Lebanon’s new boom is tourism-related real estate. Significant developments – worth in excess of $4 billion – in this field have begun roughly four years ago and accelerated massively by this year. The Middle East’s largest resort project, Sannine Zenith, topped the list of headline-making projects by size. But other projects are also highly noteworthy, from the Metropolitan Park development in the Jamhour area above Beirut, which will be the Eastern Mediterranean’s first theme park, to a wave of new beach resorts with names such as Oceana, Bamboo Bay, La Voile Bleu, Edde Sands and, the latest addition, La Guava.

Ironically, as much as beach life has long been associated with the Lebanese scene, the development of good beach resorts is a recent phenomenon. As short ago as 2002, an economic guidebook on Lebanon could undisputedly label the nation’s publicly owned coast as having “little more to offer than uncontrolled industrial development and mountains of garbage.” Whereas beach facilities previously existed in some numbers, they did so either in form of elite islands for a most narrow clientele of Lebanon’s upper 10,000 or would meet only the lowest possible denominators of cheap fun, the new resorts are seeking to provide both class and relative affordability in an ecologically compatible setting.

The importance of resort development for the future of Lebanon can hardly be overestimated. These new trump cards in the Lebanese development game score on two crucial economic fronts – tourism and real estate. While sales of apartments and vacation homes on the high end of the market entered a boom phase over the past two years, economists, sector analysts and major real estate players cautioned that this flare of mostly foreign direct investments was restricted in its economic benefits. By contrast, resort properties are productive. As tourism destinations they attract visitors, offer jobs and operator profits. As real estate they boost values at the site and the surrounding area. Operators and developers of the new resorts reported sotto voce that their presence, whether on mountain or seashore, send land prices soaring in the immediate area by at least 50% and up to three times. In parallel, the developers uniformly agreed that the mere act of constructing a resort or setting up a building somewhere on unused land does not add any value. This value is created through sound commercial leisure activities that are up to 21st century standards on infrastructure, business concept, marketing, and environment.

Sannine Zenith

Beyond its image as behemoth and mother of all mountain resorts, much mystery still shrouds Sannine Zenith, the largest commercial real estate adventure ever attempted in Lebanon. The initial political hype over its ownership structure has settled and the land purchases have been registered to the As Salam company, which is now wholly Lebanese owned by Jean Abou Rached, according to public relations manager Firaz Amine. “This project is a golden egg. It is so beneficial to all of Lebanon that nobody can question it,” he enthused.

Burnt somewhat by controversies over an alleged sell-out of 1% of the nation’s surface, the developers prefer to liken Sannine Zenith’s current property tally of 75 million square meters to covering an area “four times the size of Beirut.” As the detailed final master plan and feasibility studies for the project are still being worked on, the use concept and ultimate scope of the mammoth site still has some vagueness to it. But the people of the company will gladly present feel-good videos that virtually glow with promise and reveal that in the end, after further intended land acquisitions, the project size will most probably amount to 95 million square meters of “virgin land.”

Of the land already bought for more than $200 million, about 30 % are earmarked for potential construction comprising of infrastructure and hotels (not less than 8), houses, and commercial buildings. Ski slopes (double the area of the Faraya ski slopes) and three, 18-hole golf courses will consume a substantial portion of the territory, for which the developers push the slogan “in the heart of Lebanon and above the clouds.”

A green spine with one million (yet to be planted) fast-growing Nordic pine trees, an artificial lake, a heliport and three residential villages – themed eco, sports and lakeside – are key characteristics of the design. Also important, areas above 1,600 meters elevation will not see any building of houses and other structures and the peaks zone above 2,200 meters will be turned into a nature preserve, Amine said.

As Salam, whose concept includes financing of the development by issuing $1.25 billion in Global Depository Receipts to willing investors, foresees a construction phase of 12 years, during which the project will provide thousands of jobs. A project of this magnitude cannot prey on only the rich as their clientele, and Sannine Zenith confesses to have a family-oriented approach that targets normal earners as well.

