Banking on the good times

Assets and deposits in the Lebanese banking sector keep on increasing although loan portfolio

The banking sector in Lebanon continued to witness sustained growth throughout the first half of 2004, continuing the trend adopted in 2003, which followed a short lull. Total banking sector assets grew by more than 11.8% year-on-year, reaching LL94,377 billion as of June 30, 2004. Main growth was driven by growth in deposits, with bank deposits standing at LL64,639 billion at the end of June 2004, up 11.7% from the same period last year, and 4.7% from year-end 2003.

Despite the considerable growth in assets and deposits, the loan portfolio of the Lebanese banking sector did not undergo significant growth. Total loans to the private sector (both commercial and non-commercial loans) grew by only 1.2% between June 2003 and June 2004, reaching LL23,019 billion. At first glance, a somewhat promising development is revealed in the shrinkage of lending to the government by over 6% between June 2003 and June 2004. A close inspection reveals, however, that the drop in lending to the government occurred during the second half of 2003, as banks’ portfolio of government Eurobonds, T-Bills, and other securities increased by 10%, reaching just over LL23,000 billion.

With such a modest growth in lending, banks in Lebanon managed to significantly improve their cash positions over this period. Total cash and reserve accounts in the Lebanese banking sector grew by a staggering 44.8% between June 2003 and June 2004, reaching over LL60,000 billion. The major jump in cash levels occurred during the second half of 2003, where cash and reserve accounts grew by over 36%, while adding another 6.1% during the first half of 2004.

Alpha Group of Banks

The Alpha Group of Lebanese banks, those with deposits exceeding $1 billion, far exceeded the broader sector in its performance during the first half of 2004. Total asset growth of the Alpha Group reached 17.4% year-on-year, and 6.4% during the first six months of 2004, to reach a total of LL70,969 billion. Customer deposits leaped almost 18% year-on-year and almost 6.8% since the beginning of the year to reach LL59,477 billion by the end of June 2004.

On the other hand, however, the growth in the group’s loan portfolio failed to match the growth in assets and deposits, as total loans added only 3.6% year-on-year and 3.7% since January 2004 to reach LL12,654 by the end of June of this year.

From an earnings perspective, the group’s overall performance, notwithstanding that of some of the leading banks, was somewhat subdued. Net income for the group inched up less than 1.6% year-on-year by June of 2004, reaching LL290 billion. Net interest received by the Group – prior to provisions – remained almost flat year-on-year, adding less than 0.2%. Significantly lower provisions during the first half of 2004, however, lifted the year-on-year growth of net interest received after provisions to 5.3%. The group also benefited from a year-on-year growth in net financial income by 5.8%, while overall operating expenses jumped more than 9.4% over the same period.

Banque Audi-Saradar

As the highly publicized merger of Banque Audi and Banque Saradar was concluded during the first half of 2004, the newly named Banque Audi Saradar published its first consolidated set of financial statements for the first half of 2004. Banque Audi’s unconsolidated total assets grew by a staggering 28% between June 2003 and June 2004, reaching LL11,727 billion, excluding those of Banque Saradar. Post-merger total assets exceeded LL14,704 billion by the end of June 2004, making the bank Lebanon’s largest, with more than 15.5% of total banking sector assets in the country.

On a stand-alone basis, Banque Audi continued to impress the market, yet again beating its historical half-year performances, as well as that of its peers. Banque Audi’s customer deposits jumped by almost 31% year-on-year by June 2004, reaching LL10,035 billion, or around 15% of total deposits in the Lebanese banking sector. The post-merger balance sheet reveals total customer deposits at Banque Audi-Saradar reaching in excess of LL12,365 billion, bringing the largest bank’s market share of customer deposits to more than 19%. The bank’s loan portfolio jumped by more than 57% between June 2003 and June 2004, partially due to Banque Saradar’s loan portfolio. Total loans held on Banque Audi Saradar’s balance sheet reached LL3,104 billion by the end of June 2004. The majority of the loan portfolio remains in the form of commercial loans, which account for almost 70% of total loans. The newly merged bank’s balance sheet reveals a hefty increase in liquidity levels. Cash held at the Central Bank as well as the bank itself jumped from 26% of total assets in June of 2003, to 33% in June of 2004, more than doubling in value and reaching LL4,805 billion. In parallel, deposits at other banks and financial institutions grew by 132% year-on-year, mainly due to the acquisition of Banque Saradar. Such deposits currently account for 20% of total assets at LL2,902 billion, compared to just 14% in June of 2003. Alternatively, investments in Lebanese government bills dropped from 28% of total assets in June of 2003, to just 18% in June of 2004, growing by just 1% year-on-year, reaching LL2,604 billion. Banque Audi also continues to impress in its income side, with the bank’s net income, excluding that of Banque Saradar, growing by 7.4% year-on-year to LL42.73 billion during the first half of 2004. Due to the difference in scale between Banque Audi and Banque Saradar, the additional profits from the acquisition do not reflect greatly on the combined bank’s income statement, with total consolidated profits for the first half of the year still at LL42.73 billion.

