Lebanese banks have maintained sound financial standings over this period of economic pressure with healthy liquidity, non performing loans and capital adequacy ratios.
August 29 , 2013 : With a total area of 10,452 square kilometres, Lebanon is bordered by the war ravaged Syria to the north and Israel to the South, the war in Syria has forced more than 1.2 million Syrians to enter safer places such as Lebanon; the number of refugees has reached 18,000 and now equals the local population in Saadnayel in the Bekaa valley.
The Syrian Community in Lebanon includes more than 600,000 refugees according to Antonio Guterres, the United Nations High Commissioner for Refugees. Trade has been disrupted in the country severely as Lebanese trucks are not allowed to pass between the Damascus and Amman route; Lebanese exports strongly rely on a stable Syria, as 40 percent of all exports transit through Syria to Jordan, Iraq and Turkey. Transporters now opt for the circuitous route through Suez to Aqaba, but this route is considered more expensive for exporters. Between 2009 and 2012, the share of exports transiting through Syria as a percentage of GDP declined by 0.7 percent which amounts to 28 million dollars.
Banking Reforms
Riad Salameh, Governor of Lebanese Central Bank said “The country will introduce measures to encourage start up companies in a bid to spur economic growth amid political turmoil and violence. Under the changes, to be announced this month, banks will be allowed to invest three percent of their own funds in start up firms, he said in an interview in his Beirut office. The central bank will provide banks with interest free loans for the projects, he said. Explaining it further he said “The banks will do a capital investment, not a debt investment, with these companies”. The central bank will implement a risk mechanism that will cover risks on their investments up to 75 percent, this is the second stimulus package announced by the central bank to the country hit by violence as the civil war in neighbouring Syria spills into the country. Earlier in January, the central bank had provided $ 1.35 billion to the banks at one percent interest to encourage entrepreneurship, especially small and medium enterprises, housing and the renewable energy industry. Salameh said around 25 percent of the first package is still left and it will be reallocated to allow more loans to businesses because of the slowdown in the demand for housing loans.
In the first half of 2013, the consolidated profits of five Beirut Stock Exchange (BSE) listed banks rose 1.58 percent year-on-year to reach $ 502.5 million, up from $ 494.67 million in during the same period in 2012. In an interview with the Daily Star, Marwan Barakat, head of Bank Audi’s research department said “The regional turmoil and local instability would weigh on the profits of the banking sector in the short term but added that long term prospects remained very promising due to the existence of a large output gap that banks could bridge”.
“Lebanese banks have maintained sound financial standings over this period of economic pressure with healthy liquidity, non performing loans and capital adequacy ratios” he said.
Declining Confidence
Declining consumer and business confidence will negatively impact the profitability of Lebanese banks in 2013, due to a modest growth in lending to the private sector and a contraction in the net loans portfolio of some major banks, the Daily Star reported. Loans to the private sector increased by 3.2 percent in 2013 to reach $ 44.8 billion at the end of the first half of the year, compared to a loan growth average of 9.5 percent in the last five years. The net loans portfolio of four out of five listed banks on the Beirut Stock Exchange posted a contraction. Amidst the ruins, Bank Audi posted a 21.78 increase in net loans but the loan portfolios of Byblos, Blom, Bank of Beirut and BEMO contracted respectively by 0.48 percent, 0.67 percent, 1.37 percent and 4.39 percent.
Commenting on the downtrend Nassib Ghobril, chief economist at Byblos Bank said “The results aren’t surprising given the deteriorating political and security situation, businesses are postponing expansion plans while households are adopting cautious approach and spending less, fearing layoffs and gloomy job prospects”
According to International Monetary Fund (IMF) Lebanon’s economy is expected to grow at less than three percent for the third straight year because of the effects of the Syrian war, political instability and low business morale in the country. Lebanon, whose currency has been pegged to the dollar at about 1,500 since 1993, is the most indebted Arab country, with a debt to GDP ratio of more than 130 percent. Tourism which contributes 20 percent of the GDP, translating into 8 billion dollars is the worst affected.
Sectarian Tension
The sectarian tension has been edging Lebanon to its own civil war, Sunni and Shiite Muslims make up about 60 percent of the population with Christians accounting for the rest. The arrival of Sunni Muslims from Syrian places “ is an intense strain on the country’s sectarian balance, this will make it all too easy to put forward a xenophobic, sectarian or nationalist narrative” said James Petretta who is an associate director for the Middle East and North Africa at Maplecroft, a UK based global risk adviser.