Lebanon’s banks make smaller profits but remain resilient
Beirut - Lebanon’s leading banks have seen profits grow at relatively meagre rates, signalling the slowing economy’s effect on the sector. However, the lending institutions have shown resilience to politically driven economic ills and promise to remain the country’s main moneymaking lever.
Profits of the country’s 14 leading banks in the first six months of 2016 increased 8% to $1.1 billion compared to the same period last year, a report said. “The first half of 2016 reported growing profitability but return ratios remain modest,” the Alpha Report stated.
Published by Bankdata, the Alpha Report outlines the performance of the so-called Alpha group of Lebanese banks that each has customer deposits exceeding $2 billion. It said the return ratio fell short of international benchmarks.
Despite difficult operating conditions, Lebanon’s banks sustain relatively good profitability, said Nassib Ghobril, chief economist at Byblos Bank. “Banks are a key economic player in Lebanon and the main financiers of individuals, the private sector and the government. Their growth is acceptable, and their profits are remarkable; they sustain their role as a key generator of economic activity,” he said.
“The 14 banks hold 87% of the sector’s assets and provide 83% of loans on the market, including 82.6% of loans in the Lebanese lira and 88.8% of loans in foreign currencies,” Ghobril explained. “The banks own 1,200 of Lebanon’s total of 1,450 banking branches and hire 20,050 people, 79% of the total.”
Byblos Bank, BLOM Bank and Audi Bank top the list of 14.
The banking sector’s return ratios were almost stable in 2016. Growth in the sector’s net profits was only marginally above growth in assets and equity, the Alpha Report said. “The sector’s return on average common equity was 12.9% in the first half of 2016, unchanged from the previous year, while the return on average assets slightly rose from 1.01% to 1.05%,” it added.
Lebanon’s economic growth has stagnated in recent years at less than 2% since 2010 when it soared to 8%. It is being pressured by a political deadlock that has blocked the election of a president since 2014 and undermined attempts to produce a new general election law. The country has failed to have a budget since 2005. All public expenditures are made according to temporary measures.
Lebanon is also home to 1.5 million refugees from Syria, where a revolution-turned-war has been raging since 2011. In these conditions, the country’s services sector, which is responsible for 60% of economic activity, has been dealt major blows. Tourists, especially from the Gulf, avoid Lebanon, fearing fallout from the Shia militant Hezbollah’s involvement in the Syrian war.
“It is worth noting that Lebanon’s return ratios came, again this year, somewhat short of global benchmarks within the context of persistently tough operating conditions in Lebanon and main markets of presence,” the Alpha Report said. Lebanon’s banks have operations in countries suffering instabilities or uncertainties in the region, including Syria and Egypt.
Banking leaders are neither surprised nor alarmed vis-à-vis their sector’s results. “The meagre results did not take us by surprise,” said a source at the Association of Banks in Lebanon. “The fact that the banks are still making money under these conditions is appreciable. Mind you that they hold more than 60% of the country’s public debt and are ready to continue to lend the government,” he added, speaking on the condition of anonymity.
The role banks play in Lebanon seems too unbalanced to economist Louis Hobeika, who suggested the situation slowed banks’ profits as consumption dropped in stagnated economic conditions.
“The banks fail to provide enough productive loans, relying mostly on consumer loans,” Hobeika said. “Also, by focusing too much on lending the government, the banks seem to be playing a negative role in the Lebanese economy. They need to be more involved in the real economy. They need to invest more and finance consumption less.”
The Alpha Report noted that the consolidated assets of the banking sector registered modest growth in the first half of the year. It added that customer deposits saw a slight increase in the same period.
“If the assets and/or deposits shrunk or at least stabilised, concerns about the banking sector’s health would be justified. Let us say: ‘So far, so good,’” the source said.