Libyan Foreign Bank

The Libyan Foreign Bank (LFB) was founded in 1972 under Law No. (18) as a Libyan joint-stock company with a paid up capital of LD10 million, fully owned by the CBL. The capital of the bank rose to LD 20 million (equivalent to USD 67.4 million) according to the Law No. 66, for the year 1972. t the beginning of 2006, the ban ’s capital was increased once more to reach USD one billion. On December 12, 2009, at an extraordinary general assembly meeting of shareholders, the bank decided to increase its capital to USD two billion.

Subsequently, the extraordinary general assembly meeting of shareholders on February 21st, 2010 agreed to increase the bank capital by a further USD one billion; the paid up capital of the LFB therefore became USD three billion. In addition, the extraordinary general assembly meeting of shareholders agreed to increase the authorised capital to be

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USD 8.7 billion divided into 87 million shares at a value of USD 100 per share (LFB, 2012).

The LFB serves as the foreign agent for the government and Libyan commercial banks and implements the worldwide functions of the CBL through its head office in Tripoli and branches in more than 30 countries. In particular, the LFB performs the activity of opening accounts and accepting deposits from abroad and non-residents, in addition to banking and financial transactions with commercial local banks and any related banking activities licensed by the CBL (LFB website, 2012).

Article No. 20 of the Statute of the LFB identified the purposes for which, performing outside Libya, the bank are engaging in all banking and financial services as well as development of finance operations and in particular the following:

 Acceptance of demand and time deposits, opening current accounts, loans held and granting other credit facilities.

 Collection and payment orders, promissory notes and other securities with financial value.

 Issuance of bonds, notes and other commercial paper.  Discount, re-discount and trading of commercial paper.

 Issuance of letters of guarantee and credits and the opening credits and financing foreign trade operations, providing facilities for importers and exporters as well as the issuance of securities, as well as project financing and development investment on commercial grounds.

 Carrying out trustees’ investment.

The banking and financial services that LFB is licensed to carry out inside Libya are:  Opening accounts and accepting deposits in convertible foreign currencies from

abroad and non-residents in Libya.

 Opening accounts and accepting deposits from public institutions assigned from the CBL to deal with it.

 Carrying out banking and financial transactions with local commercial banks in line with the purposes of the bank.

135 4.4.3.4 Specialised banks

Specialised banks (lending institutions) are the institutions that specialise in financing of a particular economic activity or specific sectors. Specialised banks were structured on cooperative lines; they do not operate on the principle of profit, and thus their activities are different from those of commercial banks. These banks were specially established to support and accelerate the socio-economic development in Libya by granting medium- term and long-term loans to agricultural, industrial and real estate activities.

In accordance with Article 65/1, Banking Law No. 46 of the year 2012, “a specialised bank whose main purpose is to finance and grant credit for specific activities, and whose basic activities do not include the acceptance of demand deposits, shall not be considered a commercial ban ”. In view of that, four specialised banks were established in Libya to serve specific types of economic activity, they wholly owned by Libyan government, and these are in accordance with the resolutions of their establishment: (i) National Agricultural Bank, (ii) Saving and Real Estate Investment Bank, (vi) Development Bank, and (v) Rural Bank. Following is a brief introduction to these four specialised banks.

(i) The National Agricultural Bank:

The National Agricultural Bank (NAB) is one of the oldest specialised banks in Libya. It was founded in 1955 and commenced its operations in 1957 with a paid up capital of LD one million. In 1960, the Libyan government increased the N B’s capital another LD one million;, in March 1967, the N B’s capital became five million dinars, and this capital is stipulated in the bank law.

The capital was increased again to reach LD six million and two hundred thousand, in order to meet the expansion aspects of the N B’s activities relating to agriculture and the expansion of the open branches and offices in agricultural areas of the country (Alnas, 2010). Furthermore, in 2002, the capital of the NAB was increased to LD 450 million, based on decision No. 105 ta en by the General People’s Committee (CBL, 2006). Its main purpose was to promote the agricultural sector in the country by providing interest-free loans to Libyan farmers; it purchases agricultural products from them at a guaranteed profit and sells materials to them at supported prices.

