Tuesday, October 21, 2008

The Strength of Lebanese Banks

The Financial Times reports on the strength of Lebanon's banks:
As the financial crisis sends shock waves through global markets, Lebanon’s banks are bucking the trend as the beneficiaries of an unprecedented flow of remittances from overseas.

Unlike their counterparts in many western financial centres, Lebanese banks find themselves in the enviable position of having excess capital – bank deposits are on course to grow by almost 50 per cent this year from 2007.

The inflow into bank deposits totalled $7.7bn in the first eight months of this year, according to central bank figures, easily surpassing the 2007 full-year total of $6.6bn, itself a record.

The increase in deposits has been driven by an increase in overseas remittances, which are set to top the $5.5bn total recorded last year. There are 4m Lebanese at home but about 12m abroad, many of whom retain strong ties to their country, sending money home and investing in local real estate.

Many analysts expect deposit growth to reach $10bn by the end of this year, putting banks on track to improve on a 27 per cent growth in profits they recorded last year.

This strong cash base – deposits comprise 85 per cent of Lebanese banks’ assets, making them among the most liquid in the world – and experience of survival through times of turbulence mean that Lebanese lenders are still confident enough to expand aggressively across the Middle East. They say that they are almost entirely unaffected by the international financial crisis.

Banks are prohibited from having more than half of their equity outside the country, and from investing in real estate or derivative products.

“Lebanese banks have very little room to place bets – they are not allowed to invest in or lend to non-investment grade entities, and that protects the system,” says Jean Riachi, chairman of FFA Private Bank, Lebanon’s biggest investment bank.

“Some banks might have some exposure to Lehman Brothers because it was an AA-rated company, but because of the limitations, the exposure cannot be big. The banking system in Lebanon is quite immune,” he says.

Lebanese banks were already enjoying an improving domestic economy, after three years of sluggish growth due to political disasters that included the assassination of Rafiq Hariri, the former prime minister, and the 2006 war with Israel.

Private sector economists expect Lebanese gross domestic product to increase by about 5 per cent this year, partly thanks to a peace agreement signed between rival Lebanese factions in Doha in May that has ushered in a period of relative stability.

That deal, coupled with investors from the Gulf looking for places to invest their oil profits, has contributed to a sudden jump in capital inflows into Lebanon, which has one of the most advanced banking systems in the region.

This has led to an unusual situation where banks dwarf the real economy – Lebanese banks have total assets of $100bn in a country with a GDP of $25bn.

“You don’t find that in any other part of the world, except maybe Switzerland,” says Mr Barakat.

This environment means Lebanese banks will be able to continue to expand around the Middle East. In just three years, Bank Audi has gone from having no branches in the region to having operations in Syria, Jordan, Egypt, Saudi Arabia, Qatar and Sudan.

Meanwhile, Blom, Lebanon’s second-largest bank, will start a corporate and private banking business in Qatar before the end of this year, and will move into the Saudi Arabian financial sector soon after, says Saad Azhari, chairman.

“There are a lot of companies in Saudi Arabia that need to do IPOs [initial public offerings]. The stock market there is very important, so we are going to have a brokerage and do fund management,” Mr Azhari tells the Financial Times.

Blom has businesses in five Arab countries, including Egypt, Syria and Jordan.

“In the future, our plan is to grow our network in the countries where we already are, and to enter into new Arab countries,” he says, adding that these were likely to be in the Gulf but declining to specify target markets.

No comments:

Post a Comment

Powered by Blogger.