Lebanon in severe profit loss if political instability persists
The Lebanese banking sector could see profits drop by up to 20 percent over the next year if the political stalemate in the country persists, the head of the Association of Banks in Lebanon warned. “The profits of Lebanese banks will probably fall by 10 percent in the third quarter of 2013 and 20 percent in 2014, if the situation remains unchanged,” Francois Bassil told The Daily Star in an interview.
“The failure of politicians to form a Cabinet and the spillover of the Syrian war on Lebanon have surely affected the economy and the banking sector,” he said. “We expect profits in the third quarter of the banks to register a drop but nevertheless the net income will remain healthy even under these difficult political and economic conditions.”
The Lebanese banks have managed to maintain relatively steady profits in the first half of this year despite the sharp drop in GDP growth.
Central Bank Governor Riad Salameh has projected between 8 and 10 percent growth in assets and customer deposits in 2013, adding that this growth would be almost in line with the results achieved in 2012.
Profits at Lebanon’s 13 Alpha Group banks, whose deposits are in excess of $2 billion, surged 15.5 percent year-on-year to $431.32 million in the first quarter of 2013, according to an SGBL report.
The 13 banks booked $90.06 million in credit loss provisions during the period, down from $141.12 million in the same quarter of 2012.
Bassil feared GDP growth in 2013 could be negative.
“Most of the private sector has incurred heavy losses in the past two years due to the political deadlock in the country and the effects of the Syrian war on Lebanon. Naturally, the Lebanese banks will feel the pinch. We cannot insulate ourselves from the events around us,” he added.
He stressed that there was not a single positive sign in the country.
Bassil called on politicians to cast aside their differences and speed up the Cabinet formation to send a strong signal to the investors:
“Look around you. Most state institutions are crippled; many public departments are functioning without newly appointed director generals, the security situation in total chaos. Nothing is working properly.”
He insisted that in spite of all these negative indicators Lebanese banks were flush with cash.
“We [banks] are very liquid. But this money is looking for proper investments,” Bassil said.
“However, we can’t put our money in any investments in Lebanon under these conditions.”
The banker repeated that Lebanese banks were not keen to subscribe to new Treasury bills or sovereign Eurobonds at this stage.
He added that banks were replacing the maturing bonds with new ones and at lower interest rates.
The Central Bank is now the largest subscriber of T-bills to help meet the financial needs of the state and all public departments.
But Bassil cautioned that the Central Bank could not continue to play the role of savior indefinitely and it could not continue exhausting its reserves forever.
He added that Lebanese banks had taken all the measures to protect the sector and the clients and for this reason they had increased provisions for nonperforming loans.
“Our deposits and assets are still increasing although not at the same ratio as before. We still feel that the banking sector is very healthy,” he said.
Bassil added that Lebanese banks had invested part of their money abroad with lower return on their investment and this would affect the profits in general.
Commenting on the European Union decision to blacklist the military wing of Hezbollah, Bassil said the measure would have no impact on the Lebanese banks:
“We are fully abiding by all international decisions. We keep updating the list of all those who are blacklisted by the U.S. authorities. We don’t accept any money or transaction from any group labeled as a terrorist group.”
Bassil said remittances from the Lebanese expatriates in the oil rich Arab Gulf states were not affected.
The remittances play a major role in beefing up the deposits of the banking sector, with the country receiving $7 billion to $8 billion a year from Lebanese working abroad.
Bassil indicated that a parliamentary committee had approved a draft law to declare any cash that enters or leaves Lebanon.
“Any person who brings a large amount of cash to Lebanon should declare them to the authorities at the airports, ports and all entry points at the border. Banks fully support this move because it would oblige the depositor to declare where the money came from,” he added.
The draft law still needs the approval of the Parliament; Bassil said that if MPs fail to hold a session the bill would not be implemented.