Lebanon has maintained financialstability through repeated shocks and challenges for thelast quarter century. Over time, macroeconomic and financialvulnerabilities have accumulated. Government debt anddeposits at the Banque du Liban (BdL) account for close tohalf of aggregate bank assets and almost all banks havesimilar business models and risk profiles. Central bankpolicies help mitigate risks and maintain confidence. Thebanking system has proven resilient to domestic shocks andregional turmoil. Effective oversight and crisis managementhave underpinned stability. The banking sector is, directlyand indirectly (through collateral), exposed to real estate.The housing segment has weakened, with declining prices insome market segments. Due to structural constraints,Lebanese capital markets remain under-developed. Certainimprovements are still needed on the regulatory andsupervisory front, including: (i) the creation of theSanctioning Committee and Capital Markets Tribunal, (ii)implementation of a package of CMA regulations, (iii)enhancing the supervision of Mid clear, and (iv) cooperationwith the Insurance Control Commission (ICC) to foster agrowing and soundly regulated insurance and pension fundindustry. In terms of access to finance, Lebanon standsabove regional peers, but below upper middle incomecountries. Despite progress, access to finance for small andmedium enterprises (SMEs) has still room for improvement.The micro finance industry plays an important role infinancial inclusion and, while it does not represent asystemic risk, a well-calibrated regulatory requirementshould be imposed to the main players. More can be done tofoster financial inclusion within the strict anti-moneylaundering and terrorism financing regulatory framework.
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