The axiom of a powerful correlation between the financial institution efficiency and the financial system has now been thrown into query, as Lebanon’s banking sector continued to beat all odds with a stellar efficiency in 2006. The highest three listed and privately-held banks reported sturdy outcomes, however many consultants warn that the sector will be unable to take care of this development trajectory if the political impasse is just not damaged and the reforms on which the Paris III loans have been constructed usually are not applied.
The banking sector’s very important function within the financial system got here into sharp focus in 2006 in spite of everything listed banks—except for BLC Financial institution—reported revenue development for 2006. The bigger non-listed banks, led in measurement by the trio of BankMed, Fransabank and BLF, often don’t expose particulars on their efficiency till publishing their audited figures, however are additionally anticipated to put up elevated earnings. Good coordination with the central financial institution and lengthy expertise in coping with crises helped most banks to remain afloat.
Many of the listed banks and the highest 5 non-public banks cited the rise of non-interest revenues, improved commissions, international alternate and rising shopper banking actions as the principle driver that pushed up price revenue. In its quarterly report, Financial institution Audi stated each curiosity and non-interest revenue “progressed significantly ensuing from a mix of measurement and worth results, thus exceeding the expansion in whole bills.”
The mixed belongings of the nation’s high three listed banks—BLOM Financial institution, Financial institution Audi and Byblos—had reached $36.5 billion on the finish of 2006, in comparison with $33.5 billion in 2005, a 12% improve. These belongings signify greater than 152% of the nation’s GDP. Mixed 2006 earnings for all three banks reached $425 million.
Race to the highest
The top-to-head race of the 2 largest banks continued with comparable performances within the space of asset development. Reporting a consolidated web revenue of $181.2 million in 2006, up 32% year-on-year, BLOM Financial institution remained forward of Audi Saradar by way of revenue, regardless of stronger revenue development for the latter. Audi Saradar stated its unaudited consolidated web revenue rose 56% to LL248.86 billion ($165.5 million) in 2006 from LL159.53 billion a 12 months earlier.
Within the space of loans, nonetheless, Audi was the clear chief, with LL4.88 trillion (up from LL3.72 trillion in 2005) whereas BLOM’s significantly smaller mortgage portfolio elevated to LL2.99 trillion from LL2.52 trillion.
BLOM’s belongings grew by 19.3% to succeed in LL21.44 trillion ($14.2 billion), whereas buyer deposits went 15.5% greater to $11.7 billion. Its Tier I and Tier II capital funds rose by 33.5% to succeed in $1.28 billion. Whole shareholder fairness grew to LL1.93 trillion from LL1.44 trillion. BLOM was capable of marginally cut back its publicity to authorities debt, Lebanese treasury and different authorities payments, which fell to LL3.47 trillion from LL3.54 trillion.
Audi’s whole belongings rose 23% to LL21.34 trillion—in steadiness sheet phrases, a mere dot under BLOM’s—on the finish of 2006, in contrast with LL17.3 trillion a 12 months earlier, whereas buyer deposits elevated to LL17.86 trillion from LL14.91 trillion. Nevertheless, Audi’s publicity to authorities debt elevated noticeably as its place in Lebanese and different authorities treasury payments and bonds rose to LL4.2 trillion from LL3.33 trillion. Following its capital improve and partnership association with EFG Hermes in early 2006, the financial institution’s paid-up capital stood at LL541.37 billion on December 31 in contrast with LL414.1 billion on the finish of 2005.
With their capital will increase in 2006, BLOM and Audi have been instrumental in boosting the monetary energy of the banking sector. Central Financial institution Governor Riad Salameh stated in February that in 2006, Lebanese banks’ capital funds amounted to $6.3 billion—$5.8 billion for business banks and $549 million for funding banks—up 32% from a 12 months earlier than. He additionally stated that when the Basel II necessities have been adopted, confidence within the banking sector will likely be boosted, resulting in additional growth. Salameh additionally expects Lebanese banks to regularly turn out to be brokers of sovereign papers within the secondary market, a step that may enhance the sector’s worldwide scores and supply them with funds at decrease prices.
Third on the record is Financial institution Byblos, which noticed 2006 web revenue rose 14% to LL119.64 billion ($79.18 million), in contrast with LL104.62 billion a 12 months earlier. Whole belongings grew 9.5% to LL12.43 trillion from LL11.34 trillion, whereas buyer deposits rose 11% to LL9.45 trillion from LL8.51 trillion. The retail-oriented financial institution elevated loans and advances to clients 19% to LL2.65 trillion. Byblos additionally elevated its publicity to authorities debt, the place Lebanese and different authorities treasury payments and bonds grew to LL4.18 trillion from LL3.67 trillion.
For the previous few years, the three giant listed banks have shone by measurement and by speaking their numbers and messages extra actively than most others within the Alpha group pack of banks with belongings of greater than $2 billion. A couple of proactive banks within the group come to thoughts, comparable to Lebanese-Canadian (nonetheless unlisted) and Financial institution of Beirut (listed), however significantly between the highest three and their counterparts within the non-listed a part of the business, the communications and transparency insurance policies have been drifting aside for years.
