Banque du Liban’s reaps rewards from national payment system upgrade
Lebanon’s central bank recently went live with a national payment scheme. Ali Nahle, senior executive director and head of the IT department, talks about its success and discusses the national clearing house and government payment scheme, which are next on the agenda.
Banque du Liban (BDL) has just accomplished the first phase of an overhaul of the country’s payments system. In July 2012, it went live with Lebanon’s first real time gross settlement (RTGS) system, widely considered to be the safest form of inter-bank payments because transactions are pre-funded and irrevocable, rather than netted.
It also plans to launch an automated clearing and settlement system for low-value and bulk payments (BDL-Clear) and a payment system for government payments (BDL-PayGov). These three components will make up the country's new national payments system (NPS), which meets international best practise standards. Both the clearing and government payments schemes are scheduled to go live later in the year and are currently in the implementation phase.
The introduction of an NPS on par with those in more developed countries is meant to solve industry challenges such as operational and credit risk management, settlement finality, as well as collateral and liquidity risk management, says Ali Nahle, BDL’s senior executive director and head of the IT department. It also goes further than that, he adds, because a robust and resilient payment environment is expected to have a positive effect on the country’s overall economy.
Having joined BDL in 1986, Mr Nahle experienced several phases of payment systems evolution, as well as technical advances in the business from a regulator’s perspective.
“The purpose [in building an NPS] was to move from a traditional fragmented payment environment with manual processing into a robust, fully automated and secure environment including straight-through processing. We also moved from separate payment solutions and instruments to system-to-system environments that can interact and communicate seamlessly and effectively to provide a higher level of service,” Mr Nahle explains.
First phase complete
The implementation of an RTGS system presents more than “only a fund transfer system, but also business processes that are moulded according to international best practices”, says Mr Nahle.
He says that the implementation of the RTGS system, which took 24 months to go live, presents an “extensive achievement” both in terms of time and cost constraints. Ten different IT solution providers and 74 banks and financial institutions were involved, and 700 individual participants have been educated on the new system.
The RTGS system now supports the Lebanese pound, US dollar, euro and the UK pound and covers two ‘environments’ – the network of the Society for Worldwide Interbank Financial Telecommunication, or Swift, as primary infrastructure and BDL’s Secure Information Technology Infrastructure as secondary infrastructure – to ensure business continuity and disaster recovery, says Mr Nahle.
The project was not without its challenges. Mr Nahle counts the number of participants connected to the RTGS, setting and agreeing on a common vision and deliverables, ensuring technical integration with the RTGS, and necessary financial, legal, human and technical upgrades as the most significant of these.
“There are also some challenges inherent in adopting the RTGS system itself – the banks have to adapt to some impact on their current operations, particularly in the divisions of payments, treasury, cash management and corporate banking. The audit and risk management have to implement new processes as well,” he says.
The implementation of RTGS will allow Lebanon’s banks to benefit from the continuous intraday final transfer capability, which Mr Nahle believes will improve liquidity management and so decrease exposure to financial risk. BDL also anticipates proactive management of payment transfers.
International standards
In line with its internationalisation in payments technology, BDL adopted extensible mark-up language message formats in the ISO 20022 universal messaging standard, which is gaining momentum across the world as an integrated approach to payments. For instance, in Europe it is used as the backbone of payments messages under the Single European Payments Area regulation. In Africa, it is used to create a regional settlement hub among the countries in the Common Monetary Area within the Southern African Development Community. In Asia and Latin America, ISO 20022 is gaining significance and investment for securities transaction messages. Deploying ISO 20022 was therefore a logical step to promote standards that are internationally accepted as best practices, says Mr Nahle.
In the second component of the system, BDL-Clear will manage the entire clearing process, including cancellation and rejection of instructions and returns, and is closely linked to the RTGS system. It will be used to determine settlement obligations for non-cash payments instruments such as cheques and credit transfers. Once transaction records are exchanged, the data will be fed into the RTGS system.
The third component of BDL’s NPS project is a specific system for government payments. “This will not only increase the efficiency of the government’s financial management, but can make a big contribution towards effective liquidity management on a national scale. BDL is currently analysing the government’s payment processes in order to develop a customised payment system,” says Mr Nahle.
The ultimate aim, he says, is to improve tax collection by integrating the new system into the Revenue Authority’s back-office systems.
