What is the Role of Banque du Liban and its Governor in the Lebanese Financial Stability?

Banque du Liban, better known as BDL, is Lebanon’s central bank and Riyad Salame is the current Governor of it. In 2005, Salame was entitled as the best central bank Governor in the Middle East by Europe’s leading business magazine ‘Euromoney’, for his appreciable performance in stabilizing the economy of Lebanon.

According to Dr. Salame, the financial model of Lebanon is so powerful that it can withstand any form of financial crisis. The following principles are the basis of this financial model-

Stability of currency: Since the past fifteen years, the currency of Lebanon (called Lebanese Pound) has been completely stable in spite of some political and social unrest.

Rapid growth of banks: The sound growth of banking sectors resulted in the extension of credit confidently.

Strict monitoring: The strict monitoring ensured the transparency in banking sector and enhanced the public trust. For this reason, the deposits in the Lebanese banks are currently worth of more than three times than the local economy.

Payment by the state: The Government paid back the debts which in turn, increased the credibility of Lebanon in the global market.

Salame said that they limited the range of credit that a bank could provide of their deposit. They fixed the limit up to 70% but international banks exceeded 100% of their deposits. Adding to that, dependence on interbank was lesser in Lebanon than in other foreign countries.

He noticed that bankruptcy could affect the global financial system negatively as it reduced the credibility of the banking sectors in global market. The price hike of oil collapsed the financial leverages. As a result, jobs and assets of countless people throughout the world were lost. He suggested a possible solution could be to extend the credit in stead of just mere speculation.

Dr. Salame stated, “There are problems in the Lebanese economy, yet its financial system has grown significantly and has been able to withstand the financial crisis.”

The problem of Lebanese economy was the rapid growth of public debt. Security was also another important factor. Having these drawbacks, Lebanon succeeded to achieve an economic growth of almost 8% in 2008 and expecting more than 4% in 2009. The prudent policies of BDL headed by Salame himself played a vital role behind it. The banks loaned up to 85% of the size of economy. The provision of huge credit helped the whole nation to weather the global economic downfall successfully. The public debt was reduced as some Lebanese institutions and CBL bought a large fraction of total debt. In this way, the country risk was reduced by 2-3%. He opined that the new Islamic banks would help to develop the economy considerably. Salame was in favor of introducing a global currency because a stable currency contributes a lot to strengthen the national economy.

The economy of Lebanon is a true example of that.