Provided that their development of assets and deposits continues along the lines of the first nine months, Lebanon’s First National Bank is set to achieve growth in the magnitude of 20% to 25% this year – strengthening its claim to be one of the fastest advancers in Lebanon’s banking industry at the beginning of the millennium. In their half-year results on June 30, FNB reported total assets breaching the $1 billion mark at LL1.506 trillion, and by August 31, the bank’s books showed further growth to LL1.536 trillion. On December 31, 2003, assets clocked in at LL1.308 trillion. Customer deposits reached LL1.196 trillion at the end of August, up from LL1.112 trillion at the close of last year.
These figures mark 2004 as a year of moderation in the development of FNB, knowing how the bank has advanced in less than five years from assets of merely $80 to $100 million, to its current position in the upper middle field of Lebanese banking. Beginning in 2000, the numerical stepping-stones of this growth journey comprised annual increases averaging in the magnitude of 40%. In 2002, FNB recorded profit growth of 130% at an increase of 50.5% in deposits (the sector average then was: 7.52%) through a combination of new business and the acquisition of smaller bank, Societé Bancaire du Liban. The bank last year achieved another jump in profits, from $720,000 net income in 2002 to $2.07 million in 2003, but still lagged behind its peer group. For 2003, FNB was ranked 17th in the sector in terms of assets.
Under the current categorization of Lebanese banks, its recent performance advanced FNB into the realm of the sector-leading Alpha Group of banks, whose assets exceed $1 billion. But just as his bank could claim the cherished qualifier, FNB chairman and general manager, Rami Nimer, would raise the bar. “I think the Alpha Group should be over $2 billion,” he told EXECUTIVE. He certainly has a point. The compounding of assets in the sector today is such that more and more banks cross into ten-figure territory. While the $1 billion barrier seemed high enough just a few years ago to delineate the sector hierarchy, a bank today needs to be safely over $2 billion in assets to claim a market share of 3%. As trends have been moving, the gap between the top ten banks – which dominate the market to over 70% and would constitute the Alpha Group at over $2 billion in assets – and the tiers of capable mid-sized or smaller banks, is becoming even more pronounced. By this rationale, establishment of a new Alpha Group marking makes sense to set the lead group apart from the pursuers. So in Nimer’s reckoning, FNB should be regarded as an institution in the high Beta Group. In his view, banks should turn their attention more to off-balance sheet activities, such as private banking and fiduciary operations and Nimer made it clear that it can be better for a bank to not be craving after size for size’s sake. “There are so many changes in the world of banking and being a good mid-sized institution is beneficial. Banks should think different to the classic game of size,” he said. “It is an important issue and volume makes the difference. But with Basel II, size is not the issue. Size without utilization can be more of a burden than a plus.” He is not the only top bank executive to deliver it but this message bears repeating in light of the risk pressures weighing on the Lebanese banking sector.
While thus espousing an esteem of unpretentious banking and maintaining an approach that FNB is a young and growing bank, Nimer nonetheless affirmed the wide consensus among local sector players that banks here need to reach certain size or would be faced with oblivion. And there is no doubt which side of the game FNB wants to be on. In the bank’s annual report for 2002, the chairman’s letter described the rise to then 19th rank in the sector as paving the way to become one of the top 15 banks “in the near future” and, in the longer term, ascend to be one of the top ten banks. The undercarriage of FNB’s growth capabilities was established with its founding by a group of Kuwaiti and Gulf Arab businessmen in 1994, who initiated marginal expansion of the bank’s activities over the first years of its operations. According to Nimer, these newcomers to Lebanon’s surging financial market couldn’t take FNB’s evolution to its potential but they established a capable organization that provided a good platform for the growth instigated following Nimer’s entry into the bank and a change in management between 2000 and 2001. This allowed FNB to prove that it had the foundations to be more than a delta group player and the bank quickly advanced through the ranks of the sector, defying any concept that the Lebanese banking field today couldn’t any longer offer the opportunities of rapid expansion that had abounded a decade earlier. “We are still building the bank but the results until now are quite encouraging. Although the big banks were there, we grew drastically,” summarized Nimer the experience of the past four years. Attributing the ability of FNB to succeed to the bank’s greater flexibility in comparison to larger players, he named as other factors the trust of their shareholding base in the team’s professionalism and performance and the new management’s experience in the local market. Giving proofs for the bank’s confidence and accomplishments, Nimer cited how FNB won out in arranging financing for the Four Seasons Hotel project in Damascus and shares many cross clients with its peer group and leading banks in Lebanon. Judging from Nimer’s engaged personal style, another component in the bank’s recipe appears to be a substantial dose of dynamism. In a business where the art of success lies in defining and applying an institution’s strengths out of a limited arrear of choices well known to all players, key instruments with which FNB wants to build its continued growth are further expansion of the retail operation, private banking, and venturing cross border. In the retail arena, FNB planted their stakes by developing the branch network from 6 in 2000 to 16 by end 2004, with a Jounieh branch scheduled to open this month. The bank enhanced its market reach with a catchy new logo and expanded retail products and in the summer of this year, it heightened its profile by moving its headquarters from Hamra to a new prestigious downtown address. As far as niche creation, Nimer is looking strongly to private banking. Having not long ago commenced working in this business line, the bank this year already achieved $80 to $90 million in off-balance sheet volume, he said. FNB made footprints in the local financial markets also through developing funds traded on the BSE, collaborating on them with Bank of Beirut. True to the Lebanese banking mantra of regional growth, FNB has two concrete ambitions for cross border activities: Syria and Iraq. In Syria, the bank is a partner in a project with Kuwaiti and Jordanian institutions and the prerequisite domestic investors, working to start a joint venture bank that plans to be operational in 2005. FNB shareholding participation in that venture is projected at 10% to 11%. For Iraq, FNB secured the license to establish a representative office from the country’s central bank and hopes to establish this office before the end of the year as first step into that market. While he described organic growth in the Lebanese market as his first choice for the development of First National Bank, Nimer named a further acquisition or merger as a viable option for FNB. In this field, the banker had accumulated experience through his role in the assimilation of Banque Beyrouth pour le Commerce into Byblos Bank, which at the time (1997) was the largest merger in the history of the sector here. Although that experience was not smooth, it gave Nimer very useful expertise for managing the acquisition of Societe Bancaire du Liban, which he called very successful. In terms of mergers, Nimer saw the bonding between the Banque Audi Group and Banque Saradar as an ideal situation and encouraging example to the industry although for the time being, FNB would be thinking on a different scale for its eventual merger projects. “We haven’t reached our potential yet, so my preference is a merger with an equal or smaller size institution, not a larger one,” Nimer said.