Foreign invasion: How Lebanese banks abroad are supporting the domestic finance sector
During the past two decades, Lebanese banks have developed a widespread external network relative to the size of their activity, with many offices, branches, sister companies and subsidiaries.
Currently, 16 Lebanese banks, which represent nearly 86 percent of the sector, are present in more than 30 countries, covering major regional markets such as Syria, Jordan, Egypt, Sudan, Algeria, Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Oman.
These banks also operate in prominent markets such as Turkey, in European countries like Switzerland, France, the United Kingdom, Germany, Luxembourg and Monaco, and across Romania, Belarus, Armenia, Belgium and Cyprus.
Lebanon’s network abroad has also expanded to reach North America (Canada) and Africa (Ivory Cost, Nigeria, the Democratic Republic of Congo, Senegal), as well as Australia.
Lebanon’s extended network has spread in the main cities of the mentioned countries; its 39 subsidiaries, partner or sister banks boast more than 240 branches which represent 25 percent of Lebanese bank outlets.
Also, the volume of activity of the 16 Lebanese banks operating abroad has reached 17 percent of their consolidated total assets.
The Lebanese banks’ tendency to expand toward foreign markets is mainly due to the small economy and the small size of the population, but sometimes, other pragmatic reasons impose themselves.
These include the constant political tensions, the absence of security and the associated instability, which drive Lebanese of all ages to emigrate, particularly the youth.
The political instability and the precarious security leads to the retraction of new investments and consequently to the regression of the growth rate, household incomes and business profits.
The repercussions of such factors are reflected internally on bank deposit activity and investments, and because such circumstantial developments tend to linger, banks gravitate toward Arab and foreign countries to follow the Lebanese non-resident communities or to offset the small size of the local market.
It is also quite natural for some foreign banks operating in Lebanon to be affected by the prevailing circumstances more than their Lebanese counterparts, due to their small share of local banking activity and the risk rating increases that are reflected in their headquarters’ balance sheets, as per downgrades in Lebanon’s sovereign rating by international rating agencies.
Nevertheless, 12 foreign banks still operate in Lebanon, although their share does not exceed 2 percent of the domestic market. In addition, 11 representative offices of major international banks are registered in Lebanon, while 14 foreign lenders are stakeholders in large Lebanese banks with deep-rooted Lebanese management.
The operating banks in Lebanon have correspondent relations with 226 banks that facilitate operations with the financial world and vice versa.
Regardless of the legal form of Lebanese banks’ presence abroad, lenders in Lebanon deal with non-resident Lebanese and foreign individuals, enterprises and banks. In fact, the volume of activity banks operating in Lebanon have with non-residents can be estimated at nearly a third of their total activities.
These include on the asset side the banks’ deposits in foreign currencies at the Central Bank that are invested in international capital markets and especially in non-resident banks.
It also takes into consideration the non-resident deposits that are included within resident deposits as stated in the IMF reports.
And finally it includes the share of non-resident and foreign entities in the banks’ capital funds.
In other words, the volume of NR Assets/Liabilities in excess of $50 billion are coming from abroad to our banks and characterize their placements.
Thus, the rate of internal banking assets to GDP is less than 238 percent, and it gets closer to the world standards, keeping in mind that the world structure of financial assets, in the advanced or emerging economies, includes equivalent shares of assets from sovereign bonds, corporate bonds and equities held by non-banking parties.
We hope that with the implementation of the financial markets laws and regulations and the appointment of its supervisory committee these markets will be launched to ensure diversification in source funding, which is urgently needed by the corporate sector, and to provide new opportunities for investors, individuals and institutions, to diversify in their portfolio investments.
Therefore, we hope this law will encourage large enterprises at least to list their shares and securities on the Beirut Stock Exchange. Such a listing would be associated with an increase of transparency in the corporate sector’s profit and loss account statements.
Also, criticism of Lebanese lenders’ deployment abroad – which some suspect could give rise to risks because of insufficient familiarity with such new markets – is groundless.
First, the more than 40 years of experience Lebanese banks have had in foreign markets should not be underestimated. And the Lebanese banking sector and economy have always been characterized, despite their small size, by a robust and well-thought-out openness to the world.
It is also important to take into account when assessing the presence abroad of the 16 Lebanese banks concerned that their share of the overall assets and capital accounts is more than 86 percent, while the size of their activity abroad does not exceed 17 percent of their consolidated assets.
This means the risks are well distributed in line with the markets shares of the concerned banks.
There is also the fact that Lebanese banks’ investments abroad are mostly concentrated in countries with a higher sovereign risk rating, which is known as the Investment Grade.
In conclusion, the investments and placements of our banks abroad constitute a well-diversified activity and follow the Basel concept of lower-weighted risks than the one applied to our domestic assets, and consequently lower capital requirements.
This does not eliminate the fact that our presence abroad should be associated with the strengthening of the concerned banks’ human resources, internal organization and capital funds.
And finally, the Lebanese banking presence abroad is integral to an exporting of services and it should contribute in the future to restoring equilibrium to our balance of payments.
Makram Sader is the secretary-general of the Association of Banks in Lebanon.
- An economic slowdown? The pros and cons of Israel's weakening shekel
- A spectacle of $8 trillion and more: what's the MENA Investment Conference in London all about?
- An odd dynamic? Saudi using desert to emulate Chinese model and attract Chinese investors
- Are Islamic finance's non-Muslim adherents 'pushing the limits'?
- Against all odds: Bank Audi to expand in Egypt, Syria