PAYMENT SYSTEMS IN LEBANON

1. PAYMENT SYSTEMS IN LEBANON BANQUE DU LIBAN (The Central Bank of Lebanon) RAMZY HAMADEH Senior Director Head of the Current Operations Department

2. Lebanese Banking/Financial sectors • Before 1975 regional financial center • 1975 -1990 political and economic instability • 1990 -1992 transitional period • Since 1993 economic recovery & rebuilding • 2002 Final Roadmap for RTGS ( SeBIL) Payment Systems In Lebanon

3. Exchange and Payment Systems • Multi-currency system • foreign currencies circulate in the market • Free exchange rate system • no restrictions on the purchase or sale of foreign currencies • Free movement of capital • no restrictions on flows into or out of the Lebanese markets. Payment Systems In Lebanon

4. Lebanese Banking/Financial Sectors branches Payment Systems In Lebanon

5. Role of Banque Du LibanCode of Money & Credit • Issuing notes and coins • Safeguarding the national currency • Providing banking and settlement services • Monitoring and safeguarding the soundness of the banking sector • Developing the money and financial markets • Maintaining economic stability • Amendment (Law # 133 dated 26/10/99 ) gave power to Banque Du Liban on different areas related to Payments and Securities Systems. Payment Systems In Lebanon

6. Payment Systems: • The card networks • The check clearing (CCS) • The Interbank Transfers System (ITS) • The Securities Settlement Payment Systems In Lebanon

7. Clearing and Settlement of Payment Cards • ATMs • Must accept all types of cards recognized and listed by Banque Du Liban • Must be linked to ATM networks connected to all other networks for domestic transactions • Clearing and settlement relating to the use of cards issued domestically and used in Lebanon should be done domestically without passing through international networks. • Clearing and settlement of POS transactions effected through international networks • Clearing and settlement of ATM transactions recently transferred to BDL Payment Systems In Lebanon

8. Clearing and Settlement of Payment Cards • Procedure: *1st level : 3 ATM switches in Lebanon clear interbank transactions *2nd level: at BDL a) Settle (debit/credit) banks’ accounts based on the results of level 1 b) Clearing and settlement of ATM switches Payment Systems In Lebanon

9. Clearing and Settlement of Check • Deffered system • Owned & operated by BDL • Checks cleared in LBP,USD,GBP & EURO • Clearing in 6 branches • Instruments: checks & gov. payments • Participants: BDL & banks • VD: LBP = T+1 FX= T+2 Payment Systems In Lebanon

10. Clearing and Settlement of Checks • Management of risks related to the check clearing: • Stand alone • Agreements (right of set-off) • Other deposits • Ownership of exchanged checks • Information on rejected checks • Unwind process Payment Systems In Lebanon

11. Future initiatives Full automation Check imaging Online debit / credit Charge backs for returned checks Centralized clearing Include clearing of other retail payments Clearing and Settlement of Checks Payment Systems In Lebanon

12. Interbank Transfer System • Deferred system • Owned & operated by BDL • Payment instructions settled by BDL over the accounts of the participant members. • Participants: BDL, banks, financial institutions & public sector • Value date (VD): same day & future dates • Use of SWIFT for domestic and cross-border transfers • SAMA :Introduction of SWIFT Automated Messages Application to automate data entry for domestic SWIFT messages Payment Systems In Lebanon

13. TRANSFERS Cross boarder To Other branch/es BDL Branch Bank A acc ------------- In the same branch BDL Beirut ------------------------------------------------------------- Bank A (Master acc) instructions Bank A (Sub acc) A Bank B (Master acc) Bank C (Master acc) Bank D (Master acc) Bank E (Master acc) Bank F (Master acc) Foreign Correspondent Bank A acc -------------------------------------------------------------------------- Payment Systems In Lebanon

14. From SWIFT members SWIFT UNIT C O D The Route of a SWIFT Message Directed to COD Interbank Transfer System IF BIC = BDLCLBBXCOD VD >DD VD=DD P1 PC1 Payment Systems In Lebanon

15. Summery of IMF Assessment(June 2003) SIPS Payment Systems In Lebanon

16. Organizational Issues • “COBIT”: Committee on Modern Banking and Financial Techniques and Information Technology • Established March 2001 • Capital: 2.8 Billion LBP • Chaired by the First Vice- Governor • Forum for cooperation between Banque Du Liban, the banking sector and other private and public entities Payment Systems In Lebanon

17. Organizational Issues • Objectives: • Modernizing banking operations and services to include advanced electronic means of payments • Issuing circulars to keep pace with developments in the fields of electronic banking and financial services • Establishing an interbank communication network between Banque Du Liban and the financial and banking sectors • Designing training programs for the staff involved in the implementation of modern banking and financial techniques Payment Systems In Lebanon

18. Securities Settlement System • Midclear: “Custodian and Clearing Center of financial instruments for Lebanon and the Middle East” • Formed as a corporation (Joint-stock company) 1994 • Approved as per Law # 139 dated 1999 • Majority owned by Banque Du Liban • Custodian for financial instruments • Mandatory for bank shares and listed securities • Clearing and settlement services for financial instruments • Trading by book-entry • Dematerialization of Securities • Brokers communicate orders to the BSE • Transactions transmitted are irrevocable Payment Systems In Lebanon

