An analysis for 2013-2018

Loans and provisions by the Lebanese alpha and beta banks

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Banks included in Bankdata’s classification for alpha and beta banks with deposits respectively exceeding $2 billion and $0.5 billion are regarded by many international analysts and local banking industry observers to represent the top tiers within the Lebanese banking sector of 59 banks, comprised of 46 commercial banks and their 13 subsidiaries. 

Together, the 16 alpha and 11 beta banks are the dominant banking players in the domestic market and are the only two banking groups with foreign presence. Alpha and beta banks, according to Bankdata’s analysis, also represent 96 percent of loans issued by the banking sector over the past five years. In this period, they injected $10.8 billion into the economy as they grew their loan book from $60 billion in December 2013 to $70 billion at the end of 2018.

Analyzing the provision of loans by these banks within the five-year period under consideration, the highest growth in lending activity was registered in 2014, with an increase of $6.8 billion, or 11.4 percent in year-on-year comparison. Loan growth gradually dropped to $3.8 billion in 2015, and then stalled at $1.5 billion yearly in the following two years, 2016 and 2017; it dipped into a negative growth of -3.8 percent at the end of 2018.

Further analysis highlights that the decrease in total loans was mostly due to the drop in foreign loans over the period. The overall growth registered in 2014 was evenly distributed between domestic and foreign loans, but after an exceptionally strong growth in foreign loans at the start of the period—+22 percent in 2014, followed by a mild increase of 2.9 percent in 2015—this growth fully reversed into negative territory in 2016-2018, in a development presumably related to currency pressures in Egypt and Turkey in the past three years. Consequently, in analysis of the five-year trend of the lending activity by Lebanese banks in foreign markets, as reflected in the banks’ consolidated figures, the end-to-end picture on these loans over the period is quasi -flat, with a growth of merely $126 million.  

In parallel, the domestic loan book continued growing over the period 2013-2017, representing 99 percent of the growth in banking sector lending—and noting that the Lebanese banking sector’s loan book consists of 74 percent of domestic loans.  

Loan developments in Lebanon, owing to the policies of Banque du Liban, Lebanon’s central bank, were isolated to a major extent from foreign exchange pressure that globally affected emerging markets under the Federal Reserve’s move to a tightening of monetary policy at the end of 2015. Other factors and unconventional influences came to bear on the Lebanese lending market in the past three years, as witnessed in the domestic lending developments of Lebanese banks. Notably, negative growth in the amount of foreign currency (FC) denominated loans between 2016 and 2018—after FC loan growth in 2014 and 2015 that was in line with the overall growth of loans in those years—translated into a net increase in the domestic loans in foreign currency portfolio of $5.7 billion. This compares with a net increase of loans denominated in Lebanese lira to $5.1 billion over the analyzed period. 

In a context where dollarization of domestic loans steadily decreased from 75 percent in 2013 to 70 percent in 2017, LL-denominated loans saw double-digit growth annually until end of 2017, but contracted by the equivalent of $1 billion (-5.9 percent) in 2018.  The overall ratio of loans to deposits dropped from an average of 37.7 percent for the 2013-2017 period to 36 percent in 2018. The breakdown by currency shows that the loans to deposits ratio in LL increased from an average of 25 percent in 2013-2017 to 29.3 percent in 2018; the ratio in FC dropped from an average of 43.2 percent over the same period to 37.1 percent in 2018.

Over the past five years, alpha and beta banks in Lebanon have strengthened their provisioning against the impacts of a low-growth economic environment. These banks increased their specific provisions for non-performing loans from $1.5 billion in 2013 to $2.3 billion in 2018, a hike of $766 million. Furthermore, collective provisions were increased by nearly $500 million and reached a peak of $1.1 billion at year-end 2017. Thus banks undertook conscious efforts to shield themselves and the stakeholders in the Lebanese economy from risks that could materialize as loan takers among households and enterprises face downward pressures on their finances. 

Lebanese banking sector
The following infographics refer to alfa and beta banks

Net primary liquidity to deposits by currency
Domestic vs. foreign loans & deposits
Loans & deposits by currency
Loans to deposits ratio by currency
Number of bank branches
Number of bank employees

Dany Baz is the general manager of Bankdata.

Thomas Schellen

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

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