Asking prices for land in the area rose to $8 to $10 per square meter since the project was announced this spring, from $3/sqm, which As Salam paid in acquisitions last year, Amine said, marveling himself at the fact that the company could keep their intentions a secret during the purchase phase.

When work is underway full steam, the company “will be happy to sell a square meter at $100,” he gave as an approximation of anticipated future prices. If all goes according to plan, As Salam might even attempt to take their mountain identity to the sea and launch a new big seaside resort venture in North Lebanon, under the name Sannine-sur-Mer.

If successful, Sannine Zenith, with a population projection of 45,000, would provide a case study for what appreciation a large, desolate chunk of land, that no one knew what to do with, can achieve in a grand development scheme. “Once it is developed, it most definitely will be a project to lift the Lebanese GDP,” Amine said.

Oceana

Widely credited with having broken the ground for more stylish beach resort ambiences on the Lebanese coast, the Oceana resort is reopening this summer at a new site in the coastal plane of Damour, to where the resort relocated this year from their previous address in Rmeileh several kilometers further south. The all-new Oceana resort will be a double feature with a landside pool face for the day and a seaside promenade face at night.

The natural Mediterranean beach in Damour is narrower than in Rmeileh and the old railroad tracks cut right through the property, so Oceana operators Cimes focused their creativity on turning these two limitations of the site into advantages, Cimes CEO Gilbert Khoury told EXECUTIVE. To do so, the developers aligned a boardwalk on the railroad right-of-way to create a 310-meter promenade along which they strung a lineup of restaurants designed to serve the resort patrons as well as a hoped-for dinner crowd. Since Lebanese beach goers mostly won’t seek direct exposure to the ocean waves and prefer to frolic between swimming pool and picnic tables, Khoury expects that the narrowness of the natural beach will not hurt the resort which is laid out to accommodate these customer desires during the day with the recreation facilities on its 30,000 square meter site and the restaurants facing it along the boardwalk.

Come evening, however, the promenade should rise to a second life as destination for people who fancy a walk and a meal or a party on the seafront. Then the restaurants will shift their attention to their west-looking terraces. Under this concept, “the short distance to the water is an attraction instead of a handicap,” Khoury said. The big pulling point that led Cimes to establish the new Oceana at Damour are the green surroundings. With the nearest building 500 meters away, the beach resort aims to entice Beirut dwellers to its Utopian setting only 15 kilometers from the capital. “It might be pretentious but we think we can create a wholesome destination for people to come there,” Khoury said.

This determination includes a commitment to preserve the integrity of the Damour plane, which represents a unique alveolus holding fresh air in the country’s coastal zone. Being to close to the sea for their purposes, farmers could not find much use for the land. For several years, the area had been under study for development as eco-tourism realm, and Oceana wants to be an anchor for environmentally sound recreation there. According to Khoury, all soil dug out during Oceana’s construction was reused in landscaping and above ground structures are built with wood.

With time, the resort intends to promote bicycle and horseback riding, and jogging as alternative to morning walks in the polluted city. With such features, the Damour plane fits the profile of new tourism-related real estate projects that can create new leisure values, property appreciation, and economic opportunities.

Apart from the location’s great overall potential, one reason for moving Oceana to the new site, so Khoury, was that Cimes didn’t want to operate the resort on conditions of a short-term lease. When first venturing into developing beach resorts four years ago, the company wanted to reduce its risks and rented the land for its first two beaches, Oceana and Bamboo Bay. The new Oceana, which involved a $2 million investment, is still set up on leased land but the terms are longer, seven years in Damour versus three years in Rmeileh. In Jiyeh, where the company is working on improving and expanding the Bamboo Bay resort by adding hotel facilities, the contract is for 10 years with extension option.

