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Rebuilding trust with expatriates and depositors

by Thomas Schellen

According to stakeholders in the renewable energy (RE) field, Lebanon’s banking sector is largely and conspicuously still absent in meeting the current needs of RE finance. At the time when we were writing our energy special report, bank BEMO drummed for a new initiative that, in the widest sense, looked relevant under the fight against deforestation. We got curious and sat down with Riad Obegi, chairman and general manager of BEMO, to talk about the cedar tree initiative, CSR, forestation, and RE finance. 

What is the purpose of the “back to our cedar roots” initiative that BEMO first announced in October? 

Many Lebanese today agree on an idea, to which I personally do not agree, that Lebanon is broke, that there is no money, and that we therefore need to ask money from outside. This is not correct. Our first idea behind this initiative was based on the conviction that, before asking somebody to do something for you, [you should] do something for her or him. To whom should I be give something first? I think these are the people who are closest to Lebanon. The people of Lebanese origin are the people who are closest to Lebanon. 

[Our wealth] is not the oil or gas that is under the Mediterranean. It is the fact that there are Lebanese people everywhere, which creates a natural network. But in order for this network to be efficient, you need to have exchanges. We are going to offer them something, so that we are not beggars. We are trying to establish a connection and this is idea number one. 

Idea number two [is based on the fact] that there is a law in Lebanon that is very old. This is the law that men can pass on the nationality but not women. Personally I feel that this is very unfair. Thus we added a little twist [to our initiative] and said we will do a lottery but we will do it for people who do not have a Lebanese father. 

Everybody agrees that the wealth of a company or a nation is the people. The capital of this nation is the people. [With the law on patrilineal nationality] you are eliminating in every generation 50 percent of your capital. This is absurd. Why would you want to eliminate 50 percent of your capital in every generation? If you consider this your capital, you want, on the contrary, to see that your capital increases. Here, by a stupid law that is outdated, we are eliminating half [of this human capital]. 

So the first idea is to offer something, with nothing asked in return, to people of Lebanese origin, because they are the closest to us. We need a relationship that is closer. And [also] we are sending a message, not being very loud about it, that we should not eliminate half of our [closest people] in every generation. 

How does this initiative work in practice? 

It is a lottery. We have to offer something that is symbolic and what is offered is a cedar tree that will be planted in Lebanon. If you win, you have a cedar planted for you somewhere and you have its location. And hopefully, if you are perhaps in Brazil, you will come to Lebanon one day and will visit your little cedar. We created a very simple website where you could enlist for the lottery that we [held on] November 22, because this is Independence Day. 

Is the financing of this initiative entirely by the bank, or is it from other private sources?

It is financed by the bank. 

At first glimpse, this sounds like planting trees, which is a PR activity that has been done before by many companies, I believe, including your bank. Is this initiative part of a wider strategy, and what activities are you pursuing under the bank’s corporate social responsibility [CSR] framework? 

Yes, we did that already before. We did several activities during the last two years that were inspired by CSR. Actually we did a lot of them. Here I want to mention something that is a little different, which is the Art Blessé, injured art.  After the explosion of Beirut Port we did this initiative because it has three elements to it. One is the artistic element. We think that the art which has been damaged (Obegi points to several paintings that are leaning against the wall in the bank’s executive conference room), can find a new life. There is an artistic aspect that we can think of as new art form, injured art, because there is injured art everywhere.

There also is the humanist aspect. If it is possible to [bring new life to] a piece of art that was damaged, then a person who has been damaged psychologically or physically can also transform themselves and become better. [Under this] humanist aspect of healing, you are telling people: “Look, if the painting can be healed in this way, you can heal yourself as well. You have to depend on someone else, or work with someone else, and you transform yourself. Become better.” This is the second aspect. 

The third aspect is a financial aspect. We bought paintings just after the blast. Because they were damaged, we bought them at perhaps 60 percent of their value. After we did the restorations, we tried to buy [more paintings], and prices went up. People told themselves that an injured piece might become more expensive than it was initially. Therefore, prices go up. 

We also intend to do a salon for humanitarian [dialog]. We think that the dialog among communities is easier in Lebanon [and] is also easier to launch from Lebanon. So we are thinking of doing those three things. 

Is art then the main focus of the bank’s various CSR activities, and does BEMO currently have other, perhaps commercial, activities that relate to renewable energy and climate issues? 

Our communication is based mostly on art. But we also wanted to talk about renewable energy. Here we also think that solar energy is certainly an important part for the future of Lebanon and we want to finance and we want to subsidize this financing. One problem that we have, as all banks, is the lack of “fresh” [money]. Most of our deposits, all banks, are with the central bank, and the central bank has according to the figures 15 billion dollars outside that are not used for the economy. 

For solar energy, if you want to buy [photovoltaic] panels, you have to buy them with fresh [dollars]. If you want to buy inverters, batteries; everything is in fresh. We have allocated an amount for [financing] this. Unfortunately, [this is] short term because for the time being we cannot give long-term [facilities]. But in the short term we are able.

What is the maximum tenor of the facilities?

Six months. We are giving this financing [facility] to importers. Importers have to pay their supplier, they bring the goods, install, and get the money. In this period of time they are able to bring more if you give finance. This accelerates the process. 

We are talking about importers of solar photovoltaic panels?

Solar panels, batteries, and inverters. 

Can you tell us when you started offering this financing and disclose the size of the overall envelope of this lending facility?

