UAE restricts structured products
On August 2nd, the United Arab Emirates’ central bank issued a circular instructing Emirati banks to withdraw from selling structured products.
“Should a bank wish to sell a structured product to its customers, it will have to submit to the central bank a written request with the relevant details and the rationale for asking an exemption to this rule,” stated the notice.
Evidently, the UAE Central Bank made this move in order to avoid future defaults and severe problems. Many banks in the UAE had invested in structured products up through 2008. Once the global financial crisis took hold, banks across the UAE and the GCC faced major liquidity problems. Consequently, the UAE sovereign had to bail out the financial institutions in order for the economy to stay afloat. This recent circular by the UAE Central Bank should improve regulation of local banks, while avoiding any major fallouts that could derive from structured product investments.
Lebanon resilient, but public debt looms
Earlier this year, the International Monetary Fund reported that the Lebanese economy would grow by 4 percent in 2009. Now, the IMF has revised this projection and believes the economy could grow considerably faster than previously thought — even when most emerging economies are still profoundly affected by the global credit crunch.
The IMF was worried about Lebanon’s extreme vulnerability at the start of the global financial crisis in September 2008, as the economy had one of the highest government debt-to-GDP ratios in the world, a large and heavily dollarized banking system (with substantial exposure to the public debt), and its local currency pegged to the US dollar.
With Lebanon’s ongoing deposit inflows, high liquidity levels, strong and conservative banking sector, improved internal security conditions and a small export base, the IMF says these key factors are responsible for the country’s resilience. Yet, the national debt still remains a major issue.
According to Bank Audi, by the end of June 2009 the public deficit stood at $47.3 billion — 160 percent of GDP. This is down from $47.9 billion in May 2009, $48 billion in April and $48.2 billion in March 2009. “This continuous decline has diminished the year-to-date increase to a mere 0.6 percent in the first half of 2009, as compared to 5.8 percent in the same period in 2008.”
However, the IMF warns that Lebanon could still be at risk in the future, thus, substantial reduction of the country’s debts should be the top priority. The IMF says this will take many years of continued fiscal regulation and will necessitate solving the problems in the electricity sector.
Emirates’ liquidity up
Liquidity in the UAE banking sector is reportedly on its way to recovery. Published in August, a report by the Dubai Chamber Economist credited the Emirates Interbank Offered Rate (EIBOR) for encouraging liquidity inflows into the banks operating in the UAE. The EIBOR rate currently stands at a low of 3 percent, significantly down from its peak of 4.6 percent in November 2008.
“The significant easing reflects the improvement in market sentiment over the past few months and strong appetite of banks to start lending to each other,” the report said. “Some observers suggest this trend is likely to continue throughout the remainder of this year.”
Speaking to Emirates Business 24/7, Sanjoy Sen, consumer bank head of Middle East at Citibank, noted the recent increased levels of liquidity into the UAE market. “Yes, we see a lot of liquidity entering the market. A lot of investment that was going into the property market is now coming into the bank as deposits.”
“In the past few months we have witnessed funds, which were earlier held abroad, being moved back to the UAE. This is a very healthy trend for this market and consumer confidence has been further boosted by the UAE government’s deposit guarantee scheme that covers all local and foreign banks.”
UAE Central Bank data illustrates the improved conditions. Figures say that banks raised $15.3 billion in cash deposits in just the first six months of 2009, while only lending $3.6 billion during the same period. The loan-to-deposit ratio gap has significantly decreased since the beginning of the year; at the end of January the gap stood at $24.5 billion, while by the end of June this figure had dropped to $12.9 billion.
“This clearly suggests that the gap is narrowing considerably in a short space of time. Overall, the banking sector’s finances are starting to look healthier,” the Dubai Chamber Economist report said.
Lebanese banks solid
August, Bank Audi published a report on the resilience of the Lebanese banking sector, entitled “A Successful Story of Resilience Unscathed by Global Turmoil.”
Based on data from 2008 and the first half of 2009, the report says “Lebanon’s banking sector has witnessed in fact over the past year one of its best performances ever, unscathed by the global financial turmoil.”
From December 2007 to December 2008, domestic banks’ assets grew by 13 percent to $13 billion. Asset growth was mostly driven by customer deposits, which made up $11 billion over those 12 months.
This trend “was extended even further over the first half of 2009, as per preliminary Central Bank statistics,” the report said. “Capital inflows towards Lebanon amounted to above $16 billion in 2008, up by 48 percent relative to the previous year, leaving a large balance of payments surplus of $3.5 billion, a record high for Lebanon.”
Despite all the good news, Bank Audi cautions that in order for domestic banks to remain resilient in the long-term, structural reforms must take place, “to ensure a soft-landing scenario for Lebanon’s public finance conditions that remain worrisome and where the main vulnerability lies.”
Results of BSE listed banks for the first six months of 2009
The results of the first half of the year for the five banks listed on the Beirut Stock Exchange (BSE) are out, proving that the Lebanese banking sector has remained resilient throughout the global crisis.
Combined net profits of Bank Audi, BLOM Bank, Byblos Bank, Banque BEMO and Bank of Beirut increased by 3 percent to $368.1 million in the first half of 2009, up from $357.3 million in the first half of 2008. The banks’ average aggregate net profit growth reached 1.54 percent in the first half of the year.
BLOM recorded the highest growth in net profits with a 5.8 percent increase in the first half of 2009, totaling $138.3 million.
In the first six months of 2009, the average net assets of these banks increased 10 percent from the end of 2008. BEMO witnessed the largest asset growth from the end of 2008 with a 15.6 percent jump.
The listed banks’ deposits rose by 10.9 percent from the end of last year and 17.8 percent from the end of June 2008, reaching $50 billion. BLOM recorded the lowest loan-to-deposit ratio at 21.7 percent for the first six months of the year, compared to 22.7 percent at the end of June 2008. Byblos Bank came in second place for lowest loan-to-deposit ratio of 30.9 percent, versus 32.9 percent it posted at the end of the first half of 2008. Next came Bank of Beirut with a ratio of 31.3 percent for the first half of 2009, versus 35 percent in June of last year.
Bank Audi, Lebanon’s largest bank by total assets, witnessed a 32.4 percent loan-to-deposit ratio in the first half of 2009, versus 35.8 percent at the end of June 2008. Banque BEMO saw the highest loan-to-deposit ratio amongst the listed banks, with a 47.8 percent ratio versus 48.5 percent at the end of June last year.
