commercial paper which were not accepted by banks. However, unlike local commercial banks, they relied on their own funds to finance their activities. In addition, a large number of money lenders were widely spread granting commercial, agricultural, and consumption loans against high interest rates.

 

The main foreign banks included four French banks -- the Banque de Syrie et du Liban (the banking department, known as of 1963 as the Societe Nouvelle de Syrie et du Liban), the Crédit Foncier D'Algérie et de Tunisie which was the most important investment bank (currently known as Fransabank), Banque Nationale pour le Commerce et l'Industrie (currently known as the Banque Nationale de Paris Intercontinentale), the Companie Algérienne (currently known as the Banque Libano-Francaise)-- and one Italian bank-- Banco di Roma. Two important domestic commercial banks -- Banque Misr-Syrie-Liban (currently known as Banque Misr-Liban), and Banque Tohmé (liquidated)-- also existed.

 

Starting with the independence of Lebanon in 1943 and continuing with the establishment of the Banque du Liban in 1964, the banking system in Lebanon prospered. The pronounced difference between foreign and domestic Lebanese banks had been relatively reduced as the former no longer greatly monopolized the foreign financing of Lebanon, contributed to its domestic financing, and began competing for local deposits. In fact, the Lebanese banking system witnessed the entry of 13 foreign banks -- Arab Bank Ltd. (Jordan), British Bank of the Middle East (Great Britain), Rafidain Bank (Iraq), Saudi National Commercial Bank (Saudi Arabia), Algemene Bank Nederland (Netherlands), Chase Manhattan (USA), The First National City Bank (USA), The Eastern Bank Ltd (Great Britain), Jordan National Bank (Jordan), Societe Tunisienne de Banque (Tunisia), Moscow Narodny Bank Ltd. (Great Britain), The Bank of America (USA), Habib Bank Overseas Ltd. (Pakistan)-- and more than 40 Lebanese banks of which the Eastern Commercial Bank (currently known as the Banque de la Mediterrannee), Banque Libanaise pour le Commerce, Banque Sabbagh, Banque G. Trade (currently known as Credit Lyonnais), Banque du Liban et D'Outre Mer, Intra Bank, Federal Bank of Lebanon, Banque Belgo-Libanaise (currently known as Societe General Libano-Europeene de Banques), Banque Saradar, Bank of Beirut and the Arab Countries, Banque Joseph Lati et fils, Beirut Ryad Bank, Banque Pharaon et Chiha, Mebco Bank, Byblos Bank, Credit Libanais, Banque Beyrouth pour Le Commerce, Banque Audi, Bank of Kuwait and the Arab World, Banque Geagea, Banque du Credit populaire, Adcom Bank, Rif Bank, and Beirut Universal Bank.

 

In the period prior to the establishment of the Banque du Liban, banks operating in Lebanon were classified by the Ministry of Finance into three categories. The above mentioned approved banks whose guarantees were accepted by the Lebanese government, non-approved banks whose guarantees were not accepted, and discount houses. Since 1964, and by virtue of the Code of Money and Credit, a list of banks operating in Lebanon has been issued by BDL in January of every year.

 

Prior to that year, the Lebanese banking system was characterized by the absence of specific banking regulations and supervision. Banks merely abided by the Code of Commerce which regulated commercial business, with the exception of the Bank Secrecy Law enacted in 1956. Regulations, supervision, and control were only introduced with the enactment of the Code of Money and Credit and the establishment of BDL which was granted regulatory and supervisory authority over the banking system as part of its function to safeguard its soundness.

 

Main Characteristics

The Lebanese banking system is endowed with several characteristics that promote the role of Beirut as a regional financial center, in terms of ensuring protection for foreign capital and earnings.

 

FREE EXCHANGE SYSTEM AND FREE MOVEMENT OF CAPITAL AND EARNINGS

The Lebanese currency is fully convertible and can be exchanged freely with any other currency. Moreover, no restrictions are put on the free flow of capital and earnings into and out of the Lebanese economy.

 

THE BANKING SECRECY LAW

The passing of the banking secrecy law in September 3rd 1956, subjected all banks established in Lebanon as well as foreign banks' branches to the "secret of the profession".

All banks managers and employees who are exposed to the banks activities, cannot reveal what they know concerning their clients names, assets or holdings to any party whatsoever whether individuals or public authority, be it administrative, military or judicial. Such information is released only when granted written authorization by the client or his/her heirs, in case of bankruptcy, or in case of any litigation between the bank and the client.

The law however, in order to ensure the security of banks' investments, allows for mutual communication among banks, and under the provision of bank secrecy, of information related to the debtor accounts of their clients.

Moreover, in case of request presented by the judiciary authorities for cases of illicit accumulation of wealth, banks cannot refrain from revealing the necessary information.

 

INCOME TAX

According to the Income Tax Act (Legislative Decree No. 144/59 and its amendments) the following shall be subject to an income tax at the rate of five percent (5%):
 
  1. Interests, revenues and income from all credit accounts opened in banks, including savings accounts, except for accounts opened in the name of the government, the municipalities, the public institutions, the diplomatic missions and foreign consulates in Lebanon.
  2. Interests and revenues from deposits and other bank liabilities in any currency, including those belonging to non-residents.
  3. Interests, income and revenues from fiduciary and portfolio management accounts.
  4. Revenues and interests from certificates of deposit issued by all banks and debt securities issued by joint-stock companies.
  5. Interests and revenues from Lebanese Treasury bonds
 

 

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.

 

OPENING OF 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.
  • 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.

 

MONEY LAUNDERING

Lebanon has been aware of the necessity to combat money laundering particularly because the banking secrecy law could be used as a means for such illegal operations. Due to this and with respect to the banking secrecy law, the Association of Banks in Lebanon(ABL) set a Due Diligence Convention which was signed by the member banks. This convention aims to prevent money laundering operations. Lately, the Lebanese banks association issued new due diligence measures to be applied by banks.