4Ronald Yazbeck,
Assistant General Manager, Banque BEMO
E Your bank has been involved in many diversification activities, including geographic expansion and securitization. How has this shaped your strategy for 2006?
We are still following our main strategy as a specialized bank in Lebanon, as the specialized bank in private and corporate banking. We don’t intend to change that strategy. Our focus will be on expanding within the strategy, as you can see from the opening of our first specialized branch for corporate banking in Sin al-Fil. This is our new point-of-sale. It is not a general expansion in view of regional coverage. It is more within the scope of our business, giving corporate clients and companies a dedicated space in a branch that is located in the same area as these companies and factories, where tailored products for corporate clients are available from a dedicated team and sales manager who are pleasant and available. We’re talking about quick cash, cash delivery, cash collection, and many other services.
We have also opened a branch in Verdun that is dedicated to private banking, mainly for Arab investors who have a residence in the area. This summer in the branch we will have special representation for Banque Saudi Fransi customers.
We are focusing a lot on the Gulf region by giving more push to services specially dedicated to Arab investors in Lebanon. We have been increasing our physical presence in the Emirates and Saudi Arabia – strengthened by the participation of Banque Saudi Fransi in our capital and the joint venture we have in Syria. We are always trying to support our line of business through our affiliated company BEMO Securitization, which is also a specialized financial company dealing mainly with securitization products. So we are still within the scope of our business, within our specializations, continuing to try to find growth within them. We are not expanding in other ways, like retail banking or branches. We have been successful in obtaining a very good increase in our profits for the first quarter. We are launching now a preferred share that we will be closing in the coming ten days. There’s another $30 million that was privately placed that will also enhance our corporate business by giving more strength to our shareholder equity and enhancing our ratios, which are still very far from the requested ratio internationally. We are already well-prepared for any ratio coming from Basel II.
We have a history in Syria. We are present in Syria now in a totally different way, under a universal bank, doing all the commercial business of a bank from commercial trade to retail. This has enhanced our presence in Syria, mainly on the offshore business side of the market.
But we also have very strong partners in the Gulf. The Gulf is for us an open door. It is totally different. The services we provide in the Gulf are usually tailored within the group of banks that we have under BEMO Europe, with a presence in Paris and Luxembourg. That’s a French-entity bank, completely separate from Lebanon. And in Lebanon, as a private bank, we do some business in joint venture with our European banks. Lately we have launched the family service office, which is fully dedicated to high net worth customers. It is a very specialized part of private banking in which we talk about structuring families, consolidating wealth, and auditing actual performance of portfolios of wealth. We’re not really doing wealth management directly. It’s more on a consultancy and mandate basis. That’s what we do in the Gulf. In Syria we are still private bankers. We cash deposits and work on wealth management. It’s a little bit different. The Gulf has already been fully covered by the international private banks and the big names. So going there and trying to do what the others are doing will not really provide anything value-added. Instead, we go there with a new product. Being a small bank that is fully dedicated to relationship management, we can provide this kind of business.
Stock market losses in the Gulf have convinced people that the services we sell are very important. When you audit risk, wealth repartition and wealth return, automatically you are going to see how much people have emphasized one aspect of the market, thinking that it will offer an open-ended return – which is not true. In many cases, we have seen there is a limit for everything and a return for everything. The Gulf market crashes have shown people that it’s very important to know your total exposure, to consolidate your wealth. Let us tell you where the weak points in your wealth are. That’s very important when you are talking about wealth per client which is now on average $100-200 million and not anymore like in our markets in Lebanon and Syria, where it averages between $30 million and $50 million. The difference is really very big.
We are not looking into regional expansion because we are not a retail bank. We are present in Jordan, Qatar, Abu Dhabi, Bahrain, Dubai, Saudi Arabia, Syria and Cyprus. We have enough now to conduct our business. We prefer to be small and smart.
4Philippe
El Hajj,
Head of Retail Banking Division, Fransabank
E Can you bring us up to date on Fransabank’s investment and retail banking activities? How important have they been to the bank’s operations in 2006?
