Lebanese banks suffering contractions
With the exception of Bank Audi, which posted a 21.78 percent increase in net loans, the loan portfolios of Byblos, BLOM, Bank of Beirut and BEMO contracted respectively by 0.48 percent, 0.67 percent, 1.37 percent and 4.39 percent.
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Declining consumer and business confidence will negatively impact the profitability of Lebanese banks in the second half of 2013, industry officials say, due to modest growth in lending to the private sector and a contraction in the net loans portfolio of some major banks.
Loans to the private sector increased by 3.2 percent in 2013 to reach $44.8 billion at the end of the first half of the year, compared to a loan growth average of 9.5 percent in the last five years. The net loans portfolio of four out of five listed banks on the Beirut Stock Exchange posted a contraction.
With the exception of Bank Audi, which posted a 21.78 percent increase in net loans, the loan portfolios of Byblos, BLOM, Bank of Beirut and BEMO contracted respectively by 0.48 percent, 0.67 percent, 1.37 percent and 4.39 percent. The consolidated net interest income of the five banks rose by 2.10 percent.
“The results aren’t surprising given the deteriorating political and security situation,” Nassib Ghobril, chief economist at Byblos Bank, told The Daily Star.
“Businesses are postponing any expansion plans while households are adopting the same cautious approach and spending less, fearing increasing layoffs and gloomy job prospects.”
Ghobril warned that growth in lending would have posted a sharper decline if the Central Bank had not launched its $1.46 billion stimulus package last January.
The Central Bank gave $1.46 billion in credit facilities to commercial banks at a 1 percent interest rate to provide subsidized loans targeting the real estate and productive sectors. According to experts, the stimulus package was aimed at stopping the decline in demand for real estate amid low consumer confidence and negative investor sentiment.
The weak growth in lending is expected to lead to flat or modest growth in the consolidated profits of Lebanese banks in the second half of 2013, according to Marwan Barakat, head of Bank Audi’s research department.
In the first half of 2013, the consolidated profits of five BSE-listed banks rose by 1.58 percent year-on-year to reach $502.5 million, up from $494.67 million during the same period in 2012.
Barakat told The Daily Star that regional turmoil and local instability would weigh on the profits of the banking sector in the short term but added that long-term prospects remained very promising due to the existence of a large output gap that banks could bridge.
“Lebanese banks have maintained sound financial standings over this period of economic pressure with healthy liquidity, nonperforming loans and capital adequacy ratios,” he added.
Jean Michel Aoun, the senior investment officer at Arab Finance Corporation, told The Daily Star that while private sector demand for loans had waned, banks were also adopting a more conservative lending strategy.
Aoun said the trend seen in the first half of 2013 would continue throughout the second half and wasn’t expected to reverse unless the regional turmoil unexpectedly abated.
The head of the Association of Banks in Lebanon, Francois Bassil, told The Daily Star last month that the Lebanese banking sector could see profits drop by up to 20 percent in 2014 if the political stalemate in the country persists.
The Lebanese economy contracted between 0.5 and 1 percent in the first half of the year and could end the year in a net contraction, Garbis Iradian, deputy director for Middle East and Africa at the Institute of International Finance told The Daily Star.
The International Monetary Fund, the World Bank and other international financial institutions have so far kept their 2013 growth forecasts between 1 and 2 percent.
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