BLOM ahead in Dar spar
A British court has ruled that Kuwait’s Investment Dar should pay back a $10.7 million principal to BLOM Bank, after the Lebanese bank initiated a lawsuit last year to recoup its 2007 investment with 5 percent interest. Investment Dar has refused to comply, claiming the wakala Islamic contract was not compliant with its sharia law charter and thus could not be executed, since the 5 percent return on the principal could be interpreted as interest payment, which is illegal under sharia law. The court has not yet decided on the issue of the extra interest payment, as the case is still ongoing. The Kuwaiti firm’s supervisory board, which assures that contracts agree with the Islamic charter, held a meeting on May 22 and confirmed that the disputed wakala contract was indeed valid and that Investment Dar court claims are without merit. As investors in the region take note of the possible consequences of entering into a sharia contract, the uncertainty surrounding Islamic finance could lower the credit ratings of Islamic institutions, according to a research note sent out by Moody’s in May. Investment Dar, which owns half of the carmaker Aston Martin, is in negotiations with a government committee to restructure its debt, and is the first company in Kuwait to seek the protection of the government under the newly established Financial Stability Law. However, a company statement released on March 13 said the company will not need government funds but rather legal help in restructuring its debts, totaling more than $3 billion. In May of 2009, Dar defaulted on a $100 million Islamic bond, which was the first default in the Gulf Cooperation Council region on an Islamic bond.
IMF urges structural reform for Lebanon
Lebanon’s Central Bank Governor Riad Salameh says confidence in Lebanon’s banks remains strong and that the focus for now is to maintain a constant interest rate and fight inflation, which he expects to stay at 4 percent throughout 2010. The remarks were made at a June 3 press conference held at the Central Bank, where International Monetary Fund representative Eric Mottu discussed the recently published Regional Economic Outlook for the Middle East and Central Asia. Salameh stressed that it is important to look at the markets in the Middle East and North Africa as well as Europe, since Lebanon depends on these markets to employ its citizens. Mottu advised Lebanon to focus on structural reforms rather than fiscal and monetary stimuli to help growth. Salameh added that the balance of payment surplus is currently a record $1.4 billion, and that bank deposits total $106 billion.
Lebanese banks’ assets skyrocket
There was an upsurge of total consolidated assets held by Lebanese banks during the first four months of 2010, according to Bank Audi. The measurement reveals that banks held $120.6 billion in total assets by the end of April 2010; this 4.7 percent growth in bank activity is double the average growth measurement for the first quarter in the previous eight years. Customer deposits, the strongest driver of growth in this period, totaled $99.1 billion at the end of the first quarter, a growth of 3.5 percent quarter-on-quarter. The increase of deposits in Lebanese lira accounts for 73.7 percent of the growth, which means the deposit dollarization ratio fell to its lowest level in 10 years, to 63.2 percent. Bank loans also broke growth records, expanding by 9.4 percent in the first quarter to total $31.0 billion at the end of April. Net foreign assets of Lebanon’s Central Bank rose by $1.96 Billion, causing the cumulative balance of payments to top off at a record $1.4 billion, showing growth of 23.4 percent compared to the same period last year.
Bank shares bolster BSE
According to figures released by the Beirut Stock Exchange (BSE), bank stocks helped pump up aggregate turnover by 369 percent in the first five months of 2010, to reach $1.4 billion, as they made up 91.7 percent of trading volume and 83.9 percent of the total value of shares traded. The 81 percent rise in total trading volume, compared to the same period last year, is partly due to Lebanese banks selling off sizeable stakes, according to a report by Byblos Bank. In January, EFG Hermes sold its nearly 22 percent stake in Bank Audi. In the same month, Byblos Bank sold an 8 percent stake to International Finance Corporation, the private unit of the World Bank, and $30 million worth of common shares to Proparco, the French governmental development unit.
Turkish-Lebanese cooperation
In an effort to pool capital into joint regional projects, Turkish, Lebanese and other Arab nation officials met on June 10 and 11 during the fifth Turkish-Arab Forum in Istanbul to discuss plans to create strategic partnerships between their respective banks in the future. Third Vice-Governor of Lebanon’s Central Bank Muhammad Baasiri expressed his desire for Turkish banks to extend branches to the Arab world. He said more joint cooperation between the banking sectors would lead to progress in joint projects, such as electricity and highway construction, which would in turn receive more support from other regional central banks. Signs of progress have already surfaced as Syrian Finance Minister, Mohammad al-Hussein, revealed that Turkey’s Ziraat bank, the country’s largest lender, may set up a branch in Syria and that officials from the two countries would meet soon to discuss this cooperation. Baasiri stated that training and regulation should be cohesive, suggesting: “Banking regulations in Turkey are in compliance with the bylaws in Lebanon, Syria and Jordan. Diagnosing any conflicting points, gathering periodically every three or six months and increasing interregional banking applications are of the utmost importance.”
Egypt’s mortgage industry set to grow
Egypt, the most populous Arab country with about 80 million people, expects to double its mortgage finance industry from its current total of around $812 million to some $1.4 billion by June 2011. This remark was made by Mostafa el-Hayawan, chairman of Mortgage Finance Fund, at the Euromoney Housing and Real Estate Finance Conference in Cairo on June 15, where analyst research showed that there is demand for about 500,000 new houses per year. The industry has swelled since 2005, when there were only two mortgage finance companies, to reach 11 in 2010. Investment Minister Mahmoud Mohieldin added that the parliament will push for a new mortgage law, already approved by the cabinet, to help increase transparency and growth in the mortgage sector, which currently only makes a small dent of less than half a percent in the country’s gross domestic product. The proposed new law, which would be stricter on loan defaults and regulated by the Egyptian Financial Supervisory Authority, would increase efficiency. Mohieldin wants to boost the growing mortgage sector, which now only has 750,000 customers, by attracting more international firms. He said the average current mortgage loan has a 12.45 percent interest rate and a length of 16.1 years. The government-run Mortgage Finance Fund will also use a $300 million loan from the World Bank to increase its low-income housing subsidies.
Mixed results for GCC bank profits
The first quarter banking sector profits across the Gulf Cooperation Council were mixed, with the highest growth occurring in the United Arab Emirates, according to the most recent report by Kuwait Financial House (Markaz). UAE banking and financial service profits rose to $1.4 billion in the first quarter. Qatar’s banking profits rose 2.5 percent year-on-year, while Oman and Bahrain both experienced steep falls in banking sector earnings, declining 26 percent and 17 percent respectively. Kuwait experienced positive growth in the financial services sector after two previous quarters of loss. In Saudi Arabia, banking sector profits, which account for 33 percent of total profits, fell by 10 percent to $1.5 billion in the first quarter.