Fransabank is the oldest bank in Lebanon. Its foundation dates back to 1921. It had a French name before. Within the last decade it became Fransabank. Since then it has worked as a retail bank. Three years ago, the bank decided to expand its retail presence and so a separate retail division was founded within the bank. The bank’s policy is to expand retail products and services. The bank has set a target, an objective, because it sees a substantial importance in the profitability of retail business, for the profits of the bank. On the customer side, if you expand your retail business you please the customer. And on the other hand, for shareholder value, retail business is positive as well. We have created within the retail division a business development department that takes care of improving existing products and services and introducing new ones. We have also set a mechanism for communicating with our nearly 60 branches, whereby the retail business, loan approval and so on have been speeded up substantially in a way that pleases the customer and the branch as well.
We have a 24/24, 7/7 call center. We are planning to educate our clients to use as much as possible the services of the call center rather than those of the branches. It’s difficult in this part of the world, but we are improving in that respect. When you improve the service of the call center, the client will be pleased because there is a one-stop shop for him, single window access. And our service-people in the branches will be free to do other jobs, such as sales. We have introduced new loan products, such as the car loans, the PC loan, the housing loan for Lebanese expatriates working abroad, and many types of accounts that serve the needs of clients, for example marriage accounts, ‘newly-married’ accounts, domiciliation accounts, payroll accounts and so on. Our retail portfolio over the last three years has witnessed more than a 50% increase. In the credit card sector for example, three years ago we had a MasterCard market share of 13%. That rose by the end of 2005 to 21%. I’m talking in terms of the number of cards. We are rapidly increasing our cardholder numbers. Our aim is for all of our customers to hold at least one credit card. We are improving very well in that respect. Of course, communication with the market is important. Our marketing department is transferring these developments to the market. We are on TV, in newspapers, on billboards, everywhere.
In 2004 and 2005, we invested in introducing new products. In 2006, we will be improving sales among our points of distribution. But this year we will be focusing mainly on electronic banking. We are heading quickly towards internet banking and SMS banking. They will be an excellent backup to what we have done over the last three years.
We have also opened branches in the last couple of years. And we will open more this year and in the years to come. We will reach more people and be present in many areas in which we are not for the time being. For the coming two years our objective is growth. We have built a very important infrastructure as far as products, services and technology are concerned. Now we want to grow. In the coming five years, as well, our plan is growth in terms of profits and numbers.
Electronic banking has been around for some time in Lebanon. But electronic banking, call centers and even credit cards require very significant client education. Take credit cards for example. We are trying to educate our clients first of all to use the credit card. Then we are trying to educate them to use them at points of sale and not only at ATM machines, because the cards are mainly used at ATMs in Lebanon. We are also trying to get clients to use the call center and e-banking. This needs client education and persistence from the bank. Of course we have offers and incentives for the clients to do so.
We were one of the leaders in introducing reward, loyalty or points systems for credit card users. This year we will be renovating our system completely and introducing, maybe within the coming two months, something to encourage clients to use the card at the point of sale. They will get points, rewards, and cash rebates if they use it at points of sale.
4Anthony Usher,
Head of Consumer Banking, Standard Chartered
E You are known as an emerging markets bank with a strong presence in Asia. What is the bank’s strategy for the Middle East in general, and Lebanon in particular?
As far as the strategy in the Middle East is concerned, it’s pretty obvious that with rising, and likely continuing high energy prices, that the Middle East is going to continue to be a focus of attention – especially, right now as far as Standard Chartered is concerned, in the UAE and Bahrain. Qatar is a big focus. We see that probably as an emerging opportunity at the moment. The UAE is a continuing opportunity – has been for some years, and will continue to be like that. As far as this part of the world is concerned, there’s a sort of spillover effect especially in Jordan – we’re seeing huge growth there. And there’s some spillover effect in Lebanon too. But of course that is muted by the political situation. Actually right now there’s quite a boom in the real estate market in Lebanon. That bodes well for the future. So I think that in general the bank would say that we’re very optimistic about the Middle East. Oman is another area that is developing for the bank – and we’re looking at other places within in the region to expand our reach. But right now our focus is on making the most of the franchises we have in the Middle East – Lebanon, Jordan, UAE, Bahrain, Qatar, and developing in Oman. We’re really piggybacking on the energy boom. It makes sense to be in there, both on the consumer banking side as well as the wholesale banking side. There are clearly opportunities in both areas, pretty much across the region, virtually wherever you look.
