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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 Lú100 billion at the end of 1984 to about Lú162 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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Lebanon Table of Contents