BEIRUT, Lebanon (AP) -- Lebanon's banking sector is weathering the global financial crisis and profits are expected to increase by 10 percent this year, the Central Bank governor said Wednesday, in a reflection of the country's ability to rebound from a legacy of adversity.
Riad Salameh attributed the growth in the banking sector, which comes at a time when a liquidity crisis has gutted some of the world's top banking giants, to strict regulations imposed by the Central Bank, including a cash reserve requirement of 15 percent.
"The Lebanese banking sector has shown growth this year. Its aggregate balance sheet has grown by around 12 percent," Salameh said, adding that 2008 profits are expected to be about 10 percent higher than the previous year.
"The liquidity is high in our system," Salameh said in an interview conducted in English with The Associated Press.
The strength of the country's banks is largely a reflection of the country's resilience as it has repeatedly looked to rebuild after years of conflict and instability turned broad swaths of Beirut into a gutted battleground with different areas controlled by competing militias and armies.
In addition to the 1975-90 civil war, the country has also struggled with a high national debt, chronic budget deficits and wars with Israel. But amid that chaos, decades-old banking secrecy laws turned the tiny country on the east side of the Mediterranean into the region's Switzerland, attracting clients from around the Arab world who prized the anonymity its banks afforded.
That privacy has allowed Lebanese banks to stay comfortably afloat, even in the worst of times. And, as many of Lebanon's 66 banks are family owned, they have shied away from riskier investments that have hammered other banks around the world. Instead, they have loaned billions of dollars to the government, at higher interest rates than in the U.S.
Salameh said the Central Bank has, for years, regulated structured products and derivatives, and has forbidden the acquisition of subprime mortgage debt, which triggered the current global crisis.
"Therefore there are no toxic assets in our banking sector and that has created a comfort to the markets and to depositors," he said.
Salameh said private banks' assets currently top $100 billion, or nearly four times the country's gross domestic product. Foreign currency and other assets held by the Central Bank have risen steadily to nearly $20 billion.
Most of the country's banks have reported an increase in deposits and profits in the first nine months the year, he said.
Bank Audi, Lebanon's largest in assets and deposits, announced last month that its net profits for the first nine months of 2008 increased by 28.7 percent, to $180.6 million, compared to the same period a year ago.
Another top institution, Blom Bank, said its profits rose to $198 million in the same period, a 34 percent increase from the same period in 2007.
As the global crunch continues, the country may be hit by a drop in remittances from Lebanese living abroad, currently at about $5.5 billion, he said. But that decline would be offset by savings from a lower oil import bill as crude prices fall, said Salameh.
"Our balance of payments is not going to witness a drastic or major change," he said.
Salameh said that Lebanon's national debt now stands at $46 billion, or around 180 percent of the GDP, which he estimated would be $29 billion in 2008.
"Our concern is to see reforms to decrease the yearly deficit that are structurally built into our budgets," Salameh added saying that such decreases will have positive effects on the market.