Our strongest profit earner or revenue generator right now is the UAE. The bank’s been there for 50 years plus. Bahrain is going well. Jordan is a bit of a latecomer but it’s generating very good revenue, so probably the growth is highest in Jordan on a percentage basis. But obviously compared to the UAE, gross numbers are much much higher in the UAE. We’re really trying to make the most out of that franchise, meanwhile trying to develop the lesser franchises like Bahrain and Qatar. Qatar is coming back. And now with the LNG prices being so high as well, it clearly makes sense to make the most of that. We have a fairly strong franchise there, too. We’ve been there for multiple decades. And so we’re doing our best to make the most of that on the consumer as well as wholesale sides.
With respect to Lebanon, the franchise in Lebanon has only been here for roughly five years. It’s a consumer banking franchise, predominantly, and that’s been our strategic position from day one. Lebanon’s doing well on the real estate side. There’s a lot of direct investment coming in from non-resident Lebanese as well as Gulf Arabs and that’s really what’s driving the economy right now. And obviously we’re benefiting from that. The consumer banking side in Lebanon has done extremely well over the past two years. In percentage terms again it’s very small if you compare it to the bigger markets. And that’s our challenge right now – to get a place on the table as against the bigger markets so that we can get listened to as well.
We are growing very fast. We have an excellent franchise here with a superb team, good branches, super service, and good products. There’s really very little excuse for us not to do well going forward.
Our emphasis from last year was on building the asset side, the consumer lending. We’ve been very, very aggressive in credit cards, personal loans, and auto loans. We’re going to continue that focus but that will become business as usual.
Now we’re moving much more onto the wealth management side. I think that’s where you’ll see the bulk of our enhancements coming along in the future. We’re introducing a number of innovative products on the investment services side. We have now our own dedicated sales team who work on nothing but building up wealth management clients. We’re developing our high net worth service. That’s coming along very well, too. That’s focused towards wealthier local clients as well as non-resident Lebanese. So I think you’ll see that’s the emphasis, so that we end up with a matched revenue stream from both areas, because it is a bit unbalanced at the moment towards the asset side.
The general target market that we’re looking for is sort of middle market and above. That’s not particularly selective, because we can cater to virtually everyone.
The global decision was taken to look at consumer banking in Lebanon because it’s a more diversified risk. At the time, and I daresay even now, the decision was made that given the amount of capital we’re devoting to Lebanon, it’s better placed in the consumer market than in the wholesale.
Middle to long-term our vision would be to be the biggest foreign bank in Lebanon. We’re never going to be the largest bank in Lebanon but we certainly want to give the local banks a run for their money.
4Walid Raphael,
Deputy General Manager, Banque Libano-Francaise
E The bank has a strong Syrian portfolio both in terms of clients and board members. How will this affect your proposed move into Syria and how will it affect the bank’s positioning in the Syrian market?
Banque Libano-Francaise has historically been very active in the Syrian market. Several shareholders are of Syrian origin and are also board members. The bank was active in the Syrian market before the bank was Libano-Francaise, when it used to be Compagnie Algerienne de Credit et de Banque. We had a base in Syria and since then we have had very strong ties with the business community in Syria. We have since increased our portfolio of clients in this region.
We are seeing very strong growth and development in the Syrian market. Large investments are being made in industry and businesses. There is, however, a potential risk that the economy will suffer fron an economic embargo.
We’ve been looking at establishing operations in Syria. We had some constraints with French majority shareholders, who had different views about the region. But we have since made a first step with the acquisition of Banque SBA, which is very active in Syria and has an office in Syria’s free zone, and we are currently working on a license to operate in Syria. We are currently in the application process, the duration of which will depend on the Syrian authorities.
In Syria, we plan to continue our commercial and corporate banking activities but also to develop the retail business, and also to some extent introduce private banking and insurance products. Retail will take time to build. If you look at how other banks have developed in Syria, they have been very fast at developing a network and increasing the level of deposits, but on the retail side it takes time to adapt to the market and structure the right products for it. On the commercial banking side, there is huge demand. So our clients are expecting us to be there as soon as possible.