Nevertheless, which may be altering. With rising demand for transparency from the market place and an general enterprise tradition shift towards institutional as a substitute of non-public (or household) governance on the high of the company realm, the ranks of the highest non-listed banks are, at the least of their verbal affirmations, leaning to better transparency and transmitting to the general public extra than simply product commercials and gross sales messages.
A gap up of the business
This group of non-listed banks contains BankMed, BLF, and Fransabank, of which the primary two have revamped their appearances and organizations. BankMed, owned by the Hariri household, continues to be probably the most reluctant giant financial institution in Lebanon in terms of offering numbers about revenue and enterprise developments. However in step with its strikes into better native retail presence and regional development, the financial institution began issuing statements about its insurance policies that reveal much more than in earlier years.
Thus, BankMed chairman Mohammed Hariri stated to Govt that 2006 “was a 12 months of consolidation and reorganization, as a common banking entity emerged after the merger and the mixing of the opposite banks within the group. BankMed additionally took particular and common provisions as a prudential measure to cater for any eventualities sooner or later.”
In keeping with Hariri, BankMed expanded its vary of shopper mortgage merchandise and made progress in extending its mortgage enterprise, which hitherto has been concentrated within the company phase. One essential step on this regard was the mixing of Allied Financial institution, which has been a part of the group since 2001. The financial institution additionally goals to totally combine the 2006-acquired Turkish financial institution MNG this 12 months.
BankMed figures for 2006 usually are not obtainable at the moment. The financial institution had belongings of LL8.8 trillion at year-end 2005 and a web revenue of LL21.8 billion, in keeping with figures compiled by enterprise data platform ABQ Zawya.
BLF, or Banque Libano-Francaise, is an instance for a privately held financial institution that’s in no rush to go public however is ever extra formidable to increase its presence after placing some attempting occasions behind itself during which discrepancies on technique between the Lebanese and French stakeholders hindered decisionmaking. The financial institution, which is on the lookout for better roles in Lebanon and overseas (see field) solved the dilemma by means of a rise in Lebanese and Syrian possession by chairman Farid Raphael and others. In early 2006, BLF additionally elevated its capital by $66 million and issued $100 million of most well-liked shares.
In a notable migration to better readiness for disclosure of the financial institution’s efficiency knowledge, BLF Assistant Basic Supervisor Walid Raphael informed Govt final month that the financial institution has improved its web earnings in 2006 by roughly 90% to $44 million and elevated belongings to $5.1 billion, in unaudited figures (and together with the consequences of a European acquisition).
Fransabank, the oldest financial institution in Lebanon and nearly a twin to BLF in market place, didn’t present Govt with 2006 outcome figures for this text. What may be stated is that the financial institution has a department in Syria and had entered right into a partnership with Gulf and Egyptian buyers for establishing an Islamic financial institution in Sudan. In November 2005, Fransabank acquired a 37.05% stake in Financial institution of Beirut and the Arab Nations for $55 million.
Because the arrival of sector numbers displays completely different disclosure regimes for listed and non-listed banks, the efficiency of the banking sector in 2006 was divided into semesters with contrasting traits. Aziza Dada, a senior analysis analyst at ABQ Zawya, stated that for the primary half of final 12 months, “Lebanon’s financial system was reaping enormous advantages from rising private and non-private sector investments and this has contributed considerably to the underside line.” The banks have additionally benefited from rising shopper and retail banking and associated merchandise, she added.
Whereas the second half of 2006 and the outlook for 2007 bear the marks of unstable occasions, the banking sector bigwigs are negating a part of their Lebanon political threat with regional development. “Though it’s nonetheless comparatively low in comparison with locally-generated revenues, the banks have earned substantial revenue from their regional operations,” Dada stated.
Growth Paths
Realizing the dangers and related downfall, many banks have launched into an growth technique exterior their borders—primarily within the area, however some exterior as nicely—to diversify their supply of revenues. Some banks have even jumped on the Islamic banking bandwagon with plans to supply shariah-compliant retail banking companies not simply in Lebanon, but additionally within the GCC and North Africa.
The growth tales communicate volumes. BLOM Financial institution took over Egypt’s Misr Romanian Financial institution in late 2005 and needs to develop the retail enterprise of the renamed BLOM Financial institution Egypt. It was one of many first to enter the Syrian market in 2004 by means of its affiliate, Financial institution of Syria and Abroad (BSO), and now has three branches there.
Analysis homes are bullish on BLOM’s strikes. Dubai-based Shuaa Capital elevated its projection for BLOM’s deposits development in 2007 and 2008 and identified the financial institution has efficiently improved its mortgage high quality within the first half of 2006 by decreasing non-performing loans (excluding the Egyptian subsidiary) by 2%. “BLOM is perceived to be cautious and caries a decrease degree of threat than different banks within the nation,” Munir Shahin, a analysis analyst at Shuaa informed Govt.
