In a year where deadlines for global economic recovery were repeatedly pushed back like a teenager’s weekend curfew, Lebanon’s banks managed to sail through 2010 with relative ease. Commercial banks’ total assets climbed 10 percent year-on-year to $126.7 billion at the end of September, despite a slight falling off of capital inflows.
Deposits constituted 82 percent of the banks’ balance sheets, growing by 8.4 percent to reach $103.9 billion at the end of the third quarter. Ninety percent of that deposit growth was contributed by residents while, in line with capital inflows trends, new non-resident deposits shrank to 10 percent of the total, after constituting 28 percent over the same period in 2009.
Net profits increased by 37 percent in the first nine months of the year, but the real battle cry of the banking sector in 2010 was lending. Celebrated by Executives and analysts alike, lending at Lebanese banks saw a 19.2 percent rise in the first nine months of 2010 — growing from $28.4 billion at the end of 2009 to $33.8 billion at end-September 2010, representing year-on-year growth of 63 percent. Of this expansion, 84.5 percent of loans went to the domestic private sector.
Dollarization of lending has continued its downward trend spurred by incentives from Banque du Liban (BDL), Lebanon’s Central bank, which lifted reserve requirements on local currency lending to 60 percent of economic sectors. These circulars began in June of 2009 and have been extended until June of 2011. Dollarization of lending stood at 81.2 percent at the end of the third quarter.
However, despite obvious growth and apparent demand, Lebanese banks must still look outside the country to deploy their massive funds.
“It is indeed difficult to find use for all the funds we are receiving, so the only way to continue this expansion and to continue to grow our balance sheet is to continue to fund clients outside of the country,” said Walid Raphael, general manger of Banque Libano-Francaise to Executive in May.
As of the end of September, delinquent loans represented 4.3 percent of all lending: down from 5.7 percent in 2009.
Onward and outward
Excessive levels of liquidity and looming domestic stability risks caused banks to continue the suggested central bank strategy of opening branches and offices outside of Lebanon.
“The local Lebanese market is saturated with banking services, which made [BDL] eager to encourage banks, such as ourselves and others, to expand outside the local market,” said Chawki Badr, head of international expansion at Bank of Beirut and Arab Countries, to Executive in May. This trend is the continuing adherence to an intention expressed some years ago by BDL Governor Riad Salameh, which he said, in May, should be continued.
“Our objective here is to decrease the sensitivity of Lebanese banks to the Lebanese sovereign rating and also to have a sector that would enrich our balance of payments and provide opportunities for employment, because the Lebanese have skills in financial services and banking, and you can see them working everywhere in the world,” said Salameh.
Banks are limited to investing 50 percent of their funds abroad and Salameh has expressed that the goal is for 50 percent of bank revenues to soon come from abroad as well — an effort that will hopefully raise the credit ratings of Lebanese banks, which currently stand below investment grade as they are tied to the sovereign rating.