Libyan Finance & banking system

Source: ANIMA Business Network

The banking sector is made up of the Central Bank of Libya (CBL), five state-owned commercial banks, one private commercial bank (Bank of Commerce and Development), and 48 national banks. The largest of the state-owned commercial banks, the Libyan Arab Foreign Bank (LAFB), has subsidiaries and affiliates in more than 30 countries. Other state-owned banks are the Jamahiriya Bank, the National Commercial Bank, the Sahara Bank (in the process of being privatised), the Umma Bank and the Wahda Bank.
A new banking law on banking restructuring, currency and credit (n°1 of January 12, 2005) has been passed. It aims to modernize and introduce market-based monetary instruments into the financial system in order to give the banking sector a more proactive role in redistribution of capital flows to the country’s most productive sectors.
This legislation gives the Central Bank of Libya (CBL) greater responsibility in the conduct of monetary policy, including the right to issue its own securities. In addition, authorities have lowered interest rates across the board in an effort to encourage private sector demand for credit and developed a strategy to modernize the payment system. An anti-money laundering (AML) law has also been adopted (law n°2 of 2005).
Commercial banks must assume the form of a Libyan joint-stock company with paid-up capital of at least LYD10 million. According to the new law (art. 67), the Central Bank of Libya can authorize the establishment of banks with foreign capital. It can also allow foreign banks to hold shares in domestic banks and to open branches or representational offices, although capital allocated for branch activities in Libya must be of least $50 million.
The Central Bank of Libya (CBL) was created in 1956 to maintain the stability of Libya’s currency and to promote sustained economy growth in line with overall economic policy. Under the new law of January 12, 2005, the CBL has a greater role and supervisory measures have been strengthened. The Central Bank controls money supply and credit, supervises commercial banks to ensure sound financial positions and protection of depositor and shareholder rights and to advise the State on the formulation and implementation of financial and economic policy.
In addition, the CBL issued a number of decrees to improve commercial bank operations, launched privatisation of the Sahara Bank and recapitalized three of the five state-owned commercial banks. The governor of the Central Bank announced that privatisation of major banks will continue at the beginning of 2006, with that of the Wahda Bank already scheduled. As of August 2005, banks were granted autonomy to freely determine interest rates on deposits and to set lending rates within a range of 250 base points above the discount rate (currently 4 percent).
In the area of foreign exchange controls, the Libyan dinar is used only for current operations within the country since it is not a convertible currency. However, foreign investors have the right to open an account in convertible foreign currencies at any commercial bank or the Libyan Arab Foreign Bank. There are two offshore banks: the Valetta Bank (Malta) and the British Arab Commercial Bank (UK). Bawag PSK (Austria) opened a representational office in 2005, as has HSBC. Other foreign banks such as the International Arab Bank (Egypt), the Swiss Bank Channel, and the Housing Bank of Amman have announced their intention to open offices in the near future.
The government has reduced its debt with commercial trade banks and the Central Bank to zero. The financial sector is underdeveloped and the payment system, no more than embryonic, is being modernized. Credit card facilities will soon be introduced.