x Abu Dhabi, UAEThursday 27 July 2017

Lebanon economy shrugs off regional gloom

Region Lebanon's new political stability is encouraging a tourism boom and keeping a normally buoyant real estate sector relatively stable.

Lebanese banks are being seen as outperforming their regional and even international rivals.
Lebanese banks are being seen as outperforming their regional and even international rivals.

BEIRUT // Lebanon is performing exceptionally well, given the global financial crisis. Its new political stability is encouraging a tourism boom and keeping a normally buoyant real estate sector relatively stable. But most of all, it is the Lebanese banks that are being seen as outperforming their regional and even international rivals. Where other countries struggle with financial sectors that have been badly hit by the global financial crisis and banks that are exposed heavily to toxic assets, Lebanon's banks have actually received a boost as a safe haven in times of crisis. This started right after the collapse of the American giant Lehman Brothers in September last year and is still continuing. "Very little time after Lehman Brothers we started seeing a spectacular inflow of funds," said Youssef el Khalil, the director of financial operations at Lebanon's central bank. "It has slowed down somewhat but it is still going on now." Mr el Khalil gives three reasons for this phenomenon. First, most of the deposits came from Lebanese investors who had preferred to avoid putting their money in Lebanese banks because of the risk, instead preferring low-yield, low-risk destinations. When they saw these supposedly low-risk institutions collapse, they repatriated their money. Second, despite recent political instability in Lebanon, Mr el Khalil said the banking sector had gained a reputation since the assassination of Rafic Hariri, the former prime minister, as being able to weather political problems. And lastly, he said there was a perception "rightly or wrongly" that the international community would not let Lebanon fail. A report on the country's banking sector by Lebanon's FFA private bank says deposits in Lebanese banks grew by more than US$10 billion (Dh36.73bn) last year to $77.8bn. Significantly, $2.6bn was added in the last quarter of last year when the effects of the global crisis became most apparent. The share of foreign depositors also grew to 22 per cent "as a result of the increased confidence in the Lebanese banking sector", the report notes. The strong performance of the banking sector, along with the boom in tourism, has most Lebanese analysts predicting an economic growth of more than 4 per cent this year, down from 8 per cent last year but still respectable in these times. The bank assets to GDP ratio reached 327 per cent last year. This becomes even more significant when the country's huge national debt of more than $45bn, which represents a debt-to-GDP ratio of more than 160 per cent, is considered. And traditionally, the local commercial banks hold about half of Lebanon's net public debt. To a large degree it is the national debt and the need to have the local banks finance it that is responsible for the stability of Lebanon's banking sector. "We forbade them to invest in subprime and limited their ability to invest in structured products," said Mr el Khalil, adding that this pushed the banks to buy Lebanese government paper, "which sometimes even had higher yields". In the current crisis the more cautious and traditional banks are being rewarded. Blom Bank, the largest Lebanese lender by profit, said its first-half profit rose 5.8 per cent on higher lending from the same period last year. Profit this year would be better than last year, Saad Azhari, its chairman, told Bloomberg. Net profit rose to $138.3 million from $130.7m a year earlier. Banque Audi-Audi Saradar Group, the largest Lebanese lender by assets, said its first-half profit increased 2 per cent on higher lending. Net profit rose to 200.4bn Lebanese pounds (Dh489.5m) from 196.7bn pounds a year earlier. Those two banks, together with Byblos Bank, account for more than $50bn of the $95bn in total assets of Lebanese banks. Byblos Bank shares were recently recommended as a "buy" by FFA because of the bank's good performance throughout the crisis. Ties with the GCC countries are important to Lebanon and it is not yet clear how long the crisis there will continue, said Nassib Ghobril, the head of economic research and analysis at Byblos Bank. Mr Ghobril said lending was still down in the GCC states, which also affected Lebanese banks. Domestically, the shifting of many deposits to Lebanese pounds, which give higher yields than dollar accounts, increaseed the costs for banks, he said. The relative strength of the Lebanese banks in this crisis should offer an opportunity for expansion in the region, which they have already embarked upon over previous years, said Mr el Khalil. But the bankers themselves are less confident. They note the traditional and cautious ways in which Lebanese banks operate. Rather than surge forward, the banks have adopted a "wait and see attitude" towards expansion, Mr Ghobril said. business@thenational.ae