Ultimately however, the drawbacks of leasing arrangements can outweigh the advantages as the market for beach resorts is heating up, Khoury discovered with a laughing and a crying eye. “Now we are established in the market, but most of the added value is going to the landlord instead of us,” he said. In the case of the Damour property, the cost of the lease is still slightly better for Cimes than the cost of finance in purchasing the land, partly because owners in the area revised their prices for selling substantially upwards within the relatively short time from when Cimes signed their lease agreement until today.

In the longer term, however, Khoury wants to achieve gains from both operating beach resorts and from the real estate appreciation a resort creates. His aim for future projects is to have a two-pronged structure of a real estate investment firm and an operator company – but with separate shareholding bases, to avoid conflicts of interest between the resort operation side and the real estate aspect of the business.

Faqra and Mechref

The ancestral tree of the new Lebanese resorts family includes a number of projects that were important in evolving this particular real estate culture over the past thirty years. On the mountainside, the Faqra gated community was established in 1974 as a winter sports resort and pioneer of such developments. After the war years presented it with the challenge of serving different needs from the original design – customer demand for plots and construction was driven by Faqra’s security and insulation from the conflict zone – the project could re-emphasize its original focus over the last 12 years and today continues to grow, marketed now as an all-year, high-altitude resort community.

At a size of two million square meters, the Faqra Club group of companies, whose original investment has been estimated to translate into approximately $73 million in today’s dollars, saw a substantial recent increase in sales prices for their properties, from an average of $200 per square meter two years ago to at least $300 today, according to company managers. Plots are also tending to be larger. While the company designed its plots originally to measure from 700 to 1,000 square meters, a new 100,000 square meter segment under development today offers land ranging up to 4,000 square meters per plot.

While its presence pulled nearby land values up, the remoteness of Faqra granted the project an existence largely undisturbed by problems with individuals developing land outside of the community’s boundaries, although Faqra’s strict building codes were not implemented there. The value-added that the company provides to its residents comes from the infrastructure it established and from communal services – water, electricity and such – which the project owners in fact subsidize.

Industry observers regard Faqra as a successful development, which however remains by necessity restrained in scope to a comparatively narrow profile of a second or third-residence community for a small target group of affluent Lebanese, Lebanese expatriates and regional buyers. Within these limits, the project’s standing is strong and if the prospect of a belt of ski slopes interlinking the entire Faraya-Sannine area under the Sannine Zenith concept is realized, the good new neighbors could give Faqra yet another boost.

A further landmark in the history of private developments in Lebanon was established when the Mechref community saw the light in 1996. While earlier upscale suburban developments, such as the Rabieh subdivision to the north of the capital, had to face the handicaps caused by the conflict years and the social environment of the time, Mechref opened the gates for a wholly privately planned and structured community angling into the market as new one-site answer to the residential and recreational needs of the well-heeled.

The Mechref community covers a land surface of 3.3 million square meters at 30 to 350 meters above sea level overlooking the Damour coastal plane. Since the developers acquired the land in the mid nineties for an average $17 per square meter, value appreciation of both land and built-up real estate has been substantial. According to general manger Fouad Salha, cost per square meter to the company stands today at $85 and selling prices average $250 to $300, with upward outliers. Calculating that 300 villas have been completed, at average size of 600 square meters per dwelling and $750 cost for land and construction per square meter, the real estate worth of the Mechref community easily reached more than $130 million over eight years.

About 30% of the total area comprises developable land, 40% of which are still available in the market, Salha said. The company today tries to discourage the buying of plots by persons who speculate on increases in their value and do not intend to establish residences there. He described the increase of land prices in the developed as 35 to 40% since 1996, which he claimed was juxtaposed by a contraction of real estate values in much of the overall Lebanese real estate market by a similar percentage, thus further underscoring the Mechref value proposition.

In Salha’s expectation, the community will gain further from clustering of attractive tourism projects nearby, such as the Oceana beach resort in Damour. The awakening of tourism in the area would allow taking a new look at a hotel project in Mechref, which the developers had shelved after earlier feasibility studies had not projected satisfactory returns.