Net interest income grew by more than 35% between June 2003 and June 2004, with the majority of the growth coming from Banque Audi’s performance on a stand-alone basis. Net interest received after provisions totaled LL98.43 billion during the first half of 2004, compared to LL72.60 billion for the corresponding period in 2003.

Staff and operating charges also grew considerably, mainly due to the acquisition of Banque Saradar. Total staff and operating expenses increased by more than 37% year-on-year between June 2003 and June 2004, reaching LL98.33 billion.

BLOM Bank

After getting bumped off the top of the list of largest banks in Lebanon, BLOM Bank is not sitting idle, undertaking aggressive growth measures to regain its trademark position. The bank’s total assets grew by almost 22% year-on-year between June 2003 and June 2004, reaching LL14,490 billion. Customer deposits continue to grow, adding almost 19% between June 2003 and June 2004 to reach LL12,591 billion. The bank’s loan portfolio continues to account for around 13% of total assets. BLOM’s total loan grew by just under 7% between June 2003 and June 2004, reaching LL1,881 billion, with commercial loans again account for the vast majority of outstanding loans. Investments in government bills were reduced substantially during the first half of 2003, with all of such investments accounting for less than 24% of total assets by June 2004, from almost 30.5% in June of 2003. Total such investments dropped by almost 5% year-on-year to reach LL3,462 billion by the end of June 2004.

The higher deposits, modest growth in loans and reduction in investments in government bills ultimately resulted in increased liquidity levels at the bank, which saw its cash and reserves accounts grow by almost 48% between June 2003 and June 2004. Cash and reserve accounts reached 31% of total assets during the first half of 2004, at LL4,458 billion, from 25% of total assets during the corresponding period of 2004.

As the now second largest bank in Lebanon, BLOM Bank also registered impressive income growth between June 2003 and June 2004, with net income adding 6.1% to reach LL68.48 billion, ensuring that BLOM still holds the lead in terms of profits.

Interest income remains the main contributor the bank’s income statement, with net income received after provisions reaching LL110.53 billion during the first half of 2004, compared to LL103.31 billion during the corresponding period of 2003. This represents a healthy year-on-year growth of almost 7%.

The bank’s expense structure took a modest hit during that period, which was not unusual given the bank’s aggressive growth. Total staff and operating expenses increased by 7.6% between June 2003 and June 2004, reaching LL57.86 billion.

Byblos Bank

While the market’s focus was primarily on the battle for the position of “largest bank in Lebanon” between BLOM Bank and Banque Audi Saradar, Byblos Bank saw the opportunity to make some serious inroads in growth and market share. Byblos Bank’s total assets grew by 12.7% between June 2003 and June 2004, reaching LL9,677 billion. Customer deposits recorded a staggering growth of almost 14% over the period, reaching LL7,966 billion. On the other hand, the bank’s loan portfolio did not register any significant growth, remaining almost flat at LL1,846 billion.

Investment in government and related bills also dropped at Byblos Bank. The totality of such investments accounted for 23% of total assets at the end of June 2004, compared to almost 34% during the same period in 2003. The bank’s portfolio of such investment shrank by more than 22%, reaching LL2,248 billion at the end of June 2004.

Such growth in deposits, stable loans portfolio and reduced investments in government bills resulted in an overall improvement in the bank’s liquidity positions, with cash levels increasing by more than 53% to reach LL3,415 billion.

Along with the impressive balance sheet growth observed on Byblos Bank’s statements during the first half of the 2004, the bank managed to translate some of this growth into additional income. The bank’s net income grew by just over 1.3% during the first half of 2004, compared to the first half of 2003, reaching LL37.7 billion. Net interest received after provisions, however, receded by almost 10% over the period, reaching LL79.0 billion, despite an aggressive reduction in provisions, which dropped from LL9.35 billion during the first half of 2003 to LL3.76 billion during the first half of 2004.

