The latest newcomer to the top ‘alpha group’ category of banks — those with more than $2 billion in deposits — is Creditbank, a player that aims to be the lender of first resort to Lebanon’s private sector enterprises. The bank achieved 20 percent growth in deposits in 2013 to reach $2.3 billion at year-end. This not only facilitated the leap into the alpha group but also put it at the top of the growth charts among the now 14 alpha group banks.
Compared with the peer group’s growth of deposits, Creditbank expanded at more than twice the average percentage rate in 2013, and it also reported the highest growth in assets in percentage terms. The bank’s growth was above 19 percent on both, but it had a head start on percentages because it rose from the lowest absolute figures in the peer group.
Creditbank’s overall shares in alpha group deposits and assets were 1.42 percent and 1.39 percent at the end of 2012 and 1.55 percent and 1.50 percent at year-end 2013. The ‘super alpha’ dogs Audi, Blom, and Byblos controlled around 21, 15, and 10 percent of deposits and assets at the end of last year.
In absolute terms of deposits, Creditbank’s addition of $380,000 in 2013 surpassed the deposits gained by each of the banks in positions 9 to 13 but lagged significantly behind each of the eight largest banks according to sector information compiler Bankdata. But growth of deposits for the sake of greater bragging rights was not on Creditbank’s mind, claims the bank’s chair, Tarek Khalife. Instead, the bank was vying to achieve growth by catering to private sector credit demand.
Lending was the bank’s raison d’être since its founding as Crédit Bancaire in 1981, and implementing an intelligent strategic culture in pursuit of this objective over the past ten years made for “an interesting and rewarding challenge,” says Khalife. He adds that since 2004, Creditbank rose through the banking sector size rankings by 9 or 10 places to its current spot in position 14.
The fruits of this long-term strategy are evidenced in the fact that Creditbank, now for several years running, has the Lebanese market’s highest loans to deposits ratio, at 57 percent at year-end 2013 versus a sector average of less than 40 percent. According to Bankdata, Creditbank’s loans to deposits ratio is more than 10 points above any other alpha group bank. Khalife sees his bank as one of the keenest in accepting private sector risk, mainly competing with two larger but not ‘super alpha’ banks — names he declines to give explicitly.
“Nobody is more risk friendly than us in Lebanon. I would say there are two other banks that are as risk friendly as Creditbank. Everybody else is fighting on another front because they either don’t know how to take the risk or because they can afford not to,” he says.
The second part of his statement refers to the historic pattern of the past 20 years by which many large Lebanese banks focused their attention on financing the needs of the public sector. Describing the approach of most local banks as taking deposits and placing these funds in sovereign instruments such as treasury bills, Khalife says the resulting gap in supply of finance awarded Creditbank its opportunity for expansion: “The private sector was thirsting for a bank that was willing to focus on the financing of the private sector.”
Growth, not profits
With its emphasis on the virtuousness of lending so highly pronounced, Creditbank has at times maintained a lower ratio for primary liquidity to assets than many of its peers. In 2011 it was below 20 percent for this ratio. However, the bank focused on increasing the ratio in 2012 and 2013 and by end of last year it showed 30.12 percent primary liquidity to assets, close to the peer group average of about 31 percent.
Creditbank’s growth strategy prioritized the implementation of technologies in anticipation of customer demands and the creation of an institutional culture that was at times more capacious than warranted by the size of operations. “We have been managing the bank as an institutional player for more than 20 years. We were very small and yet acting as an institutional player,” says Khalife.
During those years, investments into capabilities were top priority and short-term profitability was not a major target, he adds. “We have done a lot to subscribe to consistency and length of vision. Creditbank could have made greater profits, but we would have lost perception of the client and would have lost our branding culture and our capability to grow.”
In practical terms, the bank invested in automated teller machines at a time when it had just a handful of branches and this expenditure on ATMs ate up almost half of that year’s profits. On the side of ownership, the emphasis on the long term meant that the bank parted ways with shareholders who were not willing to forego quick returns.
In the two decades since Khalife has joined the bank that was cofounded by his father, his shareholding first underwent a massive, phased increase from 8 percent in 1992 to 95 percent in 2004. In the past ten years, however, the trajectory reversed. New shareholders came on board and Khalife reduced his stake by more than 30 percentage points to a current majority of just over 50 percent.
The bank’s structural milestones entailed an acquisition, in 2001, of the Lebanese branch of French bank Crédit Lyonnais, and a 2002 name adjustment to Creditbank from the original Crédit Bancaire. According to Khalife, the reasons for the adjustment were legal consolidation under a single name and a tightening of the bank’s appearance. A complete rebranding has been implemented over the past year and is nearing completion, with measures such as furnishing branches for one-to-one customer interactions instead of counter-based traffic.
Beyond the glass ceiling
Creditbank is not currently pursuing new international growth. It scaled up its shareholding in an Armenian entity, Anelik Bank, to full ownership in 2013 from 51 percent acquired four years ago. It also owns a unit in Russia, Anelik RU, which is specialized in the money transfer business.
“I don’t think growth abroad is in our dictionary today,” Khalife says, adding that he sees no attraction in markets with many advanced players, such as Turkey or the Gulf region. However, he seems amenable to someday contemplating opportunities in less developed markets in Central Asia.
Khalife sees Creditbank’s competitive edge in the current economy as residing in its risk culture. He reasons that the experience of extending credit to the private sector gives it an advantage over banks which are switching from a profit culture to a risk culture and thus may have to pay a price for aggressively pushing loans on customers they don’t know well enough.
The bank has been investing in its staff, which includes 15 women among the 38 persons in the top layers of management, and into tech-driven delivery channels, such as mobile banking. The strength of the domestic workforce has reached about 500 persons and an internal training academy is on the agenda, as is a new communications apparatus. All in all, the bank is at a stage in which Khalife regards further growth as a must. “I have to grow the bank because our culture is not one for small entities. It is made and built to be a big bank,” he says.
The perspective correlates well with the Creditbank’s head office location in the Sin El Fil district of greater Beirut — the surrounding streets smack of new commercial developments.
When Khalife leans back in his chair, his eyes can roam high. His office in the top floor of a commercial tower has a glass ceiling and above it is nothing other than the — mostly blue — Lebanese sky. He says Creditbank will increase its growth beyond all previous measure in the next 24 months and he has a very clear view of his position then.
“I have to bring in new capital,” he says. In the process Khalife readily agrees that the future will see dilution of his direct control. “I still have the majority, but I am not going to hold it for long. I can guarantee that the bank will at least double in assets over the course of the next two years and of course I will no longer be the majority holder.”