Title: LEBANESE ENTERPRISES DIAGNOSIS: LACK OF FINANCIAL LOANS OR LACK OF FINANCIAL OPPORTUNITIES
1LEBANESE ENTERPRISES DIAGNOSISLACK OF FINANCIAL
LOANS OR LACK OF FINANCIAL OPPORTUNITIES
WORKING MEETING ONWHICH SOCIO-ECONOMIC
PROGRAMFOR LEBANON ?
by Dr Makram Sader Secretary General Association
of Banks in Lebanon
- 10 April 2006
- Crown Plaza Hotel
- Beirut - Lebanon
2O- Economic Background I- Corporate Sector A
Diagnosis 1- Credit Supply / Demand Problem? 2-
Lebanese Corporate Sector Demand Side
Earnings Debt Servicing II- From Diagnosis to
Causes III- What to do? 1- Financial
Intermediation Level 2- Public Authorities
Level 3- Corporate Sector Level
3 0- Economic Background Macroeconomic
Imbalances 1-Low economic growth 2-Resources
gap (Saving/Investment)
Current Account Deficit Public Expenditures
Private Spending Bank
Credit Access to
international capital markets
4Table 1- Key Economic Indicators
Sources World Economic Outlook database, IMF,
2005
5I- Corporate Sector A Diagnosis
- 1-Credit Supply / Demand Problem?
- Not an issue of crowding out or shortage in the
supply of credit - Issue of credit demand and lack of good or
profitable opportunities
6Table 2- Evolution of Commercial Banks assets
structure
Million USD
7- 2000-2005 the growth of credit to the private
sector leveled or stabilized - Large liquid assets invested
- Domestically at BDL
- Abroad in the form of Foreign Assets
8Table 3- Credit to the Private Sector
Sources Bank of Lebanon- Ministry of
Finance-Ministry of Economy
9Table 4- Lending rates
102- Lebanese Corporate Sector Demand side
Earnings and debt servicing
- Bank credit / Bonds Equities High debt /
equity - (negative debt leverage)
-
- EBITDA / Debt service lt 2
- E Non performing Loans Settlements efforts
- T Law of tax settlements and installments
- DA CNSS Charges on salaries
- ROIC lt WACC (weighted average cost of capital)
cost of debt
11Total Loans to private sector Problem Loans
(NPL'S) Provisions Unrealised Interests
12Problem Loans (NPLs) / Total Loans - 1998/1999
12/14 - 2000-2002 22-27 - 2003 30 -
2004/2005 24/23 (Settlements under BDL
circulars)
13II- From Diagnosis to Causes
Structural
Operating Environment
Input cost availability of resources
Inadequate Financial Intermediation
Distorted Investment Structure
Impediments
Deep cost /price Distortions -REER -Huge inflow
of funds /capital (Dutch disease)
CNSS, EDL Port Health, Education Transport Tax
policies
Weak Corporate Governance
14Lack of comparative advantages (Inputs/Resources)
Excessive investment in non tradables (real
estate, restaurants, hospitals, schools,
universities, repairs maintenance)
? - Low
productivity low earning ? low investment
- Low job creation
low income creation, social subsidies
transfers - Weak interactivities links
-Input/Output Exchange (Leontieff Matrix)
15 Do these structural imbalances require
structural changes/ reforms?? The
sustainability of such a structure is
costly (Subsidies, protection, social transfers,
debt)
16 The structural adjustment requires -
Reallocation of resources (capital, human, land,
etc) job creation, exports of goods services
generation - Its a time consuming process
(10/20/30 years) - How
to manage the transitional period? Do we
need an IMF program??
17 III- What to do?
- 1 At the Financial Intermediation level
- Strategic position of the banking sector to
initiate the reallocation process - -Modern , well endowment in capital funds,
human resources, management, IT, procedures,
local and external networks, large deposit
base. - -Catalyst, financier, advisor
- Commercial Bank Credit policies to be revisited
- - From real estate guarantees to cash flow,
corporate finance and project finance based
credit assessment and guarantees - -Basle II requirements
18 V- What to do?
- 1 - Financial Intermediation level
- Determining role of Investment banking
- - Through Special financing schemes adequate
and diversified - - In Corporate financial restructuring
- Coupled with refinancing structure/fund
mechanism??? - This process requires -Large L.T funds
-----Beirut Donors - Conference
- -Adequate legal framework
- -Well functioning capital markets
19- 2 - At the public authorities or government level
-
- c/o The Way to Beirut Pact (phase I- July 2005)
- Promote private sector competitiveness and
enhance private investments - Domestic and external competition
- Trade competition policies (inc. quality
issues, IPP) - Subsidies, public enterprises
- Private monopolies
- Administrative burden
- Corruption, red tape, contract enforcement
- Business entry/exit, bankruptcy laws
20- Costs of utilities (transport, energy, ICT),
public infrastructure - Privatization
- Public investment planning, sectoral, regional
clusters - Access to finance
- subsidies
- Prudential regulations
- Development of capital markets
- Establish an independent regulatory authority
- Enhance stock market activities
- Promote the development of new products
- Attract well-seasoned human capital
- Attract multinationals to use Lebanon as a
platform for - their regional expansion
21- Legal framework governing private sector
activities - labor , commercial , capital markets, investment
park, offshore and bankruptcy laws - Quality system and accreditation
- Incentives to private investments, and in
particular - incentives for investments in the less developed
regions - Access to information on various sectors of the
economy - Start ups and SMEs facilitation and support
programs
223. At the Corporate Sector Level More
Corporate Governance
Corporate laws and regulations Listing requirements Corporate by laws
Separation ownership / Management
Protect minority interest
International Accounting, Disclosure, Audit, Guidelines and Standards
Dispute Systems and bodies.