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WEEKLY NEWSLETTER
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Lebanon
Index
Banking was one of the great strengths of the Lebanese economy
before civil strife began in 1975. Between 1920 and 1964, the Bank
of Syria and Lebanon, a French private bank and primarily a
commercial enterprise, performed the central banking functions of
being the sole issuer of notes and the holder of the government's
accounts. The bank's charter expired in March 1964.
Until 1964 banks were totally unregulated. There were no
special banking laws, no central bank, and no restrictions on the
opening of new banks. No rules governed minimum reserve ratios, and
banks were not even asked to produce regular balance sheets. This
situation led to the creation of many small banks.
In April 1964, the Central Bank was established and given
responsibility for controlling the Lebanese pound, for issuing
notes, and for acting as the government's banker. Although
prohibited from engaging in normal commercial banking, it had the
authority to regulate commercial banks.
In 1966 the Lebanese-owned Intra Bank collapsed, precipitating
a banking crisis. Intra Bank accounted for about 10 percent of
total bank deposits and about 40 percent of deposits with Lebaneseowned banks. (Observers believed that the Intra Bank crisis was
brought on by Lebanese politicians who manipulated fiscal affairs
to their own gain.)
Intra Bank's collapse was followed by its restructuring, with
the Central Bank and the Lebanese government taking major
shareholdings. The successor organization, officially called the
Intra Investment Company but often referred to as "Intra," became
a major shareholder in various institutions, notably Middle East
Airlines, the national flag carrier. The main banking arm was Bank
Al Mashrek, in which Intra held an 84-percent share following
Intra's acquisition early that year of a 42-percent share held
previously by the J.P. Morgan Overseas Capital Corporation.
By 1985 the Central Bank held the biggest single share in
Intra--27.75 percent. The government of Kuwait held 19 percent; the
government of Lebanon, 10 percent; the National Bank of Kuwait,
3.75 percent; the government of Qatar, 3.25 percent; and various
private shareholders (many of them from the Persian Gulf), 36.25
percent. The value of the Central Bank and Lebanese government
shares in the Intra Investment Company in late 1985 was estimated
at more than US$116 million.
Throughout the mid-1980s, however, the Central Bank was engaged
in disputes with the Intra Investment Company's management, a
wrangle that sometimes appeared to be almost a personal feud
between Central Bank governor Naim, a guardian of financial
orthodoxy, and Roger Tamraz, arguably Lebanon's most controversial
and daring entrepreneur. Tamraz had been elected chairman of Intra
following the company's August 1983 general meeting. He had a
highly personal managerial style and had engaged in questionable
business ventures in 1983 and 1984. The Central Bank became
concerned and challenged Intra's policy on foreign bank
acquisitions. The Central Bank wanted a new board of directors
elected and wanted Intra run by Central Bank representatives and
Persian Gulf shareholders. In August 1986, when Tamraz's three-year
term was due to expire, the government demanded a shareholders
meeting and initiated legal proceedings against him over his
chairmanship. Tamraz responded by calling a shareholders meeting
for December 29, 1986, the first to be convened since he became
chairman.
At the meeting, which was held in East Beirut without
representatives from 80 percent of the stockholders or Persian Gulf
representatives, a new board was elected, with Tamraz at the helm.
The outcome should have been a moment of triumph for Tamraz, but it
was not. His tactics aroused concern from Intra's staff and the
Central Bank, which claimed that Tamraz had pressured some
representatives to miss the election meeting. Two weeks later,
Tamraz resigned. In losing his position at Intra, Tamraz also lost
much of his official influence with Middle East Airlines
(see Transportation and Communications
, this ch.). Nevertheless, he did
hold onto one very important position: chairmanship of Bank Al
Mashrek. Although the events of early 1987 were a major setback to
Tamraz in his quasi-public roles, his own business interests
remained substantial, and he was still a very potent force on the
financial and commercial scene. Tamraz was replaced by Jamil
Iskandar, a businessman who had been on Intra's board in 1983.
In the face of the Intra-Central Bank controversy, domestic
banks fared poorly and were plagued by nonperforming loans. One
local banker claimed that at the end of 1985 nonperforming loans
accounted for 45 percent of his bank's total loan portfolio,
compared with 25 percent a year earlier. Banking costs rose while
fierce competition in a depressed market resulted in excessively
high interest rates. In addition, there were more than 50 bank
robberies in 1985, entailing known losses of US$800,000.
To overcome the problem, some domestic banks increased their
overseas activities. The Intra Investment Company, for example,
bought commercial interests of the Paris-based Banque Stern and a
small Swiss bank, the Banca di Particepiazioni e Investimenti. In
1986 it also sought to purchase the four Egyptian branches of the
local Jammal Trust Bank.
On paper, however, the banks did not appear to be doing too
badly. Total assets of the commercial banks rose from about L£100
billion at the end of 1984 to about L£162 billion a year later.
About 70 percent of these holdings were believed to be in foreign
currency, which meant that in December 1984 assets amounted to
about US$11.3 billion and almost US$9 billion a year later.