It is clear today that Lebanese banks need to expand abroad; the market is too small for them, and it is true that the opportunities for them are in countries that are not yet covered by large international banks. In these markets there are very few institutions, and business is based on direct personal relationships. You really need to know the people and how the system works. There is a lack of transparency. People are afraid to show their numbers. You have very few competent auditors. It works on trust, and an understanding of business in the region. Of course, Syria is a risky country. They only recently opened the market. For several years, the market was run completely by the public sector. So it’s quite rusty. The regulations should evolve. You still have a lot of restrictions. It’s not easy to make profitable investments.
The challenge, also, is human resources. It is very difficult to find people who are trained to the standards that we are used to here in Lebanon. For the moment, skilled executives are dispatched from Lebanon.
We are looking at some other countries. But it’s too early to say. Right now we have finalized the acquisition of the Banque SBA in Paris, with a subsidiary in Geneva, which is a very important acquisition. It’s a bank with around Euro 66 million of equity and around Euro 600 million in assets. We want to develop this bank as a platform for international business, not only for the Lebanese and Syrian diaspora in Europe, but also those in North Africa. Private banking will get a boost with business in Geneva.
The Lebanese market has experienced a lot in the last year. We are looking forward to developments on structural reforms.
4Dr. Marwan Barakat
Head of Research Bank Audi SAL – Audi Saradar Group
E What are the banking areas Audi Saradar is addressing in 2006? What are the plans for revenue diversification,
geographical expansion, and product and activity development? Which areas of banking appear most promising?
As a result of exceptional growth performances and a strong earning power, Bank Audi now ranks among the first 25 Arab banking groups, according to the most important criteria such as assets, deposits, shareholder equity and net profits. The bank was able to realize over the 2001-2005 period a yearly average growth in assets of 25.9%, which corresponds to three times the average of the sector, and an average growth in net earnings of 32.0%, equivalent to 2.5 times the average of the sector. Based on these performances, the bank has consolidated its universal banking profile, covering the whole spectrum of banking services, i.e commercial banking, retail banking, private banking and investment banking. Non-interest income now accounts for 43% of net financial income, evidence of successful diversification by business lines over the past few years.
Following this successful diversification of its business lines, the bank is now looking at regional diversification by market of its presence. Total assets actually represent 52% of Lebanon’s GDP, giving to the bank a regional dimension that lies at the basis of its cross-border expansion strategy. Out of $15.6 billion of total footings, the Bank has today 77% in Lebanon and 23% abroad. It is targeting, in the medium term, balanced activity between Lebanon and its affiliates abroad. The new strategy can be summarized by the strengthening of the bank’s domestic franchise, the reinforcement of its immunity against domestic conditions and the enhancement of cross border activity in high value added markets.
It is within this context that the regional expansion policy has gained ground recently. The bank has formulated a regional expansion strategy for the Middle East and North Africa. Against that backdrop, the expansion of Bank Audi within the targeted regions is evolving rapidly. Established in July 2004, the bank’s Jordan network now consists of eight operating branches out of ten licensed branches, dedicated mainly to retail banking and related commercial banking activities. Activity in Jordan has actually taken off nicely, allowing the Group to build assets of above $300 million in 18 months of activity, which ensures the bank a privileged position in this market. The 2005 performance ensured a break even in net earnings, prior to the preset target, with a strong growth in bottom line expected for 2006.
Activity in Syria took off last September with very encouraging first results, exceeding $100 million in assets in less than a half-year period. Bank Audi (Syria) was established in September 2005, with a capital of $47 million. The bank in Syria is 47% owned by Bank Audi SAL – Audi Saradar Group, after an initial public offering for 25% of the bank’s capital that was significantly oversubscribed (about ten times). Bank Audi (Syria) has a targeted network of 20 operating branches, covering the majority of Syrian territories, mainly dedicated to commercial, retail and corporate banking activities.
In addition, the Group just won a public offer on an Egyptian bank, the Cairo Far East Bank, which ensures a good platform from which to launch its activities in Egypt – a market it considers very promising. Bank Audi’s action plan in Egypt mainly hinges on the development of extensive retail activities based on its acquired expertise in that field with the aim of turning it into the main activity of the new entity. In parallel, Bank Audi is looking to enhance the existing businesses of the acquired bank at the level of commercial, corporate and correspondent banking activities.
