BUS 211208 BANK OF SHARJAH VSAKLANI-2-1639549906514
Bank of Sharjah has worked out possibilities to get its Lebanon operations back on track. Image Credit: Virendra Saklani/Gulf News

Dubai: Lebanon’s ongoing economic crisis has been a source of concern for one particular bank in the UAE. The Bank of Sharjah has a sizeable stake in Emirates Lebanon Bank, and this is what has come to bite the former quite painfully each time it comes out with new quarterly financials.

Provisions related to the Emirates Lebanon Bank (ELBank) exposure dragged down Bank of Sharjah numbers, to an extent that even a strong showing in the home market of the UAE has not been enough.

So, what does Bank of Sharjah plan to do to offset the Lebanon liabilities? In conversation with Gulf News, Bank of Sharjah Group CEO Varouj Nerguizian lists out the option.

Is the Bank looking at taking any specific set of steps to reduce the Lebanon presence?

The current situation in Lebanon is not conducive of new development activity and the bank is de facto in a reduction of activity status. We do not accept new deposits and the loan portfolio has almost seen a 50 per cent reduction.

This is the direct result of Emirates Lebanon Bank under consolidation with Bank of Sharjah being subject to full IFRS9 measures while banks in Lebanon have been offered by Banque du Liban (the central bank) five years to constitute the same level of provisions.

Do you reckon that the impairment costs on your Lebanon operations should be enough for the medium term?

The current impairment charges - at both Emirates Lebanon Bank and Bank of Sharjah - are more than adequate and have been tested under various stress models. Facing the unknown, auditors and UAE Central Bank have imposed a very high level of provisions.

Both devaluation, which is unavoidable, and rumours of a haircut of deposits - which would be, if ever, feasible - on deposits above a certain threshold would yield for our Group a recovery of provisions. We are confident that negotiations with IMF/World Bank will soon allow a better assessment of the needed provisions releasing substantial amounts for the Group.

The Group under non-officially declared hyperinflation has been registering the most odd results. Profits at both entity levels (Emirates Lebanon Bank still makes profits) are transformed by the “magic” of financial standards into losses.

And yet, the shareholders equity jumps higher in hundreds of millions? This distorts the figures and projects a negative image of the Bank while in reality the Group is registering comfortable net profits.

Sticking with the matter of Lebanon, are there any moves to inject funds into the venture? What’s your current stake in the entity there?

BDL has requested banks to raise fresh liquidity of 3 per cent of deposits as at a certain date. This request estimated at around $3 billion would represent the seed liquidity for the banking industry to jumpstart the economy once certain agreements are reached by the government and IMF/WB.

Of course, in the case of ELBank this represents some $20 million and would remain under the direct control of the bank and the Group treasury. Bank of Sharjah has actively supported its subsidiary and will continue to do so as Lebanon today is the prey of regional and international conflicts.

But history tells us that Lebanon has a way of getting rid of all foreign entities that affect the country. It is only a matter of time. The country sits on huge reserves of oil and gas and is prevented from benefiting from this wealth pending agreement on demarcation.

190807 Update Bank of Sharjah pictures

It is estimated that some $5 billion is held by Lebanese as a result of loss of confidence in banks, this can be physically risky for them, and we are currently reviewing ways and means of attracting some of these funds within a product that comforts depositors and protects their funds from erosion of liquidity.

Have you scaled down all lending, corporate and retail, in Lebanon?

We did not scale down voluntarily but in effect it has been scaled down as a result of the downturn in activity and the conversion into a cash economy. This, strangely, goes opposite to the declared US efforts under AML/FT.

The ELBank model is similar to Bank of Sharjah model and retail activity by design is negligible. Both entities are active in corporate business.

Within the UAE, your latest results show a pick-up in key areas. Are there any specific areas you want to target in 22?

Bank of Sharjah under Covid has introduced a number of measures recommended by the UAE Central Bank, like TESS and the UAE Central Ban krecognized the importance of not downgrading exposures to companies affected.

This was a major measure by the Central Bank and highlighted the and understanding of the monetary authorities to support the economic entities without penalizing banks participating to the scheme. In 2022, we will continue to support our customers and ensure timely repayment of deferred loans, we will also reorganize the existing loans subsequent to post-TESS.

This is a huge administrative task in itself. We plan to reinforce our PBWM (private banking wealth management) team and upend its activity. With corporate lending demand picking up gradually, we still don’t see the need to move to retail activity.