Data as of December 1987
Domestic Banking
Banking was one of the great strengths of the Lebanese economy
before civil strife began in 1975. Between 1920 and 1964, the Bank
of Syria and Lebanon, a French private bank and primarily a
commercial enterprise, performed the central banking functions of
being the sole issuer of notes and the holder of the government's
accounts. The bank's charter expired in March 1964.
Until 1964 banks were totally unregulated. There were no
special banking laws, no central bank, and no restrictions on the
opening of new banks. No rules governed minimum reserve ratios, and
banks were not even asked to produce regular balance sheets. This
situation led to the creation of many small banks.
In April 1964, the Central Bank was established and given
responsibility for controlling the Lebanese pound, for issuing
notes, and for acting as the government's banker. Although
prohibited from engaging in normal commercial banking, it had the
authority to regulate commercial banks.
In 1966 the Lebanese-owned Intra Bank collapsed, precipitating
a banking crisis. Intra Bank accounted for about 10 percent of
total bank deposits and about 40 percent of deposits with Lebaneseowned banks. (Observers believed that the Intra Bank crisis was
brought on by Lebanese politicians who manipulated fiscal affairs
to their own gain.)
Intra Bank's collapse was followed by its restructuring, with
the Central Bank and the Lebanese government taking major
shareholdings. The successor organization, officially called the
Intra Investment Company but often referred to as "Intra," became
a major shareholder in various institutions, notably Middle East
Airlines, the national flag carrier. The main banking arm was Bank
Al Mashrek, in which Intra held an 84-percent share following
Intra's acquisition early that year of a 42-percent share held
previously by the J.P. Morgan Overseas Capital Corporation.
By 1985 the Central Bank held the biggest single share in
Intra--27.75 percent. The government of Kuwait held 19 percent; the
government of Lebanon, 10 percent; the National Bank of Kuwait,
3.75 percent; the government of Qatar, 3.25 percent; and various
private shareholders (many of them from the Persian Gulf), 36.25
percent. The value of the Central Bank and Lebanese government
shares in the Intra Investment Company in late 1985 was estimated
at more than US$116 million.
Throughout the mid-1980s, however, the Central Bank was engaged
in disputes with the Intra Investment Company's management, a
wrangle that sometimes appeared to be almost a personal feud
between Central Bank governor Naim, a guardian of financial
orthodoxy, and Roger Tamraz, arguably Lebanon's most controversial
and daring entrepreneur. Tamraz had been elected chairman of Intra
following the company's August 1983 general meeting. He had a
highly personal managerial style and had engaged in questionable
business ventures in 1983 and 1984. The Central Bank became
concerned and challenged Intra's policy on foreign bank
acquisitions. The Central Bank wanted a new board of directors
elected and wanted Intra run by Central Bank representatives and
Persian Gulf shareholders. In August 1986, when Tamraz's three-year
term was due to expire, the government demanded a shareholders
meeting and initiated legal proceedings against him over his
chairmanship. Tamraz responded by calling a shareholders meeting
for December 29, 1986, the first to be convened since he became
chairman.
At the meeting, which was held in East Beirut without
representatives from 80 percent of the stockholders or Persian Gulf
representatives, a new board was elected, with Tamraz at the helm.
The outcome should have been a moment of triumph for Tamraz, but it
was not. His tactics aroused concern from Intra's staff and the
Central Bank, which claimed that Tamraz had pressured some
representatives to miss the election meeting. Two weeks later,
Tamraz resigned. In losing his position at Intra, Tamraz also lost
much of his official influence with Middle East Airlines
(see Transportation and Communications
, this ch.). Nevertheless, he did
hold onto one very important position: chairmanship of Bank Al
Mashrek. Although the events of early 1987 were a major setback to
Tamraz in his quasi-public roles, his own business interests
remained substantial, and he was still a very potent force on the
financial and commercial scene. Tamraz was replaced by Jamil
Iskandar, a businessman who had been on Intra's board in 1983.
In the face of the Intra-Central Bank controversy, domestic
banks fared poorly and were plagued by nonperforming loans. One
local banker claimed that at the end of 1985 nonperforming loans
accounted for 45 percent of his bank's total loan portfolio,
compared with 25 percent a year earlier. Banking costs rose while
fierce competition in a depressed market resulted in excessively
high interest rates. In addition, there were more than 50 bank
robberies in 1985, entailing known losses of US$800,000.
To overcome the problem, some domestic banks increased their
overseas activities. The Intra Investment Company, for example,
bought commercial interests of the Paris-based Banque Stern and a
small Swiss bank, the Banca di Particepiazioni e Investimenti. In
1986 it also sought to purchase the four Egyptian branches of the
local Jammal Trust Bank.
On paper, however, the banks did not appear to be doing too
badly. Total assets of the commercial banks rose from about L£100
billion at the end of 1984 to about L£162 billion a year later.
About 70 percent of these holdings were believed to be in foreign
currency, which meant that in December 1984 assets amounted to
about US$11.3 billion and almost US$9 billion a year later.
Data as of December 1987
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