Lebanese lenders to see quieter 2013
Consumer confidence hit a record low in the first half of 2012
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Over the past few years, Lebanese banks were posting double-digit growth in profits despite a global recession. But those days are long gone unless Lebanon sees a positive political shock that puts economic growth back on track in 2013, a number of bankers told The Daily Star.
Lebanon’s Alpha banks – the 13 largest – are expected to post flat to modest growth in profits in 2013 in line with their 2012 performance as the economic slowdown caused by local and regional uncertainties continues to hinder lending opportunities, bankers said.
Banks listed on the Beirut stock exchange – namely Audi, BLOM, Byblos, Bank of Beirut and BEMO – reported a 6.22 percent year-on-year increase in consolidated profits in the first three quarters of 2012.
“The decline in consumer confidence coupled with negative investor sentiment both locally and abroad is hindering the banks’ lending opportunities,” Nassib Ghobril, head of Byblos Bank’s economic research department said.
Consumer confidence hit a record low in the first half of 2012, according to the Byblos Bank/AUB Consumer Confidence Index, which reached its lowest point on a monthly basis since its inception in July 2007 last June.
Foreign direct investment also dropped by 84 percent year-on-year in the first half of 2012, according to Ernst & Young.
“In the absence of a positive political shock to stimulate the economy and restore confidence, I see no substantial improvement in 2013,” Ghobril added.
Real GDP growth was put at 2 percent in 2012, according to the latest IMF forecast, which expects growth for 2013 to be in the 2.5 percent range due to domestic political uncertainty and concerns of a spillover of the Syrian crisis into Lebanon.
“2012 was a very challenging year for the banking sector that posted an acceptable growth rate given the crisis in Syria which led to a decline in cross-border trade activity on one front, and loan impairments on the other,” said Fadlo Choueiri, head of corporate finance and research at Credit Libanais.
The three largest Lebanese banks – BLOM, Audi, and Byblos – reported a 7.4 percent growth in profits at $682.7 million despite taking a $203 million in net-credit-loss provisions in Syria in the first three quarters of 2012, an increase of 211.3 percent over those taken in the first nine month of 2011.
Profits of Lebanese banks’ subsidiaries in Syria – Bank Audi Syria, Bank of Syria & Overseas, Byblos Bank Syria, Bank BEMO Saudi Fransi, Fransabank Syria, Sharq Bank and Syria Gulf Bank – plunged by 69.42 percent in the first three quarters of 2012.
In addition to substantial losses due to loan impairments, one of the first casualties of the Syrian crisis was a freeze in letters of credit and guarantees to merchants amid a decline in cross-border trade activity.
“Despite difficulties, I am relatively optimistic for 2013 as the Syrian crisis had been accounted for by Lebanese banks which reduced their exposure and took the necessary provisions,” Choueiri said. “Growth in deposits is sustainable since Lebanon relies on remittance inflows from expatriates who continue to channel money into Lebanon irrespective of shock events.”
On an individual basis, Bank Audi reported the highest growth in net profit which stood at $309.39 million for the first three quarters of 2012, growing by 14.06 percent over the same period in 2011.
However, this includes $32.83 million resulting from discontinued operations after Audi sold its insurance arm Libano-Arabe, reducing the growth rate to 1.96 percent.
Some banking sources have warned that they expect profits of Alpha Lebanese banks to decline further in 2013, explaining that some banks have already sold a big chunk of their treasury bonds and other assets to maintain profits and conceal losses.
“Most Lebanese banks generate close to 80 percent of their profits from domestic operations and unless the economic situation improves, I expect the trend in 2012 to continue through 2013,” Ghobril said.
BLOM came second, growing its earnings by 6.08 percent to reach $250.68 million while Byblos Bank’s profits marginally declined by 4.24 percent to $122.64 million.
However, some banks are bucking the trend as they expand abroad.
Bank of Beirut is expecting growth in net profit by more than 10 percent for the full year of 2012, Bank of Beirut chief financial officer Roger Dagher told The Daily Star.
Dagher added that the bank generates close to 40 percent of its income from foreign operations, with more than $1.5 billion in assets in Australia.
“We are looking to increase the percentage of income from foreign operations to 50 percent in three to four years,” he added.
Bank of Beirut forecasts an increase in profits in 2013 within a range of 10 percent, according to Dagher.
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