Pushing loans onto consumers has become the fashion among financial service providers — a fashion hardly more concerned with reason and logic than proposing the existence of prefabricated tears and holes around the knees of a new pair of jeans. But, while the latter insanity is only a serious detriment if you want to use your jeans for actual work, like laying bricks on a patio, the former can be ruinous for consumers, as banks push products that carry added risk by catering to advertising-induced, exaggerated, or otherwise non-existential needs. These products are nonetheless well embedded in the profit-seeking culture of contemporary consumerism, in Lebanon as elsewhere. But one Lebanese bank — specifically one that can claim to be rooted most deeply in the territory’s history, even before the founding of the Republic — is pursuing a path less trodden.
BSL Bank, which in various earlier phases of its history carried names from Ottoman Imperial Bank to Banque de Syrie et du Liban, has made waves in the market since the beginning of this year. It began by offering the unthinkable: a housing loan with an annual interest burden of practically zero percent. In spring, it followed with a personal loan that proposes an annual percentage rate (APR) of 10.62 percent. APR — which reflects real interest charges and other costs of a loan and is mandated by the central bank to appear in loan advertisements — is not an intuitive concept that lends itself to back-of-the-napkin computation by consumers, but it is easy to compare APRs under the simple rule that lower is better.
By this comparison, most personal loans in Lebanon have, in recent years, been priced at four or more percentage points above BSL’s new offering. According to BSL General Manager Elias Alouf, customers are not eligible for the loan if they are a foreigner (as per every bank in the country) or have too few zeros on their monthly paycheck (the floor for loan qualification is a monthly income equivalent to $2000 or $2,500 for the self-employed). Neither will the loan be approved if the cash is to be blown on a cruise, lavish celebration, high-priced image-boosting car, or some other conspicuous consumption extravaganza.
At first, this array of lending conditions brings to mind a quote by 20th century American comedian Bob Hope, who famously said that “a bank was a place that will lend you money if you can prove that you don’t need it.” But, Alouf describes the BSL’s approach as a matter of practical prudence — the risks of a low earner defaulting on a loan are exponential when compared with mid-income families, he says. He portrays BSL as balanced between “agile and disciplined,” claiming that this is the bank’s strength. “Being simultaneously agile and disciplined makes a bank flexible and enables it to promote its products and services rapidly, but at the same time we will never forget the basics of banking,” he elaborates. This identity matrix appears to be topped off by classical societal principles, and perhaps, a dose of some patronizing behavior. “We really are orientating the bank toward helping the Lebanese to stay in Lebanon, buy their houses, and create their own business,” he explains.
Next, he lowers his voice to a conspiratorial whisper and apologizes in advance for uttering the “e” word. “Excuse me, this is ethical,” he says when explaining how BSL will not push its customers into borrowing for purposes of conspicuous consumption, leisure, or even the financing of big family events such as weddings and christenings. “These are things that should not be financed by banks. Bank financing is for necessities. For us, everything that is leisure, travel, etc., is not a necessity,” he says.
In his view, people should save if they want to go on a vacation, rather than overburden themselves with debt that can turn a two-week holiday into a years long commitment to loan installments. According to BSL, self-financing such enjoyments is the correct path and it will therefore always inquire of loan applicants their objectives for borrowing before deciding whether to approve the loan.
To entertain such a strategy, a lender has to be selective as well as self-restrictive, and operate on principles that at times are likely to get in the way of maximizing profit. “We don’t want to only be a profit-oriented bank,” Alouf says. “We want to contribute and help people as much as we can. When you look at the basic needs of the population, they need to buy a home, they may need a personal loan to renovate their apartment, they need to educate [their] children, insure retirement and that’s it. I will not finance a lifestyle.”
He acknowledges that this can be viewed as an attempt to change the mentality of Lebanon’s loan-happy consumers, but emphasizes that BSL does not aspire to move behavioral mountains in an instant. “We are a mid-sized bank, not one of the top banks, and we are not going to tell you that we are going to change the mentality of consumers. [But] people will always make comparisons, and they will see a bank that is not [goading] them to take loans, but instead is advising them in certain cases not to take a loan. It will have impact on the consumers, trust me. But not to a very large extent. It is a snowball effect,” he says.
