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UNCLAS SECTION 01 OF 02 TRIPOLI 000561 
 
NEA/MAG FOR JEN GAVITO 
 
NEA/PI FOR PATTON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV LY
SUBJECT: LIBYAN BANKING SECTOR REFORM: SLOW AND UNSTEADY 
 
¶1.  (SBU)  SUMMARY:  Prospects for Libyan banking sector reform 
remain unsteady and face derailment by systemic economic flaws, 
according to a U.S. team working with the Libyan Central Bank on 
a reform strategy.  Confident in the utility and relevance of 
their ongoing work, the professional experts at the same time 
have grave doubts about the viability of genuine banking sector 
reform in Libya.  END SUMMARY. 
 
¶2.  (SBU)  Pol/Econ Chief and Econoff met with McKinsey & 
Company Senior Advisor Gregory Wilson and his conduit to the 
Libyan Central Bank, Project Director Tarek Ben Halim, on 
September 21 to discuss McKinsey's work and the state of Libyan 
banking reform.  McKinsey is engaged in a Central Bank-funded 
study for the reform of the Libyan banking system, including the 
potential privatization of state-owned banks, systemic changes 
to banking rules and opening the sector to foreign banks. 
 
--------------------------------------------- -- 
 
Foreign Banks Question Libyan Market Conditions 
 
--------------------------------------------- -- 
 
¶3.  (SBU)   The McKinsey team assesses that the Libyan Central 
Bank's top priority is to draw in foreign banks to Libya, and 
there is moderate interest from abroad.  However, prospective 
foreign entrants are immediately confronted by obstacles, 
including a dearth of data on the Libyan banking sector, 
uncertain terms and conditions for market entry, unclear 
regulatory standards and a highly politicized Central Bank with 
a history of policy reversals.  Some foreign banks are starting 
to establish start-up offices in Tripoli (most recently Qatar 
National Bank).  However, Wilson estimates that it will be at 
least 12-18 months before there is a significant foreign bank 
presence in Libya (i.e., movement beyond start-up offices). 
This timeframe could easily slip if the long-expected roll-out 
of a reformed Central Bank national payments program (now four 
years in the making) continues to languish.  A number of foreign 
banks are reportedly awaiting this development before moving 
forward in Libya.  The McKinsey team's assessment is that the 
current system is irretrievably broken.   As an example of the 
"broke beyond repair" assessment, some bank managers are not 
facilitating a McKinsey audit ordered by  the Central Bank 
senior leadership. 
 
--------------------------------------------- 
 
Property Rights and Other Laws Require Updating to Underpin 
Economic Reform 
 
--------------------------------------------- 
 
¶4.  (SBU)  The McKinsey team has been careful to conduct 
multiple rounds of syndications with GOL officials to solicit 
inputs and proposals for his study, and in order to avoid 
roadblocks down the road.  Thus far, there have been no major 
obstacles thrown in the way of his findings.   However, the 
McKinsey study will almost certainly recommend a major overhaul 
of the Central Bank's operations as one of its key 
recommendations, and the team is deeply skeptical that there is 
GOL appetite to implement real reform.  Furthermore, Wilson 
estimates that at least fifty percent of the changes necessary 
for success lie well beyond the purview of the Central Bank. 
The greatest of these is the question of clear property rights. 
The lack of clear title for Libyan properties (due in part to 
the GOL's destruction of private title records in the late 
1980s) greatly complicates work in the real estate, construction 
and tourism sectors, as well as all investment therein. 
 
--------------------------- 
 
Training is the Essential Element of Any Proposed Reform 
 
--------------------------- 
 
¶5.  (SBU)  Enhanced training will be at the heart of any 
successful reform effort.  Training is direly needed in the 
whole range of relevant skills, as most employees lack basic 
competency in financial analysis, international accounting 
standards, utilization of balance sheets, and basic information 
technology skills.  Even the small team of the Central Bank's 
"best and brightest" seconded to assist the McKinsey effort 
required additional language and technical training.  Overall, 
regional training locations may emerge as the best options for 
Libyan banks, and the Central Bank is leaning towards a 
partnership with the Bahraini Monetary Agency toward this end. 
[Comment:  Funding Libyan financial sector training in the GCC 
 
TRIPOLI 00000561  002 OF 002 
 
 
and elsewhere, if allowable, could be an effective use of MEPI 
Economic Reform pillar funds. End Comment] 
 
----------------------------------------- 
 
State-Run Bank Ownership Shifted From Central Bank to 
Development Fund 
 
----------------------------------------- 
 
¶6.  (SBU)  Both interlocutors conveyed their genuine surprise 
and unease at a recent GOL move to transfer the Central Bank's 
five state-run banks under the auspices of the state-run 
Economic and Social Development Fund.  This change was, in their 
view, an attempt by the GOL to give the impression that these 
banks enjoy some measure of independence from the Central Bank. 
However, the team assesses that this was a "paper move" only, 
and its greatest practical effect will be to sow confusion among 
foreign banks interested in entering the Libyan market. 
 
-------------------------------- 
 
Aman Bank Judged Most Efficient 
 
-------------------------------- 
 
¶7.  (SBU)  One institution that has stood out during McKinsey's 
assessment work has been Aman Bank for Commerce and Investment 
(HYPERLINK 
"BLOCKED::http://bk.abci-ly.com/en/index.aspx "http://bk.abc 
i-ly.com/en/index.aspx).  Succinctly described as having "the look and 
feel of a real bank," privately-owned Aman Bank is far ahead of 
the competition in its provision of modern banking services. 
Its entire operation is computerized, and it has placed ATMs 
across Tripoli and into major cities countrywide.   Aman bank 
also provides its staff with proper training, including English 
language training for all employees. 
BERRY