We are beginning now, just [a few] weeks ago, and the immediate envelope that we are putting is $3 million dollars. It is not a huge amount but we think it will increase little by little. The next stage will be to finance the [acquisition of solar PV systems by] users but this has to be longer term. If you are a user, you may have some money at home or remittances from outside, but you don’t want to pay everything immediately. 

Could lending for solar system installations by end users include mechanisms that would assure quality of the financed hardware so that systems on household level are not only bought based on low price? Industry sources tell Executive that price has recently been the main factor in solar PV purchase decisions by households but that we need higher quality systems as to avoid recurrent issues such as batteries having too short a lifespan? 

In our first step now, we are financing importers and the importers whom we are financing are of good quality. If they are selling bad things to clients, it will be felt quickly enough and [these importers] will become bad and we will stop financing them. From this angle, I don’t think that we have a big problem. 

Later on, [in financing of solar PV systems] for the users our role is not to check whether the user is making the right decision or not. Our role is to check if he is able to pay and if the supplier is a good supplier. On the day that the Banque du Liban decides that in order to [qualify for] this financing, the [solar loans] need to meet xyz [requirements], we will of course abide by whatever the central bank is going to tell us. But presently we are doing it in the way capitalist companies do. People need to decide for themselves. 

Have you already decided on a starting point of a program that will offer solar financing for end users or is this as yet undetermined?

We have plans to start it at the beginning of next year. I don’t know if we will be able to [meet this target].

Is it then correct to think that no financial envelope has yet been determined for financing solar on household level?

Not yet. It will fully depend on how much we can get from our clients. 

In our recent energy special report, Executive has a comment that proposes crowdfunding from depositors as a way in which depositors could convert their Libano-dollar bank deposits into shares of new companies in the electricity sector and ultimately renewable energy production. Do you see such a mechanism as an option for solar finance that banks could use?

We are talking [in our own program] about fresh dollars, not about local dollars. We have to find people who have money outside Lebanon and tell them: “What do you think? Would you like to put part of this money for financing of solar energy systems?” This is what we intend to do. But we have to give them reassurances. When the situation was getting bad in 2015, 16, 17, [these people] were taking money out of Lebanon or not bringing money to Lebanon, which I think was the biggest part. Now we have to ask them: “What do you say [if] we take your money and put it in[to financing of solar PV]? It is very good for Lebanon.” But they will say, “Very good for Lebanon is okay but I have to think about myself as well”. So we have to give them a few reassurances that if the end we will pay them if the bottom line does not pay. They have to trust us. At the end, we are a bank. 

What would be a good tool to attract such investments? Could it be a bond or a Special Purpose Vehicle, a SPV, where you attract investments from outside or might one perhaps dedicate such SPV to impact investing into small solar? 

I think that a bond would not fly. Who would buy a bond on a Lebanese bank today? Nobody. An SPV would fly, and we have different forms of SPVs. If you tell people that the bank would be the administering unit, which would guarantee the payment and structure all this, but that [they] are putting [their] money into a SPV and not in a bank, it might work. 

Advocates of renewable energy have talked about the International Monetary Fund’s Special Drawing Rights (SDRs) and demanded that the central bank would use SDRs to guarantee finance to lenders who would invest in solar. Would that be feasible in your eyes? 

The central bank has means that commercial banks don’t have. I don’t know exactly what the central bank wants to do, so I would not be able to comment on this. They now have $1 billion and something in SDRs. What they are going to do with this, I have no idea. 

A follow-up question from the climate angle, specifically on the subject of trees. In your press release announcing the “back to our cedar roots” initiative, you mentioned how nice it would be to have a lot of trees  around the entire Mediterranean, and that all of Lebanon and perhaps a large part of the Middle East would be covered by cedars if one were to plant one new tree for each person of Lebanese origin. But would it not take a very long time to plant trees on all the mountains in Lebanon? 

I don’t think so. Planting 10,000 trees is something you can do relatively easily. 

So you are not just planning for the 100 trees that are in the lottery this year?

No, we will do more in the next year. But it is [finding] the space that is the difficulty. How much cedars can you plant in Lebanon? You need to plant [these trees] in the mountains. 

Do you have a target number of how many trees you want to plant next year in this initiative? 

I thought it should be 10,452 because of the symbolic number but I doubt it will be possible. I don’t know if there is enough land for that. 

And what do you tell people who say, “Before you plant cedars, give us back our deposits”? 

I cannot give your deposits to you today. So should I do nothing in the meantime? 

You have emphasized the importance of trust as the essence of banking in an earlier interview with Executive and in announcing the lottery for the cedar trees, the bank also noted that 2021 is “a year of faith.” Do you see the rebuilding of trust between the Lebanese people and their banking sector as making progress? 

I have the personal experience that if I tell a client, “Would you put 500,000 dollars in ‘fresh’ with me?”, he will tell me “I am not crazy, sorry.” We still have a branch in Cyprus and at this branch we had $120 million in deposits, all in “fresh.” We decided to reduce the size of the branch and told our clients that we can transfer the funds to our bank in Lebanon. They clients told us: “We trust you and the proof is that we have our money with you, but we neither trust the government in Lebanon nor the central bank. Why would we transfer to Lebanon?” So we had to give them some assurances. The problem is the government and central bank. I think trust will come quickly if [people] come to trust the government and if they come to trust the central bank. Which is not the case today. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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