Dubai: Lebanon’s banks have faced a number of shocks in the past ranging from a crippling civil war to a series of wars in the region and economic crises, yet the banking sector remains resilient and will continue to prosper, said Mohammad Al Hariri, Chairman and General Manager of BankMed in an Interview to Gulf News.
BankMed, one of the oldest Lebanese banks has recently opened operations in the DIFC with a Category 1 banking licence.
Hariri said the bank’s DIFC foray is part of its selective geographical expansion. In the recent years BankMed has strategically expanded its presence across the Middle East and Europe. The bank currently has presence in key regional and international markets spanning Lebanon, Switzerland, Turkey, Iraq, Cyprus, Saudi Arabia and the UAE.
Despite the challenging economic and political environment in Lebanon and its neighbourhood, Hariri said Lebanese banks including BankMed would gain in profitability and asset quality this year.
“Notwithstanding the regional and internal challenges, we expect the economy to grow in the range of 2 to 2.5 per cent this year, giving banks selective opportunities to grow their asset bases and profits,” said Hariri.
Credit ranging agencies say Lebanese banks are faced with challenging operating environment this year because of the political environment in the region and excessive exposure of their balance sheets to low rated sovereign debt.
Analysts estimate banks’ exposure to sovereign debt is close to 5 times their capital. Moody’s Investors Service recently downgraded to B2 the long-term deposit ratings of three Lebanese banks such as Bank Audi., BLOM Bank and Byblos Bank., following the downgrade of Lebanon’s government bond ratings to B2 from B1with negative outlook.
The rating agency said the downgrades reflect the view that the government’s weakening creditworthiness weighs on the banks’ stand-alone credit profile given the high credit linkages between their balance sheets and sovereign credit risk, and the government’s reduced capacity to support banks in case of need.
According to Moody’s estimates, the banks’ direct exposure to government credit risk (investments in government securities and central bank certificates of deposits) stood at around 2.5 times tier 1 capital for Bank Audi, 2.6 times for BLOM Bank and 4.4 times for Byblos Bank as of September 2014.
“Credit ratings of Lebanese banks are largely impacted by the low sovereign ratings. But as a matter of fact, stand-alone balance sheets of most banks are healthy with strong asset quality, liquidity, profitability and capital adequacy matrices well above regulatory minimum limits,” Hariri said.
On the assets side, the biggest challenge Lebanese banks face is from concentration risk arising from excessive exposure to government debt. On the liabilities front, customer deposits make up around 70 per cent of total assets and will continue to be the main funding source, minimising banks’ reliance on more expensive and more volatile capital market funding.
Inflows of remittances from migrant workers support banks’ deposit bases in Lebanon. Remittances from the Lebanese diaspora are equivalent to 15 per cent to 20 per cent of GDP on an annual basis.
Liquidity buffers are generally high, but risks remain. Liquid assets will increasingly be in the form of low-rated sovereign securities, leaving balance sheets vulnerable to sovereign risk.
“The regulatory framework in Lebanon is one of the most robust in the region. With a strong history of prudential regulations, the banks are generally safe from potential systemic risks,” he said.
BankMed will announce its annual result in early April and is expected to perform better than last year when it reported flat net profit growth. Last year the bank reported 12 per cent growth in customer deposits and 7 per cent growth in loans respectively with an overall growth in assets in excess of 10 per cent.
“We expect asset growth, profit, liquidity and asset quality to be better this year,” said Hariri.