The bank also obtained in 2005 a license to operate in Iraq. In order to consolidate its presence in the Levant, the Bank considers Iraq to be a market with very high potential, notwithstanding the uncertainties that continue to characterize its overall environment. Despite the persisting volatility in political and security conditions, the bank believes that the probability of normalization in Iraq is higher than the opposite. As such, it cannot neglect a huge potential like the one currently prevailing in such a neighboring country. Bank Audi is actually targeting the launch of activities in Iraq in 2006 in the North of the country, the Kurdistan region, as a first step. The region offers an interesting and secure infrastructure and is currently witnessing booming economic activity.
The prospect for new regional markets with high potential is now in progress, with plausible perspectives in Algeria and Sudan. The expansion of the Bank to these countries is a key prerequisite for its regional positioning, with the aim of firmly integrating, within a five-year horizon, the restricted Group of large regional banks.
4Roger Dagher
Manager–Financial Control, Bank of Beirut
E Bank of Beirut made significant profits in 2005. How was the bank able to achieve this and what are its strategic aims for the next five years? Will there be any expansion and if so will it be domestic or regional or both? How has not being a family-owned bank contributed to the success of Bank of Beirut?
Bank of Beirut SAL was able, in 2005, to achieve a net profit of $35 million (post dividends). This high profitability was attained due to efficient management of interest rate margins, despite the high pressure resulting from the rise in financing costs in both Lebanese and international markets; increased net commissions, primarily derived from trade finance activities, credit card business and other banking services, in compliance with the bank’s strategy of nourishing its revenues from this source in order to diversify its income and moderate its interest rate risk; cost control and efficiency where Bank of Beirut was able to decrease its cost-to-income ratio despite the growth in assets and number of employees; and finally, the outstanding increase in the profitability of the Bank’s international arms, namely the wholly owned subsidiary in London (Bank of Beirut (UK) Ltd) and the branch in Cyprus, both backed by the three representative offices in Dubai, Lagos and Baghdad.
Bank of Beirut’s strategic aim for the next five years is to strengthen its competitive position by expanding its presence in Lebanon whether through internal growth or selected acquisitions which ultimately would result in further developing consumer (mid-market and retail) banking business; enlarging the network of delivery channels and providing customers with all types of innovative services and products; expanding regionally in countries with large Lebanese/Arab communities where Bank of Beirut has a competitive advantage; improving the bank’s performance management via increased use of technology; and investing further in human capital by hiring the best talents and continually training our staff.
Bank of Beirut has very clear, short, medium and long-term expansion plans. The key here is to seize the good opportunities that would provide BoB with the highest risk adjusted return on investment and meet its long-term strategic goals. Currently, Bank of Beirut is looking for domestic acquisition opportunities and to incorporate and/or acquire banks in the regions where the Lebanese/Arab diaspora is well in place and benefiting from political stability and adequate law enforcement.
We have been recently granted a license by the Central Bank of Oman to open a branch in the Sultanate. With time, Bank of Beirut intends to open several branches in Oman and to focus on both the commercial and retail banking sectors, as well as become a trade channel between Oman and the UK.
The license for Syria (with Qatar National Bank and Emirates Bank International as partners) is in its final approval stage. Bank of Beirut is also contemplating expansion beyond the MENA region. In this respect, we are planning to enhance the activities of our subsidiary in the UK Bank of Beirut (UK) Ltd, as this has already established a success story and a great deal of room for further growth is envisaged. Most recently, we have acquired the UK private banking arm of a major North American bank.
Finally, as to not being a family-owned bank, this fact has definitely contributed to make Bank of Beirut one of the few banks in Lebanon and in the whole region that have applied the highest level of risk management standards, the internationally recognized corporate governance guidelines and the most accepted transparency principles and practices. Actually, BoB has applied written “Corporate Governance Guidelines” approved by the board of directors. The board itself is composed of two executive members with prominent banking experience, Emirates Bank (Dubai – UAE), two high experienced bankers (both of whom were Chairman and CEOs of banks acquired by BoB) and two very successful businessmen. The number of shareholders is close to 2,000, and the bank listed its shares on the Beirut Stock Exchange starting in 1997.
Additionally, Bank of Beirut has several committees that actually have a notable role in the decision taking process in connection with the investment strategy, risk control and operational efficiency.