19. Securities Settlement System(5) Payment Systems In Lebanon

20. E-banking Initiatives • Banque Du Liban’s head office and its branches linked electronically • Banks’ head offices linked electronically with all their branches • E-banking based on norms of transparency and integrity • Requirements before engaging in any e-banking activities: • Banks and other registered institutions (e.g. Financial inst.) should give Banque Du Liban prior notification • Other companies offering e-banking services to the public should acquire a prior authorization from Banque Du Liban’s Payment Systems In Lebanon

21. E-Signature Initiatives in Lebanon • Draft Law amending the Lebanese Code of Civil Procedure to recognize e-signatures and admit e-documents as evidence in a court of law • Public key infrastructure • Characteristics: Confidentiality/Integrity/ Authenticity/Non-repudiation • Banque Du Liban: • Root Certificate authority (CA) for banks & financial institutions • Licensing banks as CAs to issue certificates to clients & other banks Payment Systems In Lebanon

22. Banking System: CA Hierarchy Root CA/ BDL CA/Bank x CA/Bank y CA/Bank w CA/Bank z Payment Systems In Lebanon

23. Legal Infrastructure • Current Legislation • Code of Money and Credit • Commercial Code • Arab clearinghouse: settle operations between Arab financial markets as well as other international markets (1999) • Law # 159(1999) Authorizing the opening of securities accounts • Law # 520(1996) Developing financial markets and regulating fiduciary contracts • Law 308(2001) on bank share / bond issuing and trading (bank share dematerialization) Payment Systems In Lebanon

24. Legal Infrastructure • BDL decision #8341(2003): • ATM e-clearing house • BDL decision #7548(2000): • E-banking • BDL decision #7547(2000): • Mandatory bank IT network • BDL decision #7299(1999): • Regulation of ATMs • BDL decision #6367(1996): • Interbank transfers • BDL decision #6911(1998): • Check clearinghouse rules Payment Systems In Lebanon

25. Legal Infrastructure • Relevant draft laws • Dematerialization of traded instruments • Netting recognition/Finality of settlement/Irrevocability/Elimination of Zero-hour rule • Securities lending • Repurchase agreements • E-signature • Organization of the Financial Markets and the creation of a securities regulator Payment Systems In Lebanon

26. Key Elements for a Payment System Reform • Define clearly the strengths and the weaknesses of the actual system and any system planned for the future • Build a supportive legal framework • Ensure enough safety and efficiency to fit participants and customers’ needs • Evaluate resources costs along with budget and infrastructure constraints • Ensure continuous review and update of the system design to keep with economic and technological advances Payment Systems In Lebanon

27. Recommended • “NPC” National Payment System Council • Recommended by the IMF • Formal consultative body • Assist Banque Du Liban in formulating policies to oversee, promote and develop payment systems • To be implemented in the near future • “PSPC” Payment System Policy Committee • Recommended by the IMF • Includes all relevant Banque Du Liban departments • Establish Banque Du Liban policy line • To be implemented in the near future Payment Systems In Lebanon

28. SeBIL: An Ambitious Leapfrog into the future • Secure Banking and Information for Lebanon: A virtual private network • Platform for secure payments (Banks, Financial Institutions, Public Sector) • Increased ability to manage market liquidity & risks • Electronic end-to-end processing at all levels of interaction • Assured reliability & integrity of strategic information • Electronic Reporting • Web-based Application • Real Time Settlement System • Automated Clearing House • Treasury Management System • Help desk Payment Systems In Lebanon

29. SeBIL: Logical Layout Banks Financial Institutions Public Sector Communications Layer Application Layer Infrastructure Layer (SITI) SeBIL BDL BCC Payment Systems In Lebanon

30. Automated Clearing House RTSS Common Communications Network Web based Applications Clearing Cheques Payment Cards Real Time Settlement System E-mail Circular Report Transaction Government Bonds Registry Direct Money Transfer DvP EvP B A N K S Treasury Permission Requiring Transaction CDR & UC Queries Treasury Management Solution Electronic Reporting Legacy System Data Repository Help Desk Data Warehouse Reporting BDL BCC Payment Systems In Lebanon

31. BDL Banks branches SWIFT landing zone web server node mailboxes application server clearing data house treasury warehouse dealing (DSS) middleware data RTSS host repository host db workflow workflow help desk help desk Application Layer: Logical Architecture for Transactions Payment Systems In Lebanon

32. BDL external banks branches data web mail landing zone mailboxes server server Staging Area Verify & Load Data Repository application data server warehouse (DSS) middleware host host db workflow help desk Application Layer: Logical Architecture for Reporting Payment Systems In Lebanon

33. Government Stock exchange Real-Time Settlement Systems Process Flow Government Bonds Registry BDL Settlement General Ledger RTSS Large value Transactions Cards Payments Clearing Checks Dealing/ Domestic Network Swift / Domestic Network Automated Clearing House Visa & Master Card Midclear BDL Payment Systems In Lebanon Banks

34. More on • PAYMENT SYSTEMS • IN LEBANON • @www.bdl.gov.lb • Banque Du Liban • ( central bank of Lebanon ) • BIS Red Book - 1998 • BIS Red Book - 2003 Payment Systems In Lebanon

35. Ramzy Hamadeh rhamadeh@bdl.gov.lb Fax : + 961(1) 750 420 - Tel: + 961(1) 343 317 Mobile : + 961(3) 600 619 P.O.Box : 11 - 5544 BEIRUT – LEBANON THANKYOU Banque Du Liban Payment Systems In Lebanon