In a recent article for the October 2024 Monthly Bulletin, the Secretary General of the Association of Banks in Lebanon (ABL), Dr. Fadi Khalaf, discusses the challenges faced by Lebanon’s placing on the Financial Action Task Force (FATF) “grey list,” that has introduced a wave of uncertainty for the Lebanese banking sector. He argues that while banks remain committed to comply with FATF standards and do not expect a direct impact on their relationship with international correspondent banks, several indirect challenges could arise in the long run, and require a planned and appropriate response to deal with them effectively. Below is an elaboration of the argument.
For years, Lebanese banks have consistently worked to align with international standards regarding money laundering (ML), terrorism financing (TF), and sanction compliance. They have continuously upgraded their systems, implemented stricter internal controls, and invested in training programs to ensure they meet these standards. This ongoing dedication has been the foundation to maintain operational continuity.
Despite Lebanon’s new grey list status, Lebanese banks have managed to maintain strong relationships with international correspondent banks. These relationships, built over years of cooperation, are not expected to be directly threatened by the FATF’s decision. Correspondent banks are well aware of Lebanon’s dedication to safety precautions, and as such, they do not freeze any immediate disruption to their partnerships.
However, the grey list involvement may bring indirect consequences. Correspondent banks may begin applying more rigorous checks on transactions, leading to delays and higher operational costs for Lebanese banks. This additional assessment could affect the speed of financial transactions and might pose a challenge to maintaining the quality of services. Additionally, the grey listing could make Lebanon a less attractive destination for international investments. Investors may view the grey list status as an increased risk, potentially leading to difficulties in securing capital, and pressuring Lebanese banks to convince foreign shareholders to participate in reinvestment efforts.
International financial institutions might also reconsider their dealings with Lebanon, implementing stricter lending conditions or even higher fees on financial transfers. This could limit Lebanese banks’ ability to access international funding on beneficial terms. Furthermore, the grey list could lead to additional downgrades for Lebanon’s credit ratings, making it more expensive for the country and its businesses to secure loans or engage in international trade.
Despite these challenges, the Lebanese banking sector has shown resilience throughout Lebanon’s ongoing systematic crises. In response to the grey listing, Lebanese banks are focusing on strengthening their relationships with international regulatory entities and improving their transparency and internal controls. By doing so, they aim to mitigate any indirect implications from the grey list status and adapt to the changing financial environment.
By: Jana Boumatar
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