E Economist Marwan Iskandar recently said that it is not realistic to think that Lebanon has not been affected by the global financial crisis, especially considering the public debt; what’s your take on this?
Our customer deposits represented almost 90 percent of our funding base. Boring banking, boring banks. Lack of sophistication based in commercial banking is why Lebanese banks have been insulated from the crisis.
What Iskandar is saying is true in marginal terms, not absolute terms. The International Monetary Fund has forecasted real gross domestic product growth for 2009 between 3 and 4 percent. Global GDP will witness a negative growth of negative 1.5 percent. This drop in our growth rates translates into some of the burdens felt by the global financial crisis, but it’s a mix of positive and negative contributions, with a net contribution still positive, but at 3 percent, not at 8.5 percent. At this point of the year, it is too early to confirm what Iskandar is saying or not.
E Some believe that by lending the government money, Lebanese banks are perpetuating the country’s debt problem. How much longer can the banks carry Lebanon’s debt?
It’s a political statement, it’s not an objective or professional statement. Nobody imposed the subscription to any public paper on the banks. At the end of the day, the government has to pay salaries to the public servants, so if there is no income, you either borrow or you sell assets. This easy borrowing has made the politicians’ lives easier in not feeling the need to reach a consensus on financial reforms. Easy borrowing has provided an exit.
If you evaluate all pubic assets, and you allocate a very conservative value to each of those assets, you will reach a bottom line which is much bigger than the outstanding debt. So the Lebanese government is not in a situation of technical bankruptcy, whereby their asset value is lower than their outstanding debt. Their asset value is still higher than their debt. The issue is more one of cash flows than of net asset value.
E Due to the slower pace of lending to the private sector compared to public sector lending, many feel that banks in Lebanon should increase their lending and are pressuring the central bank to lower the interest rates in order to stimulate investment in the private sector. What is your take on this?
At the end of the day, figures talk. The consolidated exposure of Lebanese banks to the domestic private sector in terms of lending is almost 100 percent of GDP. The benchmark worldwide is 60 percent. It’s a false problem that has been created by politicians. We are at 85 or 90 percent lending to the private sector. When you have such a high level of exposure in Lebanese banking, you shouldn’t even dare to mention that we are under-lending to the private sector.
If you go into the breakdown of the overall portfolio by size of companies and how much we are lending to big corporates, with respect to middle size corporations and small to medium [sized] enterprises (SMEs), there is a [higher] concentration in the bigger corporations. That is because of the contribution of those important borrowers to the GDP of Lebanon. If 80 percent of my portfolio is concentrated on tier 1 companies, it’s because the top 100 companies in Lebanon contribute up to 80 percent of the GDP formation in Lebanon.
I agree that we should give more loans to SMEs in order to increase their contribution to the economy of Lebanon, but it’s a matter of governance much more than one of size. SMEs are mostly family profiled or not legally organized. The responsibility is not at the level of the banks, because those companies have not developed into well organized companies eligible for bank loans.
E Do you expect to see mergers and acquisitions in the Lebanese banking sector?
On the regional scene, there is a place for one or two mega Lebanese institutions [to merge]. This is something that frustrates me a little bit because this should have been encouraged by the central bank. It will definitely happen. Among the top 10 banks in Lebanon we have to see two or three mega-mergers. What we have witnessed so far are lobsters eating shrimps; what we need in Lebanon is lobsters marrying each other.