Syria’s agony is imposing serious costs for neighbors in terms of refugees, lost trade and dampened investment.
Lebanon’s Banks Shine Through Dark Times
In many countries, banks are a source of embarrassment or anger, with memories of the financial crisis still raw. In Lebanon, by contrast, the banks are a source of pride, well-regulated and well-managed, seen as among the country’s more stable institutions at a time when the government struggles to do anything meaningful.
“The prevailing cliché is that the Lebanese banking sector is located on a remote island, has not been affected by the operating environment in Lebanon or by the slowing economic activity, and that it continues to post astronomical profits,” says Nassib Ghobril, chief economist at Byblos Bank.
That, he says, is a stretch: Low GDP growth, around 1%, in an economy accustomed to high growth before the Syrian civil war, has impacted return-on-average assets and return-on-average equity, which are currently around 1% and 12%, respectively.
However, Lebanon’s banks are continuing to lend to business. In total, they have lent $710 million to agriculture, $6.2 billion to industry, $10.9 billion to real estate developers, some $3.4 billion to retailers, $1.6 billion to hotels and restaurants, and $774 million to healthcare and social services.
Most important, they continue to attract private-sector deposits: a total of some $157.1 billion at the end of August, up 3.6% year-to-date and equivalent to three times the size of the Lebanese economy.
“The high level of trust has allowed banks to continue to attract deposits and, in turn, to contribute to economic stability, public finances and the monetary system,” says Ghobril.
Standard & Poors recently upgraded the three Lebanese banks it rates, largely because of the continued investment inflows from expatriates and remittances from Lebanese working abroad.
“After six years of domestic and regional turmoil, the Lebanese banking sector is still growing and remains profitable, in addition to having good financial standing (for instance: capital adequacy ratio at 14%; nonperforming loans at 3.6%; and liquidity at 57%),” says Saad Azhari, CEO of Blom Bank, one of the three banks S&P upgraded. He says the focus remains on being cautious and minimizing risk.
“We are expanding our presence overseas to diversify revenues and risk. In addition, we are diversifying products in retail, corporate, wealth management, private banking and insurance services to capture various economic sectors, income groups and demographic groups,” he says.
What Lebanon’s banks would like most is a change in central bank policy to enable meaningful consolidation. Though there has been some movement—in September, Byblos Bank purchased Banque Phararon and Chiha, established in 1876, with five branches and almost $250 million in deposits—some in the sector argue that eventually some consolidation is needed among the top 10 banks, which account for 80% of the industry’s assets.
If the sector had two or three megabanks created by consolidation, they could play a much more significant role in the region, boosting Lebanon’s business profile in key Gulf markets, says Freddie Baz, group strategy director for the Bank Audi Group. He admits, however, that this might not happen anytime soon.
“The central bank understandably has more pressing concerns right now, including maintaining macroeconomic stability and confidence,” he says.