Following a very satisfactory 2003 for the country’s major banks, the outlook for the sector in 2004 is guarded but not downcast, said Salim Sfeir, chairman and general manager of Bank of Beirut.
Each and every bank in the sector’s leading stratum could outdo their expectations on the results they realized in 2003, Sfeir told EXECUTIVE. “Talking about 2004 and 2005 is a big question, because markets are slightly down and political uncertainties are still high,” he said. “But nevertheless, our financial forecast for the end of the year is not pessimistic. We look forward to having a smooth year, financially speaking.” Similar to other alpha group banks – the institutions at the top of the national banking hierarchy, with assets of more than $1 billion apiece – Bank of Beirut can point to exponential growth in the reconstruction years, both in size and range of activities. Today ranked sixth by assets and seventh in terms of tier-one capital among Lebanon’s banks, its evolution and performance appears archetypical for the fortunes of the sector’s better-achieving agents.
Entering the 90s as a very small player, Bank of Beirut ventured onto an ambitious path of expansion after installing a new management in 1993. Four years later, it was Lebanon’s third bank to go public, and in 1998, a merger with Transorient Bank completed the foundation that enabled Bank of Beirut to scale the $1 billion assets hurdle. In 2002, the bank made further headlines by acquiring Beirut Riyad Bank in a second large merger move, which contributed to a 2002 increase in assets by over 58% and boosted the branch network to over 40 domestic outlets and a subsidiary in London. The bank also established an international banking unit in Cyprus, adding to its representative office in Dubai at the seat of its strategic shareholder, Emirates Bank International. In parallel, Bank of Beirut in 2002 and 2003 undertook a number of measures to increase its tier-one and tier-two capital, including issuance of $55 million in preferred shares. It enlarged its product and services portfolio through creating new funds, retail and bancassurance products along with installation of a call center and an electronic banking operation. Perhaps more tiring than anticipated, the acquisition of Beirut Riyad Bank and integration of its labor force and customer base “was not an easy meal to digest”, Sfeir concedes, even as he maintains that the bank mastered the merger “in an excellent way. I don’t think it could have been done in a better way.” The bank’s underlying message seems to say that their growth expectations are far from exhausted but under national economic conditions, the next development cycle could be some time away.
Bank of Beirut has, so far, navigated 2004 with care – a mood primarily reflective of what management regards as ‘politically generated’ constraints on local and regional affairs encumbering the investment climate. The bank is party to a widespread sentiment that – positive impact of Paris II notwithstanding – the Lebanese political decision makers still need to fulfill their duty of facilitating macro-economic conditions more conducive for attracting investments. The lack of action on the government’s part has led the banking industry in general, and Bank of Beirut in particular, to declare itself apolitical. This does not mean that the bank would wait for political improvements before continuing their quest to innovate. Recent new products include a competitively priced account with revolving credit for salaried employees and a new lira-denominated housing loan. The bank’s current emphasis on housing loans took off with a product designed especially for Lebanese expatriates, who sought to establish a personal property bridgehead in their home country. As the interest rate environment on the lira has improved and lira products are more feasible than before, lira loans are a logical new product that many banks would follow Bank of Beirut in devising, Sfeir said. “The lira loan is another product. We are not highlighting the lira but promoting higher usage since interest rates have fallen to levels making it mandatory to start planning in this direction.” Like a dollar-denominated domestic housing loan introduced last year, the lira loan offers regressive interest rates.
In continued pursuit of its strategy to offer funds products attractive to small and large investors, the bank last year collaborated with First National Bank (FNB) in the creation of two new funds, the Beirut Global Income Fund in July and the Beirut Lira Fund in October. “Small investors took part in the funds and saw high returns,” Sfeir said. “Investors are well informed today, and expect returns that are higher than what they can gain elsewhere. As long as we are providing those returns, we are reaching our target.” According to Sfeir, the funds collaboration between Bank of Beirut and FNB was to the mutual benefit of both institutions. Could this development indicate a stronger partnership in the making, or perhaps another merger prospect? Not in the current situation, where the law and regulations supporting bank merger activities with central bank soft loans haven’t been renewed. “There is no merger law now; it would be a waste of time to get excited,” he said. “With a merger law, it would be a new opportunity.”
Profitability before size and profit optimization at lowest possible risk levels make for two fundamentals in the Bank of Beirut strategy, translating into an unhurried pace in the bank’s continued ambition for an increased role in regional markets. Together with its partner, Emirates Bank, the institution has applied for a license to establish a presence in Syria. It is also approaching the Nigerian market through a rep office project in Lagos, and – for the longer term – contemplates its entry into Iraq. In Sfeir’s view, international expansion is no easy fix and offshore markets poise high risks for Lebanese banks that venture there. They have to calculate a high costs of funds based on the interest rates paid to depositors, and offshore clients accepting those rates would not be likely to be a model for creditworthiness. “Whoever is going to borrow at our own rates will be a risky partner, on whom we have no control,” Sfeir said, “and this I don’t recommend at all to my people.” He accepts only the top five banks in the country as a peer group for Bank of Beirut and sees the optimal size of the Lebanese banking sector as containing no more than 12 or 13 banks. But domestic size ranking was never a concern of the bank, Sfeir said. “We never looked at other parties, the market and colleagues. Our policy is to compete against ourselves. To be much better than we have been.” The bank has a young labor force – the average age is below 40-years-old – and Sfeir prioritizes in-house training and continued education over hiring new staff. The priorities for the current period in the Bank of Beirut evolution are “to maintain the quality of our service and products,” he continued, “and improve the quality of our people through adequate education programs. This will reflect on our results.” The executive admonishes the existence of unprofessional banking practices that extend even into the ranks of the alpha group – but nonetheless appears less concerned about sector-specific problems than about the performance of the public sector leadership. “Lebanese bankers are good bankers,” he said, “I didn’t say that the Lebanese politicians are good politicians.”
The one internal snag factor that Sfeir identified for his institution – which adopts the motto ‘banking beyond borders’ – would be, “shyness.” “Every time when we are shy, we fail.” Extending an invitation to everyone to get closer to Bank of Beirut, the tough talking banker shows a softer side. “We are opening our doors to accommodate the public with a big smiling heart.”