Bank financing is for necessities. For us, everything that is leisure, travel, etc., is not a necessity
Besides seeking to distinguish their lending through new retail products, Alouf and Youmna el-Khoury, business manager and head of marketing at BSL, tell Executive that the bank is preparing to roll out new digital strategies and new card services by the end of this year. “Consumers are overloaded with products and promises from everywhere. At the end of the day, if you don’t want to fight [over customers] with other banks, you need to find an innovative product for it to be accepted. By year end, BSL wants to be on par with all major banks in its product offerings,” Alouf says.
Khoury, who has banking in her blood as a member of BSL’s main shareholding family, joined the bank’s management team, at the same time as Alouf in June 2016. According to her, BSL is devoting new efforts into building both customer and employee relationships, in a process she estimates will take around three years. “We are starting today, in 2017, to acquire new clients, and we are also building on our relationships with our existing clients. We are also doing a lot of internal work to communicate with our employees and create this relationship because the best advocates of our brand are our client base and our employees,” she says.
As part of the bank’s digitization strategy, last year BSL began to invest substantially in its e-banking systems and online presence, commissioning an international provider for the development of a website that is scheduled to go live soon. Khoury envisions BSL as an interactive bank where physical branches function as digital banking nodes in which electronic knowledge of the consumer is stored. “I see it as the future where people would go into the branch — I’m not talking about eliminating the branch — and it would be a smart branch, [though] not in the sense of an automated branch as you see it today in some banks in Lebanon. When a customer steps in, the employees at the smart branch would know exactly who this customer is, if they have a loan and a need for a new car,” she explains.
Alouf admits that customers will not migrate to BSL if the bank only provides the same offerings as its many competitors in the Lebanese market. Besides rolling out a digital banking strategy and preparing new products on both the lending and savings side, he therefore aims to emphasize BSL’s historical competitive advantage: it was the first banking provider to arrive in some regions of Lebanon 70 years ago. This rootedness shows in BSL’s emphasis on what Alouf calls, “basic banking.” This stands in contrast to the recent growth strategies of some other expansionary banking franchises in the Lebanese market, which have more of a background in wealth and asset management or investment banking. Alouf concedes that BSL might consider adding asset management to its offerings later on, but plans today are to grow into the retail area on the asset and liability side. Relying on his more than 20 years of experience working with strategy, compliance, and international expansion projects at two large groups, Byblos Bank and Bank of Beirut, Alouf says that BSL is planning to pursue its growth domestically and organically, at least for the time being.
When a customer steps in, the employees at the smart branch would know exactly who this customer is, if they have a loan and a need for a new car
In its approach to the business segment, BSL is targeting the commercial middle market of established traders and manufacturers with financing needs of up to $1 million. It aims to serve these clients within its fundamental philosophy of prioritizing the client’s best interest as understood by the bank, even if this means advising a client engrossed with the good performance of his or her business against taking a loan for expansion. “In some cases, expansion carries a danger of reducing profit instead of increasing it, and a banker who notices that a commercial client is heading in such direction has to advise a customer against taking a loan to expand,” notes Alouf.
For the branch network, BSL applies a similar approach of deliberate moderation. Arguing that the current network of 18 branches is sufficient for a proximity banking approach in Lebanon, Alouf wants to expand the bank’s workforce from a current staff of 298 to about 325. He says he will make additional hires in the medium-term only if necessitated by employee departures or substantial increases in client numbers, but is not looking to increase the network by adding new branches in the next one to two years.
According to Alouf, the bank’s performance has advanced in terms of profitability, which before 2016 was below targets and trailed behind sector averages, but has seen notable growth beginning last year and a full-year profit growth of 7 percent in 2016. However, he adds that it was only at this level because exceptional gains had been recorded in 2015. “If you remove this exceptional component from profits and compare 2015 and 2016, we had more than 60 percent increase in operating income but on the bottom line it was a 7 percent increase,” he says.
The bank seeks to expand operational profitability and has had good responses to its new housing finance and personal loan offerings, he says, and expects growth this year to be “in the high double digits,” and to achieve core profitability ratios that are on par with Lebanese Alpha banks. While BSL has a high share of independents on its board (seven out of nine board members), the bank, according to Alouf, does not currently plan to go public.