International banks are rushing to Libya to secure a foothold in an oil-rich economy until recently almost completed untouched by foreign lenders.
Two international groups announced acquisitions of private banks in Libya this spring, and the central bank is set to auction two new banking licences to foreign groups to operate on a standalone basis.
UK banks HSBC and Standard Chartered, Italys UniCredit, and Gulf lenders Emirates NBD, Mashreqbank, and Qatar Islamic Bank passed the pre-qualification stage in the auction and were provided with application packages in April. These must be returned to the central bank by June 15.
They hope to follow in the footsteps of Bahrains Ahli United Bank (AUB), which has bought a 40% stake in United Bank for Commerce and Investment (UBCI). AUB paid $53.8 million, according to a statement posted on the Bahraini stock market in March. In April, Portugals Banco Espírito Santo (BES) announced that it had bought 40% of Aman Bank, another privately owned firm, for 39.8 million.
maximum stake foreign banks can have in locals
Foreign banks are allowed to own a maximum 49% stake in banks in Libya. The government is keen to modernize the banking sector as part of an effort to energize the oil-dependent economy.
"An important part of Libyas financial-sector reform is to allow foreign banks to operate in the country. The entire economy is being restructured and there is widespread public support for the reform programme," says a notice regarding the auction of bank licences on the central banks website.
Management contracts have been awarded to the new international partners, although in the case of Aman Bank, the former general manager, Mukhtar Ishili, will become chairman. Market sources reckon the sales of Aman Bank and UBCI were precipitated by the central banks eagerness to stabilize the rapidly expanding local banking system, which has historically suffered from high levels of bad debt. Local deposits have doubled since 2007, and non-performing loans have been reduced to 18.6% of loans in the system, according to the central bank.
Individuals in Libya can own a maximum of 5% of a local bank, although family and friends have been known to club together to get around this stringent regulation. AUB and BES made their acquisitions via rights issues by the Libyan banks.
"The ease of enforcing foreign arbitral awards in Libya is relatively untested. But legal documentation can be written in such a way as to increase the likelihood that local courts would recognize your rights to an asset," says Bernd Ratzke, partner at London-based law firm Dawsons. Ratzke advised BES on its acquisition. US management consultancy McKinsey & Co advised Aman Bank.
Ratzke also worked with McKinsey, Rothschild and the central bank on the privatization three years ago of Sahara Bank and Wahda Bank. Frances BNP Paribas and Jordans Arab Bank gained management contracts and 19% equity shares in Sahara and Wahda respectively.
Aman Bank, which was formed about 10 years ago, has 13 branches. UBCI, formed through a merger of three branches in 2007, has 10, according to its website.