The initiative is one of a series of reforms planned for the local banking sector, which is a key plank of the government's economic reform programme. McKinsey & Company has completed an impact assessment of the entry of foreign banks to the country and regulations governing their entry are due to be issued imminently.

One route in for international entrants is likely to be through the acquisition of stakes in state-owned banks. The award of a mandate is expected by year-end to advise the central bank on selling stakes in some of the country's five public banks. On offer would be a 20-30 per cent holding, with the possibility of raising this to a majority stake over five years.

Gumhouria Bank, National Commercial Bank and Umma Bank are being evaluated ahead of being offered for sale. The CBL is also planning to divest 88 per cent of Wahda Bank's shares to the Economic & Social Development Fund, which will manage them until they are sold through an

initial public offering.

HSBC, which is understood to be among the foreign institutions interested in taking a stake in a local bank, is due to open a representative office in Tripoli in early 2007. 'If we were to enter Libya, it would be with a very large capital investment,' says Robert Gray, HSBC chairman for debt and finance advisory. '[Foreign banks] prefer a clear path to majority voting control in any market.' A total of 14 foreign banks currently operate representative offices in Libya and many are keen to

establish branches.

Numerous Gulf-based banks are interested in taking a stake in Libya's financial institutions due to the underbanked state of the country, the numerous project opportunities on the horizon and the favourable evaluation of local banks in comparison with intra-Gulf acquisitions. Arab Banking Corporation and Qatar National Bank have applied for licences.

Tripoli also plans to increase the capital of the country's specialised banks by LD 1,000 million-1,500 million ($775 million-1,163 million). National Agricultural Bank of Libya, Bank for Real Estate Investment & Savings and Development Bank will then provide funds to new small and medium-sized enterprises (SMEs). According to a 2005 survey by the US' Monitor Group, 60 per cent of SMEs surveyed in Libya have experienced major difficulties in acquiring capital from government banks (MEED 8:12:06).