The visions do not end here. The developer of the Edde Sands resort in Byblos, Roger Edde, has a full plan up his sleeve to capitalize on the cultural and natural wealth of this ancient Phoenician city kingdom to amplify its tourism power into a leisure land embracing tennis camps, wellness hotels, green villages and its own port for yachts and even cruise liners – a $2 billion dream for the Byblos-Amcheet stretch alone, and that is without counting in Edde’s ambitions for a snow-side resort development in the Tannourine-Jaj cedars region. “I am fully bullish on the Byblos destination,” Edde told EXECUTIVE. “I feel the tourism industry and tourism related real estate in Lebanon are two years ahead of a moving curve, which will move up substantially in the 15 years that follow.”

Solidere has launched a new program thought to bring many changes to your business. What is the program’s core offering?

The program is based on settling part of the price of real estate transactions through shares at a time when we have noticed a major pickup in interest in developing downtown projects.

What motivated you to create this program?

What started us thinking about this program was the realization that the share price cannot stay where it is, because it is significantly undervalued. We have to do something to try to make people and shareholders realize that there is much more value in the company stock.

In launching the program, you mentioned that the Solidere share price is undervalued. Where do you see the fair value?

We estimate that the land bank that we own is worth $ 4.5 billion. That is excluding the properties that have been developed, which we value at $300 million. This will increase immediately when the Souks are completed, bringing the value of the buildings that the company owns to about $800 million. So I think if you do the numbers, the shares are definitely undervalued.

Seven years ago, the most optimistic estimates by international finance houses saw Solidere shares going up to $18 or $20. Now we are happy to be at $7 per share. We are not happy to be at seven.

What number would make you happy?

I will not comment, but as the value of this land bank appreciates the share price appreciates. The other element is payment of dividends. This is a key component of our program, that we will request the cancellation of the shares, which we will acquire. Then whoever is left as shareholder in the company will own a bigger portion.

How long ago did you begin preparation for this program?

It has taken us some time but I think what is important is that this program is coming at a time when there is significant interest in development in the BCD.

Are you saying timing is everything?

Timing and the circumstances. The other beautiful part of this program is that it doesn’t have a drain on our cash situation. It is basically a buy-back program. We are buying back shares but without having to shell out cash and instead giving land.

Did you develop this all in-house or did you use outside consultants?

We consulted with different individuals but in the end these ideas really came from within.

Do you have grounds outside of the new program on which to base your optimism?

Beirut is a city that definitely is in fashion. I talked to international retailers who see that point very well and are able to gauge that through their global activities. They see that Arabs are now looking inwards and Beirut is a spot where they want to be. The Lebanese diaspora is also looking to invest in Lebanon.

Two years ago, you started on an upward curve. Is it correct that the company had a good year in 2003 but showed lower results because it did not want to record sales on its books before they were fully registered?

No, we had cancellations related to shareholders in Bank Al Madina. These were the transactions that had this negative impact on our income statement. Otherwise we would have had probably as good a year as the previous year.

Is the new program and special offer valid at this moment?

Yes, from the day that we declared it and it is already being practiced. But it has yet to result in sales. That is not the case. We have several contracts in different phases of execution. Some were prior to this offer. There are stages of signature, final stages of fine-tuning the contract, but as far as I am concerned, these are sales that are behind us. We are negotiating with a major investor on a huge lot, but this story is at a stage where we cannot yet make an announcement.

Are you in effect reducing the price of land that you sell in Solidere?

To make this program work, we offer a discount of 15% from the list price. We review our prices every six months, and have been moving them up all the time, and this will continue. Pricing the land is another mechanism that has to do with many other factors. We will not change that. What we have always done when we price land is that we stick to it to make sure that people who have invested are somehow protected.

How much did prices go up since Solidere started to market properties?