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In 1970, the NAB was reorganised under law No. 133, which redefined its functions as follows:

a. Work on the promotion and development of agricultural activity in the country. b. Grant agricultural loans to farmers and agricultural cooperatives and public

sector companies related to agricultural activity and livestock.

c. Accept deposits from individual farmers and agricultural cooperatives and public sector companies.

d. Market agricultural products and animal within the public policy of the state. e. Trade in materials, machinery and equipment which is used for agriculture

purposes.

f. Establish, own and contribute to companies whose activities relate to agriculture

In order to achieve its objectives the NAB continued to provide loans and credit facilities for farmers, companies and public agricultural enterprises. Table 4.4 shows the value of loans granted by the bank during the period 1990-2011. It is clear that the total loans granted by the NAB (short, medium, and long term) was increased from LD 73.5 million at the end of 1990 to LD 1571.2 million in 2011, which showed a rise of LD 1497.7 million.

By analysing the relative importance of the loans, it is clear that the short-term loans accounted for approximately 7.04 % of the total of loans granted by the NAB to reach about LD 110.6 million in the end of 2011. The medium-term loans accounted for around 40.16% of the total loans granted by the bank to reach around LD 631.0 million at the end of 2011. The long-term loans accounted for about 52.8% of the total loans, which reached LD 829.6 in 2011.

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Table 4.4:The value of loans granted by the NAB during the period 1990-2011 (million LD)

Year Short Term Medium Term Long Term Total

1990 21.4 18.7 33.4 73.5 1991 22.5 17.4 34.6 74.5 1992 20.9 15.4 34.4 70.7 1993 24.9 11.8 31.8 68.5 1994 25.9 10.9 30.1 66.9 1995 28.0 10.5 28.8 67.3 1996 29.6 16.3 29.1 75.0 1997 32.4 20.0 28.1 80.5 1998 35.4 22.8 27.5 85.7 1999 39.5 28.5 27.5 95.5 2000 50.0 36.0 27.0 113.0 2001 55.2 44.5 31.5 131.2 2002 57.4 92.4 82.9 232.7 2003 51.9 115.6 130.5 298.0 2004 67.2 148.0 155.2 370.4 2005 60.1 296.5 360.4 717.0 2006 64.5 425.1 685.4 1175.0 2007 63.7 495.5 840.9 1400.1 2008 81.8 564.2 829.1 1475.1 2009 89.2 549.2 829.0 1467.4 2010 73.3 555.0 829.6 1457.9 2011 110.6 631.0 829.6 1571.2

Source: CBL, Economic Bulletin, for the year 2012

(ii) Saving and Real Estate Investment Bank

This bank began the exercise of its transactions in the special section in the Industrial and Real Estate Bank (IREB) in 1965 with a paid capital of LD 10 million, and then increased the ban ’s capital by the end of 1965 to LD 45 million (LCB, 2006). Under Law No. 2 for the year 1981, the real estate section was separated from the IREB and then became known as the Saving and Real Estate Investment Bank (SREIB), with capital of LD 100 million.

In 2002, the capital of the SREIB was raised to reach LD 1100 by resolution of the General People’s Committee No. 105. Law No 2 for the year 1981 specified that the SREIB respects and supports the movement of construction and reconstruction by encouraging saving, real estate, and providing credit facilities for the purpose of providing adequate housing in the context of transformation and plans in line with the general policy of the state. In order to achieve this may require the following means:

138 a. Granting real estate loans.

b. Issuing bonds and investment certificates.

c. ccepting deposits from the ban ’s clients relating to real estate activity. d. Implementing and managing real estate projects to their account and others. e. Constructing, owning and mortgaging the real estate.

f. Establishing and owning the real estate enterprises or participating in them.

As Table 4.5 shows, the balance of loans and financing provided by the bank (housing Loans and construction projects) until the end of 2011 was about LD 7953.3 million, compared with DL 520.9 million at the end of 2000, representing an increase of over LD 7432.4 million.

