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BoB: a new Frontier

Bank of Beirut goes where no Lebanese bank has gone before

by Executive Staff

Bank of Beirut (BoB) took a leap into a new market last month by opening a branch in Oman. BoB is determined to pursue its strategy of growth and expansion despite the local political upheaval gripping Lebanon, where the bank has grown in the past 13 years into a major innovative player.

BoB is the first Lebanese bank to operate in Oman, which was chosen for its growing economy and stable environment, BoB chairman Salim Sfeir told Executive.

Apart from receiving necessary approval from the Omani authorities in mid 2006, BoB did not get any special incentives from the government in Muscat. The BoB branch office in Oman opened for business on December 12 with a capital of $26 million and a team of 20 persons.

“What is good for us is that Oman is very similar to Lebanon in terms of economies of scale. Their banks are as big as ours and the needs of the economy could easily be served by any Lebanese bank our size,” Sfeir said.

While other GCC countries have set up fancy financial hubs and harbors, these specialized centers are still untested value propositions and are tailored to host very large banks that are looking to finance mega projects outside the range of BoB. Sfeir pointed out that Oman is a “much easier and much cheaper” market than Qatar or Dubai – where BoB feels sufficiently represented through a rep office.

Established in 1963, BoB has a network of 41 branches in Lebanon. It operates on the international level through Bank of Beirut (U.K.) Ltd., a wholly owned subsidiary in London; an offshore banking unit in Cyprus; and representative offices in Dubai and Lagos, Nigeria.

Also in mid-2006, BoB was issued a license by Iraq’s central bank to open an office in Baghdad. The office was established, Sfeir said, but is a far lower priority than the Oman operation.

Experts agree that most leading Lebanese banks have taken on an expansion strategy outside Lebanon in an effort to create new revenue streams and diversify incomes. Lebanese banks, which have in recent months been increasingly scrutinized for their high exposure to local government debt, have for the last five years moved into various markets in North Africa and the Middle East.

Regardless of the underlying reasons, the trend of regional and even international expansion by Lebanese banks continues to gather momentum. Some are playing it safe, like BoB, while banks like BLOM, Audi Saradar, and others are much more aggressive. Given all the uncertainties in Lebanon, experts and even government officials encourage this trend, seeing as it positive for the banking sector.

Inasmuch as selection of markets, Oman has a very attractive foreign investment policy. In the financial sector, foreign ownership of a locally incorporated bank or financial institution is allowed up to 70%. Given these attractive regulations, two other banks from Lebanon are also eyeing opportunities in Oman.

“We are interested in expanding our retail and corporate banking services in the area,” Sfeir said, adding that he was not concerned that other Lebanese banks have also announced plans to enter the Omani market.

The Omani market is also opportune because of the government introduced expansionary budget, which will bring higher spending on infrastructure and progress on major projects in the industry and tourism sectors. In turn, this creates favorable prospects for corporate lending and could give banks more opportunity to move away from heavily relying on personal lending.

Banking highs

Despite the pressures on the Lebanese market, BoB’s performance did not suffer in 2006. In its latest forecasts for full-year 2006 performance, BoB expects its net profits for 2006 to rise by 32% to $36 million, compared with $27 million in 2005. The bank’s total assets are expected to increase 8.2% to $4.6 billion, compared to $4.3 billion in 2005, and total customer deposits are projected to grow by 11.7% to $3.17 billion. The annual deposit growth for 2006, thus, will be substantially stronger than it has been in 2005, when deposits increased by 1.2% from 2004.

BoB said in August that its net profit in the first half of 2006 surged by 72% to LBP29.21 billion ($19.47 million) from LBP16.94 billion a year earlier while shareholders equity grew by almost 51% to LBP428.36 billion from LBP283.92 billion.

Speaking on the future performance of the bank, Sfeir said the ongoing political instability in Lebanon may affect revenues in the first half of 2007 for the entire sector.

BoB expects to open a second branch in Oman within the coming six to eight months. “It is very much a question of how successful our operation will be,” Sfeir said. “The more successful our people in Oman, the larger the operation will get. We are here to support them, but if they are not successful in penetrating the market, our support will stop there.”


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