We started selling initially at $950 [per square meter of built-up area/BUA] and we had a transaction for a hotel that was at slightly less than $950. But since then we have gone up to $1,550. This was the price for a superb piece of land that sits right on the edge of the Marina. I will not be surprised when we are selling some similar properties with commanding views at $1700 or $1800 in two years’ time.

But is it a fact that with the current offer, prices for the buyer have gone down for the first time since the company was established?

No. We have made deals on a cash basis where we applied discounts. While this is not a cash deal, mind you, we are getting 40% payment in shares upfront. We were always getting 25%. This is already a plus. We are getting more money upfront. And we are getting the rest of our money more quickly, three years instead of five years. So this discount is not a giveaway. It has economic bases.

Thus, the 15 % discount would be compensated by a decrease in exposure of the debt over two years and at the same time by the price of shares?

Not by the price of shares. We are acquiring a larger down payment at 40%, which could be 40% in shares or 30% in shares and 10% in cash, instead of 25%. But I tell you something that nobody has noticed yet. This program will have a positive impact on our retained earnings, up to a certain point. As long as we acquire the shares at less than [the nominal issue value of] $10 and we are canceling them at $10, there is another positive impact for the shareholder but not for the real estate investor.

How much could an investor gain in a best-case scenario if he bought shares when they stood at $4 or $5 and used them now for the offer?

This depends on several factors, at what price you bought your shares, how long you have held them, what is your borrowing cost. But if you buy shares today and your borrowing cost is very low and you wait on these shares and then execute the program, these shares will probably be at a higher price a year from now and you will even get another benefit. You get a bonus of 10% on the price of your shares and you get a 15% discount on the land. The program is also telling you as a shareholder that your shares are dearer to you now. You should hold your shares and not accept to sell them at these lower levels.

Is the offer open ended?

We have no time limit on it today but it is an offer that we will have to keep assessing as time goes by.

Is the offer giving a certain edge to large investors and large shareholders over small ones?

No, not at all. It is probably giving more edge to the small shareholders. Large shareholders have held on to their shares. The small shareholders have been panicking when their share prices have been going down. I think today they have no reason to panic. They are in a position to feel that the company is backing their shares.

Can you ensure that no information on your new program was leaked, to people who had already been negotiating with the company over buying a property?

We have our internal procedures to make sure that this is the case and I hope they work.

How would you respond to concerns that this city is a place where insider trading and conflicts of interest between ownership and management are common?

I believe our internal procedures are working as far as confidentiality and as far as transparency. We have shareholders all over the world. We have to ensure that we are not only playing by the rules in this country but by global standards.

What about allegations reported by some Beirut media about controversies in your general assembly on June 21?

We answered that. The auditors obviously never said anything [of the sort which was reported]. No shareholders, including those who stood up and screamed for other reasons, said such things in the assembly. Where did this reporter come up with those allegations? We have no idea. In fact the owner of the newspaper also doesn’t know where these allegations came from.

Can you comment on expressions of discontent at your general assembly?

You have to evaluate this discontent. If it is coming from a shareholder who is concerned about the interest of the company, I definitely take it seriously, but if it is criticism coming from troublemakers or people who have disputes with the company, this is negative for the other shareholders who have real concerns and [who risk] not having these concerns heard.

Could you give examples for real concerns?

There are many concerns that shareholders can voice and they do voice them. One of the concerns is why we aren’t paying dividends. This is a catch-22 situation; if we pay dividends we will not have enough cash to move ahead with the development process. If we pay dividends, some shareholders will be happy because it is an immediate benefit but in a way it will be taken away from future potential benefits.

In the long term, where do you see Solidere obtaining revenues?

From property management. Key to that are the Souks. Are local retailers getting twitchy over the delays and planting their flags elsewhere?

I am not concerned that this will happen. In fact, we have every indication that retailers understand the importance of this location very well. I would have liked to have completed this project by now, but we are about to start now, within the next couple of weeks. So within the next 18 months, we will have it up.