Nevertheless, the present political uncertainty within the nation seems to have affected BLOM’s attractiveness to worldwide analysts, with Credit score Suisse (CS) saying in mid-February 2007 that it has suspended protection on the financial institution. CS had initiated protection on BLOM in March 2006 with a impartial advice and a 12-month goal worth of $87. Shuaa has “an ‘excellent purchase’ advice on the financial institution, which is predicated on an assumption of no additional worsening within the political atmosphere,” Shahin stated.
Financial institution Audi acquired Cairo Far East Financial institution—now known as Financial institution Audi Egypt—for $94 million in late 2006 and launched a plan to increase its department community from 3 to twenty. The financial institution additionally operates in Syria, Jordan, Saudi Arabia and Qatar. Audi, which final month opened its operation in Saudi Arabia with the requisite pomp and circumstance, in late 2006 even aimed toward shopping for a 40% stake in Riyadh-based Saudi Hollandi Financial institution from ABN Amro however, in keeping with insiders, the provide didn’t discover favor and the rejection in December (causes remained undisclosed) affected investor sentiment negatively, at the least for some time.
Beneath the present setup, Audi Saudi will function in Riyadh with a paid-up capital of $80 million as a supplier of funding companies, together with company finance, asset and wealth administration, brokerage and personal fairness companies. Financial institution Audi holds 70% in Audi Saudi Arabia and the remaining 30% are owned by Saudi people and enterprise teams.
Byblos, which pioneered Lebanese banking in Sudan, has Byblos Financial institution Syria beneath its belt, and in July of final 12 months, acquired license approval to open a financial institution in Iraq. BankMed has utilized for an funding banking license in Saudi Arabia and for a business financial institution license in Algeria. BLF final 12 months purchased nearly all of Banque SBA, previously Société Bancaire Arabe, in Paris, which additionally gave it a department in Cyprus. Fransabank’s regional growth not too long ago resulted in opening a department in Algeria in late 2006 and a consultant workplace in Qatar.
Anticipate the Sudden
For the reason that finish of the civil warfare in 1990 and the beginning of the reconstruction course of, the banking sector has been on a path of development and profitability. However what are the expectations for 2007, particularly if political instability persists? Observers and officers alike say that the sector’s future seems to be bleak if inside struggles for energy proceed and the violence escalates. The consensus amongst banking consultants is that their sector has a lot to lose if issues deteriorate into an all-out warfare. Banks are the federal government’s largest lenders. Moreover, international forex depositors play a giant function in exposing the banking sector to shifts in worldwide sentiment, which might rapidly drain liquidity if severe considerations over the worth of the pound have been to emerge.
In 2006, Lebanon’s central financial institution took a number one function in limiting the harm to the sector, whereas worldwide help, together with Saudi and Kuwaiti deposits to the central financial institution of $1.5 billion, helped mitigate the affect of the flight of deposits in the course of the warfare. However worldwide ranking businesses and observers alike say that the nation’s banks could have been capable of climate the storm of 2006, however the identical might not be doable in 2007, even with all of the diversification plans. “Given the present degree of instability, the banking sector is about for a flat efficiency in 2007, with worldwide help and reconstruction being key in decreasing losses,” Shahin stated.
Native bankers voice related considerations, with particular person variations. BankMed’s Hariri stated he expects the financial institution’s “efficiency in 2007 to be good, because the affect of the most important initiatives that have been taken this 12 months materializes.” Within the perspective of Walid Raphael, 2007 will clearly be “a tough 12 months for the sector.” A supervisor at one other high financial institution informed Govt that 2007 is not going to be a catastrophe however holds very restricted native development prospects even when the political state of affairs improves. “2007 could find yourself much like 2006 by way of earnings and development, but it surely is not going to be worse,” she opined.
Analysts additionally warned of the chance to the banking sector’s repute on the regional and worldwide degree and downgrades threat by worldwide ranking businesses, citing it “a severe subject” that banks should have the ability to mitigate. Specialists warn that non-performing loans (NPLs) are “set to rise as exhausted Lebanese companies begin to default at a better charge.” In opposition to an excellent 2006 for development and profitability, outcomes for the primary half of 2007 are anticipated to be lower than constructive as revenues could have peaked in the meanwhile—at the least for some banks. However consultants agree that the dangers are nonetheless manageable and no meltdowns are coming, as most banks are nicely capitalized with expectable ranges of provisioning.
On the upside probability, banks have a lot to achieve when political stability is restored. In a secure atmosphere for the rest of 2007, the reconstruction of war-damaged properties and companies would contribute considerably to the bottom-line as most banks will present the monetary companies wanted. “If the political state of affairs is resolved and reconstruction and reform are correctly addressed, we are able to see a severe restoration in Lebanon’s financial system and powerful development in financial institution deposits. This could be the perfect state of affairs that may lead to sturdy revenue development for 2007,” Shahin stated.
DONATE NOW
