Post-Crisis Banking Regulation in Lebanon

Lebanon's once steadily growing banking system faced a crisis late last year. The problems that began in the macroeconomic sphere were gradually transferred to the country's banking sector. 

In this article, we offer a brief overview of the country's post-crisis banking sector. For entrepreneurs who are planning to obtain a financial license in Lebanon or want to provide financial services in Lebanon, reading this material is highly recommended.

Key regulators

The Central Bank of Lebanon (BDL) is the main supervisor of the banking sector and is primarily responsible for governing banks operating in Lebanon. For many years, the Central Bank, with its rather conservative methods of regulation, has ensured the relative stability of the country's banking system. Bank deposits grew, including due to deposits from the Lebanese diaspora around the world. Compared to other countries of the Middle East and North Africa, Lebanese banks showed stable dynamics both in terms of the growth of the deposit base and in terms of lending to the national economy.

The Lebanese regulator systematically introduced international approaches in the field of banking regulation in terms of assessing capital provision, which include, first of all, the implementation of the Basel I-III principles.

There is also The Higher Banking Instance, which is a judicial body and is responsible for applying administrative sanctions against banks that do not comply with applicable laws and regulations, ranging from a simple warning to being excluded from the official list of authorized banks.

Banks under the umbrella of the association

The country has a well-organized, functioning, and authoritative Association of Lebanese Banks. It unites financial institutions licensed by BDL and actively protects the corporate and professional interests of banks, takes an active part in the development and implementation of the necessary legislative framework and in solving issues of concern to the banking sector.

Facing crisis

If you are planning to provide financial services in Lebanon, then you need to raise awareness of the situation in a country that entered a crisis phase at the end of 2019. The trigger was the mass protests of the population in response to the government's announced measures to increase taxes and cut government spending. Against this background, in the political sphere, the population is dissatisfied with the high level of corruption, a significant gap in the quality of life between the economic elite and ordinary citizens. The situation was aggravated by a crisis of confidence in the financial system. There was a so-called "flight" from deposits, which provoked a liquidity crisis in banks. At this point, given the importance of maintaining a well-capitalized, high-paying banking sector, BDL has taken a number of regulatory measures to ensure that banks maintain capital adequacy levels. The situation has stabilized, but it is worth starting a financial business in Lebanon with caution.

AML / CFT copmliance

Compliance with the AML / CFT policy is mandatory for anyone providing financial services or products in Lebanon. To investigate and suppress suspicious cases and actions, the AML / CFT Compliance Commission has been established, which operates under the supervision of the Central Bank, and is chaired by the Governor. The Commission has the power to impose sanctions, including heavy fines and even imprisonment on violators.

Acquisition of shares in a financial institution in Lebanon by a foreigner 

There are no restrictions on foreign ownership of banks in Lebanon. However, the Lebanese Commercial Code requires that the majority of the board members of joint-stock companies be Lebanese citizens, and therefore this requirement must be reflected in the board of directors of the bank.

All bank shares must be in par.

Submission of documents for the acquisition of a stake in a Lebanese bank 

To purchase shares in a bank in Lebanon, you must submit an application to the Central Council with a detailed description of all elements of the acquisition. The purchase requires regulatory approval. This application must contain contractual documents consistent with the proposed transfer of shares. The length of the process depends on the level of control requested by the issuer.

The approval of bids by foreign buying companies is likely to take longer than if they were local companies.