What do you say to developers who say the price of land makes it almost impossible for them to make money?

I tell them there are others who do and continue to come and buy land. This is what is happening. I am sure that also in Saifi and other non-waterfront residential areas, projects are making money.

And developers who are buying land at $1200 BUA and have to sell at roughly $3,000, can achieve that now?

Absolutely.

Relying entirely on organic growth of their business, BLOM Bank carried the baton of leading the Lebanese banking sector in terms of assets for more than two decades. As the creation of the Audi-Saradar Group is exerting consolidation pressure at the top of the sector, EXECUTIVE wanted to know how BLOM Bank views recent developments and if the bank is changing its strategies. EXECUTIVE asked and BLOM vice chairman and general manager, Saad Azhari, answered.

As the leader in the Lebanese banking sector, you have seen a new group emerging besides you, a competitor of regional format. How does that affect your plans and ambitions?

Our policy will not change, in terms of looking that we have a strong bank, that our assets are good assets, and making sure that our shareholders always get the best return. BLOM Bank has an important size in the Lebanese market and we achieved this in continuous internal growth over 40 years, which allowed us to contain costs. Our level of cost to income is extremely low. That is why we have the highest return on our equity, and the lowest cost to income ratio. And that is why we have also the highest rating. We are the only BBB+ rated company by ratings agency, Capital Intelligence.

What do you regard as the key factor enabling you to reach market leadership?

We achieved this position of number one because of the confidence of our customers and we have been number for over 20 years, since 1981. Our customers believed that we provide security and a good service, and came to us because of that. We are still continuing to grow at a rapid pace and increasing our market share, as our figures for this year show.

Did merger and acquisition projects ever play a part in your development plans?

I cannot hide that there were a lot of merger discussions between us and other banks. Frankly, we found that elements that we require were missing: either the price was too high or the quality was not good. We would definitely not buy a bank just to grow. Some of the banks we discussed with, both foreign and local banks, have been bought by other banks.

How do you view mergers in Lebanon in terms of their benefits to the bottom line of the banks that went this road? 

Figures talk. Compare the actual present size of the banks that merged with what should have been their size, and look at BLOM. If you compare the risk profiles and look at profits of BLOM and the profits of banks that have merged, you will see that BLOM has the highest level of profits, even as it does not have the highest level of loans. Here you have high profit and low risk. What is better: high profit and low risk or high risk and lower profit? You judge for yourself.

If a new merger or acquisition prospect would enable you to ascertain the status of largest bank in Lebanon, would you pursue it more actively than in the past?

No. Our strategy will not change. For any merger to happen, it has to be sure that the quality of our assets will not deteriorate and that it does not negatively affect the return to our shareholders. Those are the essentials for us. We want to stay a strong bank with the highest rating in Lebanon. It is also very important to us to be able to give a good service to our customers.

Would you consider a merger as means to facilitate regional expansion?

BLOM Bank is the Lebanese bank with the strongest presence abroad. We have a subsidiary in Paris, which has branches in London, Dubai, Muscat and Sharjah. We have an offshore in Cyprus and we have constituted a bank in Syria where we have management control. We are also opening a branch in Jordan. We are expanding wherever we think it is possible and interesting for us.

It is often said that Lebanese banks need to be stronger and considerably larger in size to successfully compete in the region. What is your perspective on this?

I think that the size of the banks in Lebanon compares well to banks in the region. Compare the size of Kuwaiti banks and Lebanese banks, for example. The assets and deposits in Lebanese banks are almost twice of those in Kuwaiti banks. The banking sector in Lebanon is number three in size in the Arab countries, after Saudi Arabia and Egypt. Lebanese banks are growing larger and larger and today have large asset volumes. For example, we ourselves have passed $9 billion in assets. Our size is large compared to the economy and with our shareholders’ equity; we are over capitalized when compared to the risks on our balance sheets. We already have a good size compared to the region, we are able to have a presence outside and we have the possibility to expand.