Bank of Beirut

Bank of Beirut was another strong performer during the first six months of 2004, albeit to a lesser extent than the Alpha Group as a whole. Total asset growth reached 10.4% year-on-year and 2.45% since January to LL5,630 billion, pushing the bank up one notch to the 5th largest in Lebanon. Customer deposits added 9.5% year-on-year and 1.4% for the first six months of 2004 to reach LL3,864 billion. Just as with the overall banking sector, Bank of Beirut’s loan portfolio saw only modest growth during the first 6 months of 2004, with total loans standing 1.8% above June 2003 levels, growing by 2.9% during the first 6 months of 2004, to reach LL963 billion.

Bank of Beirut was one of the new top banks in Lebanon to increase its investments in government bills during the first half of 2004, with total such investments reaching 38% of total assets, at LL2,127 billion, thus registering a year-on-year growth of almost 3%.

Nevertheless, the bank managed to further improve liquidity levels by boosting cash reserves. Cash and central bank accounts jumped by over 25% between June 2003 and June 2004, reaching LL1,369 billion.

After having outperformed its peers on earnings during the second half of 2003, Bank of Beirut fell behind during the first half of 2004. The bank’s net income grew by only 3.95% since the beginning of the year, reaching LL15,886 million. Nevertheless, better management allowed the bank to improve its net interest margin before provisions, growing it by more than 39.9% since January of 2004. The growth was somewhat offset by higher expenses, however, which grew by almost 38% over the same period, largely because the bank has hired more staff.

Banque Libano-Francaise

Banque Libano-Francaise (BLF) was one of the poorest performers among its peers during the first half of 2004. Overall asset growth reached only 1.4% year-on-year and 0.9% since the end of 2003, reaching LL5,478 billion. As a result, the bank lost its 4th place on the list of largest banks in Lebanon, sinking to 6th. BLF’s customer deposit base managed to inch up 2.6% year-on-year and 0.2% during the first six months of 2004, reaching LL4,765 billion by the end of June 2004. In tandem with the trend, however, the bank’s loan portfolio remained practically unchanged year-on-year, and inched up 0.5% since the end of 2003, to reach LL1,694 billion by the end of June. BLF was one of the few banks among the Alpha Group to suffer a drastic drop in net earnings during the first six months of 2004. The bank’s net income during the first six months of 2004 sank by almost 23%, reaching LL10,995 million. While the bank’s net interest margin actually improved slightly over the period, the drop in net earnings was mainly due to a 22% shrinkage in non-interest income. Total expenses were kept in check, however, growing by just over 1.5% since the end of the year.

BBAC

BBAC’s performance during the first half of 2004 was more or less in line with its peers, even though the bank fell behind in overall balance sheet growth. BBAC’s total asset base widened by 8.2% year-on-year and remained practically flat since the end of 2003, reaching LL3,207 billion by the end of June 2004. Total customer deposits grew by 7.5% year-on-year as of June 2004, and 2.4% during the first six months of the year, to reach LL2,863 billion. Alternatively, BBAC was one of a few banks to expand its loan portfolio during this period, with total loans growing by 3.6% year-on-year and 7% during the first six months of 2004, to reach LL535 billion by the end of June 2004.

On the earnings side, while BBAC’s net income for the first half of 2004 stood only 1.4% above the levels recorded during the first half of 2003, the bank’s bottom line shot up more than 100% above that of the second half of 2003, reaching LL15,083 million. Better credit management allowed the bank to benefit from a 31.3% rise in net interest margin after provisions, compared to levels observed during the second half of 2003. In addition, net financial income jumped up 23.4% since the beginning of the year, coupled with a 7.5% drop in overall operating expenses.

BLC Bank

After undergoing massive restructuring following the bank’s takeover by the central bank, BLC Bank prides itself as being of the best comeback stories in recent history of the banking industry in Lebanon. The bank managed to vastly outperform its peers during the first half of 2004, with growth in total assets reaching 27.9% year-on-year and 12.6% for the 6-month period, reaching LL2,562 billion, and resulting in the bank taking over the 11th position in the list of largest banks in Lebanon. Customer deposits leaped 29.2% year-on-year and 15.3% since the end of the year, to reach LL2,152 billion by the end of June 2004. In terms of earnings performance, BLC Bank’s net income jumped 122.1% year-on-year and a staggering 218% during the first six months of 2004, peaking at LL13,235 million. An improved net interest margin and better credit management allowed the bank to raise its net interest margin after provisions by 17.7% year-on-year and 5.8% during the first six months of 2004. In parallel, the bank’s financial income shot up 13.6% during the first six months of 2004. Such developments, coupled with an almost 12% drop in operating expenses during the first half of 2004, contributed to the bank’s impressive bottom line growth.