Table 4.5: SREIB loans during the period 2000-2011 (million LD) Year Disbursements Loans for Housing and

Construction Projects

Total Housing Loans * Construction

Projects 2000 503.9 17.0 520.9 2001 5090.2 18.7 5108.9 2002 869.5 12.6 882.1 2003 876.6 198.6 1075.2 2004 1066.6 83.8 1150.4 2005 1881.4 95.1 1976.5 2006 3381.6 130.9 3512.5 2007 4590.2 194.6 4784.8 2008 4403.3 1495.4 5898.7 2009 4666.6 1930.1 6596.7 2010 5195.7 2207.6 7403.3 2011 5745.7 2207.6 7953.3

* Includes loans by popularity since 2002

Source: CBL, Economic Bulletin, for the year 2012.

(iii) Development Bank

Development Bank is a financial institution that was established under Law No. 8 of the year 1981, as a joint-stock state-owned company with a capital LD 100 million. Its purpose is to support the process of development in Libya, and to establish the foundations of an industrial base, contributing to increased production and diversifying

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production through the support of public companies, cooperatives, and private enterprises by granting them the necessary loans for purchasing machinery, equipment and operating requirements.

In 2005, the ban ’s capital was increased to reach LD 628.8 million. In particular, in recent years the Development Bank has played an active role in accelerating economic development in Libya, through granting loans to finance large or medium-sized productive and service projects, in order to develop the production and service sector and in particular to encourage projects that used modern methods in manufacturing, especially those using local raw materials available in the country. In addition, the bank has expanded its activities to include transportation, health and therapeutic services, food and feed.

In order to achieve the objectives of the plans and programmes of economic development in the country, the Development Bank continued to grant different types of loans with simple terms and conditions, going on the largest number of beneficiaries. Short-term and medium-term loans, are often granted to individuals and do not exceed LD ten thousand; the period of loan ranges between sixteen months and five years, while long-term loans exceeding LD ten thousand are granted to corporations.

The number of loans granted by the bank during 1990 reached 162 loans, accounting for LD 4005 thousand, mostly focused on the food industry to form respectively 54.9% and 32.4% of the total number and value of granted loans (CBL, 2006). Remarkably, the number of granted loans grew to reach 5053 loans and the value of LD 254408.0 in 2005, mostly focused on service activities, accounting respectively for 90.6% and 77.3% of the total number and value of granted loans (CBL, 2006).

Table 4.6 gives the number of loans granted to each industry by the Development Bank during the period 1995-2011. For example, the value of loans granted by the bank during the year 2011 reached about LD 121115.2 million, growing by about 35.2% from what it was in 2010 and amounting to LD 89.6 million. In particular, the development bank, according to Law No. 8 Articles 2 and 3, is functioning to achieve a set of objectives, which include:

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a. Contribute to the activation of the production process and increase production rates through the provision of funding for productive projects which are economically feasible in the fields of industry, agriculture, tourism and other, whether new projects or to develop existing production capacities or for the purposes of an expansionary.

b. Forecast for investment opportunities with economic and social returns that contribute to the expansion of the productive base and diversity of income streams.

c. Offer technical assistance and advice to the owners of the projects directly or indirectly financed from the bank.

d. Attracting foreign expertise through financing cooperatives that bring together the national and foreign investment.

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Table 4.6: Development bank loans by industries 1995-2011 (thousand LD)