So you do not consider large regional banks as having a size advantage over BLOM and other Lebanese banks?

Many Arab and foreign banks have a presence in Lebanon. Lebanon is an open market, while some regional markets are closed to us. I think we have a future advantage as these markets are opening up. Jordan is an example. Before, we could buy a bank in Jordan but not open a branch. As this has now been allowed, we are opening a branch there in September of this year. Lebanese banks have important opportunities in the region and I hope that we will be playing a much more important role in future.

Where does BLOM set priorities for domestic development?

We at BLOM have seen important growth in corporate banking and also in retail banking. This is for specific reasons. Retail is still a developing sector, where all banks increased their activities. In corporate lending, big corporate names here were historically mostly dealing with foreign banks. Some foreign banks have already moved out or are planning to move out of Lebanon. BLOM saw this opportunity. Last year, we created a corporate unit and effectively grabbed an important amount of clients that used to deal with foreign banks, which either left or are scaling down their portfolio, mostly because of Basel II and the strategy of international banks to reduce their exposure to emerging markets. That is why our loan portfolio had a good growth in lending last year, even though the lending in the Lebanese market was generally stable.

What is your ratio of non-performing loans?

The non-provisioned non-performing loans stand at less than one percent, 0.5 to 0.6%.

How important are private and investment banking in your activities?

In Lebanon, private banking is generally very limited, frankly speaking. You cannot strengthen private banking much, especially because of the taxes that the government collects on interests on international bonds. The big private banking activity is done by our subsidiary in Geneva. We have an investment bank that is mostly specialized in medium and long-term lending. Corporate and retail are expanding at a faster pace than other activities, but we are working in all activities.

Have Lebanese banks improved as much in non-balance sheet capabilities and quality as they grew in terms of balance sheets?

The services given by banks have improved a lot over the past years. Before, you had to deal with three or four people at a bank branch, to undertake an operation such as depositing a check or transferring money. Today some banks, including ourselves, have a teller system, in which one person can facilitate your operations. Secondly, delivery channels and their variety improved a lot. Before, the only option was to go to the bank. Today you can use ATM, phone banking, internet banking, and the call center. In standard of services, Lebanon has arrived at a very high level in worldwide comparison. You cannot see this from the balance sheet but you can see it through the operations, dealing with the bank.

Do you expect the banking sector to continue its first quarter good performance in the remainder of 2004?

It will definitely not be an easy year, because the treasury bills that Lebanese banks had bought before Paris II, especially in September, October, and November of 2002, will all mature by end of 2004. Those treasury bills carried a high interest rate and banks hold a large number of them. The renewals will be at a much lower rate. Secondly, we have to put a legal reserve of 15% of our US dollar deposits at the central bank. A central bank circular in 2002 asked banks to deposit a certain level of their dollar reserves for two years with the central bank, at interest rates that first stood at 9% and then were lowered to 8.75 % at the end of 2002. These two-year deposits are all maturing and will be replaced at a much lower rate. Banks thus are definitely going to be squeezed on those interest margins.

How about deposits by Arab investors?

We are continuing to see an important growth of deposits coming towards Lebanon from Lebanese and Gulf countries, and the pace may be a bit higher than last year. This is a good sign of confidence. We are also continuing to see interest in different projects. I have recently been in Kuwait and met a lot of people who are interested to buy homes in Lebanon. And some of the big groups there want to undertake important projects here. The same is true for groups from Saudi Arabia and the Emirates.

So overall, your expectation for 2004 is for a smooth year?

In general terms, 2004 will achieve a good growth of deposits and assets for the banking sector in Lebanon. There is going to be more pressure on banks in terms of profits towards the end of the year, and perhaps there will be a slight decrease in profits. We will not see a repeat performance of 2003. It would be good if banks can achieve stability of profits, which is a little difficult. Banks are expanding and all banks are trying to increase their market share and there is more competition. Overall, I don’t see any troubles in 2004.