Credit Libanais

While Credit Libanais failed to match the performance of the Alpha Group in terms of earnings during the first 6 months of 2004, the bank managed to tag along on growth side. Total assets shot up 14.1% year-on-year and 5.5% during the first half of 2004, reaching LL4,281 billion. Customer deposits jumped 12.1% since June of 2003, and 6.1% since the end of the year, to reach LL3,651 billion. Little growth was spotted in the bank’s loan portfolio, which remained almost flat year-on-year, adding 2.4% during the first six months, to reach LL776 billion.

Credit Libanais’s net income as of June 2004 stood 4.4% below the June 2003 level, but 5.4% above that of the second half of 2003, reaching LL16,262 million. Lower provisioning allowed the bank to slightly improve its net interest margin after provisions, which climbed 3.7% during the first 6 months of 2004. A modest growth in financial income during the half of the year, in the order of 2.5%, coupled with a 2.7% drop in general operating expenses, allowed the bank to slightly improve its bottom line during the period.

Fransabank

After putting in an impressive performance during the second half of 2003, Fransabank somewhat lost steam during the first half of the year. Total asset growth reaching 16.8% year-on-year, but just 1.8% since January, with total assets reaching LL6,275 billion, advancing the bank to 4th place on the list of largest banks in Lebanon. In parallel, customer deposits as of June 2004 stood 19.0% above previous year levels, but practically unchanged since the end of the year, reaching LL5,047 billion. Surprisingly, however, the bank’s loan portfolio witnessed a significant shrinkage, of 11.2% year-on-year and 3.9% during the first six months of 2004, reaching LL848 billion.

On the earnings side, Fransabank’s performance was somewhat mixed. The bank’s net income for the first six months of 2004, while standing more than 17% below that of the first half of 2003, improved by over 20% compared to the second half of the year. The bank’s net income as of June 2004 reached LL38,988 million. The bank’s net interest margin suffered a blow during the first six months of 2004, dropping by 14.6% since the beginning of the year, due to the combined effect of higher provisions and narrower interest margin. The deterioration in interest margin was offset, however, by an 11.3% improvement in financial income during the first six months of 2004, which contributed positively to the bottom line, despite the almost 10% rise in operating expenses.

Intercontinental Bank of Lebanon

Although not one of the highly publicized banks in Lebanon, Intercontinental Bank of Lebanon put in some incredible growth during the first half of 2004, albeit at a serious expense to profitability. The bank’s total assets leaped more than 32.3% year-on-year and 10.5% for the first half of the year to reach LL1,654 billion, as customer deposits shot up 39.4% year-on-year and 14.4% since the end of the year, peaking at LL1,560 billion. As a result, however, the bank did manage to gain one notch to 12th position on the list of largest banks in Lebanon. The bank’s loan portfolio grew by 8.2% year-on-year, but hardly increased compared to end-of-year levels, leveling off at LL236 billion.

Such growth came at the hard expenses of profitability, however, as the bank’s net income dropped 25.3% year-on-year and 23.8% during the first six months of 2004, leveling off at LL5,108 million. The bank suffered a drop in net interest margin after provisions of 14.1% during the first six months of 2004, which, along with a 12% drop in financial income and an 8.2% rise in operating expenses, ultimately contributed to the reduction in the bottom line.

Lebanese Canadian Bank

Lebanese Canadian Bank was undoubtedly one of the leading performers of the Alpha Group of banks during the first six months of 2004, registering strong growth across the board. The bank’s total assets leaped 38.5% year-on-year and 15.6% year-to-June 2004, reaching LL3,011 billion, pushing the bank to 10th place on the list of largest banks in Lebanon. Customer deposits increased by 37.9% year-on-year and 18.4% since the end of 2003, peaking at LL2,653 billion. The bank’s loan portfolio almost grew, adding 16.3% year-on-year and 5.5% during the first 6 months of 2004, reaching LL383 billion. In parallel, the bank’s net profits leaped 53.3% year-on-year and 39.3% compared to the second half of 2004, reaching LL14,101 million. The bank saw improvements across the board, with net interest margin after provisions improving by 52.5%, and net financial income by 29.9%, vastly offsetting the 21.4% rise in operating expenses.

Societe Generale de Banque au Liban (SGBL)

SGBL’s performance during the first half of 2004 was more or less in line with the bank’s historically modest growth trends. Total assets grew by 4.6% year-on-year and 2.4% since the end of 2003, reaching LL3,893 billion, while customer deposits grew by 18.0% year-on-year and 5.6% during the first six months of 2004, to reach LL3,121 billion. Growth in the bank’s loan portfolio was more modest, settling at 3.1% year-on-year and 2.6% year-to-June 2004, leveling off at LL1,237 billion.

NB The policies of Banque Méditerranée regarding the publishing of data precludes their inclusion in this report.

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