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Holding of the Housing Bank: A Major Player in Lebanon’s Financial Sector

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The Housing Bank, established by virtue of Law No. 14 of January 17, 1977, as amended, is a significant player in Lebanon’s financial sector. With the private sector owning the remaining 80% of its shareholding, the bank’s primary purpose is to provide loans to Lebanese citizens seeking to purchase, construct, renovate, complete, or revamp real estate property within the country.

Transactions Between Affiliates: What You Need to Know

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The relationship between a bank and its affiliates is subject to specific regulations. While there is no unified legal definition of an “affiliate” in Lebanese banking laws and regulations, circulars issued by the Central Bank of Lebanon (BDL) provide guidance on this matter.

  • For instance, Basic Circular No. 34 of April 24, 1997 (as amended) distinguishes between three types of control exercised by banks over their affiliates: exclusive control, joint control, and participation interest.
  • The circular also outlines reporting obligations applicable to banks and financial institutions established abroad in which the parent company holds a significant stake.

Transactions between a bank and its affiliates are subject to usual conflict-of-interest limitations set out in the Commercial Companies Law (CMC) and the Code of Commerce. Specifically:

  • Granting loans or conducting transactions with board members, major shareholders, or their family members requires prior approval from the bank’s general assembly.
  • May necessitate provision of sufficient collateral.

Regulatory Challenges Facing the Banking Industry

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The Lebanese banking industry is currently facing several regulatory challenges, including:

  • The impact of Lebanon’s first-ever sovereign debt default in March 2020.
  • The ongoing economic, financial, political, and social crisis since the last quarter of 2019.
  • Regulators are also grappling with the need to balance growing supranational regulations focused on anti-money laundering (AML) and other issues while preserving the specificities of the Lebanese banking sector.

Consumer Protection in the Banking Sector

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Banks in Lebanon are subject to consumer protection rules, including the Consumer Protection Law No. 659 of February 4, 2005. However:

  • Enforcement of these provisions is limited by the specific laws and regulations applicable to the banking sector.
  • The BDL remains the primary safeguard for consumer rights in the banking sector.

Future Changes in the Legal and Regulatory Policy

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In the coming years, it is expected that legal and regulatory policies will focus on addressing the effects of Lebanon’s unprecedented crisis. Regulators are likely to implement measures aimed at:

  • Tackling capital control restrictions.
  • Ensuring the stability of the financial sector.

Correction Date: January 2021