Source: CBL, Economic Bulletin, for the year 2012

Year Food Industries Building Material Chemical and Plastics Metal Works Textile Industries Furniture Industries Industrial services Others Total 1995 50.0 301.1 - - 350.4 0.0 501.0 288.0 1490.5 1996 65.9 248.4 82.1 521.7 1314.2 0.0 5780.7 27.9 8040.9 1997 5066.7 2766.9 4801.7 5607.9 4546.2 762.9 2618.7 910.7 27081.7 1998 322.4 112.5 - 288.1 854.9 0.0 953.6 0.1 2531.6 1999 1069.4 304.7 378.4 394.6 461.0 5.0 882.3 88.0 3583.4 2000 4150.7 2445.5 5008.0 4024.0 344.2 814.4 2526.3 1408.7 20721.8 2001 4794.8 2053.3 6693.7 1862.2 1271.4 730.5 5456.6 8841.7 31704.2 2002 7368.6 5113.8 18763.3 10023.7 228.7 270.1 17116.1 10282.3 69166.6 2003 16729.0 10865.0 13695.8 10053.2 844.7 1130.1 16707.6 7800.3 77825.7 2004 11154.5 6543.1 4059.0 2185.5 233.9 306.7 7147.3 4392.8 36022.8 2005 10778.3 18604.1 8569.0 3240.9 173.9 8377.6 196685.7 7978.5 254408.0 2006 25701.6 59518.9 14823.4 6837.2 2480.0 2493.4 12976.3 52645.5 177476.3 2007 29178.2 129949.2 7843.4 5969.9 490.0 0.0 6858.3 41650.9 221939.9 2008 4710.6 40820.3 358.2 290.9 607.1 808.6 1356.4 12016.4 60968.5 2009 6033.0 65793.0 1218.3 1289.4 0.0 1402.2 5260.7 5788.1 86784.7 2010 4476.9 58967.6 1421.0 808.7 1230.0 780.6 1770.9 20014.6 89470.3 2011 289.5 8297.9 150.0 0.0 0.0 0.0 60.0 112317.8 121115.2

142 (iv) Rural Bank

Rural Bank is considered as one of the pillars of the national economy, and an important addition to other funding institutions operating in Libya. This bank was established based on the decision of the General People’s Committee No. 12 of 2002, it has a legal personality and independent financial position and exercises its activity which is stated by law under the auspices of the General People’s Committee.

The authorised capital of the bank was LD 100 million, wholly owned by the Secretariat of the General People’s Committee of Finance, and its capital may be increased by a decision of the secretariat of the General People’s Committee (CBL, 2006). The main purpose of the establishment of Rural Bank was to drive forward the growth and development in the areas of industrial and service sectors, by motivating the low- income individuals and job seekers to participate in the development process.Thus, the bank aimed to improvethe standard of living of Libyans, especially those who are low- income, by granting them with loans for businesses in the areas of agriculture, livestock production, marine, industrial, artisanal and service.

The bank offers loansbetween LD 500 up to LD 10,000, with an interest rate valued at 2% of the loan amount. As Table 4.7 shows, a number of loans have been granted by the Rural Bank to various economic activities (i.e. agricultural, livestock, marine, industrial, craft, and service) since it started its operations until the end 2011. The total number of granted loans has reached 158,565, with the total amount of loans LD 623.0 million. 45,732 loans valued at about LD 254.9 million had been granted to service activities which represented roughly 40.9% from the total granted loans. While 57,952 loans with amount up LD 175.4 million had been given to the livestock sector, accounting for around 28.1%, and 27,122 loans amounting to LD 99.9 million had been granted tocraft, which accounts for approximately 16.0%. The rest of the loans granted were distributed on industrial, agricultural, and marine as 8.1%, 5.9%, and 1.0% respectively.

The Rural Bank was specially established to achieve a set of economic and social objectives including:

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 Improve the standard of living for members of the community, especially low- income families and job seekers, encouraging them to establish projects in various fields.

 Contribute to the success of the projects financed by the bank, through the provision of technical assistance and advice to the beneficiaries to ensure the feasibility of such projects.

 Benefit most segments of society with limited income and job seekers by encouraging them to borrow from the bank, through the ease of the procedures for obtaining the loan and the limited interest obtained by the banks, about 2 % of the loan value, and to overcome any difficulties that prevent this.

 Find available investment opportunities, which guarantee the achievement of economic and social objectives.

 Provide various banking services to the beneficiaries by opening deposit accounts to them.

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Table 4.7: Rural Bank loans by economic activities (thousand LD)

Year Agricultural livestock Marine Industrial Craft Service Total

N. Value N. Value N. Value N. Value N. Value N. Value N. Value