[LCM Articles] Lebanese banks provide welcome stability (FT)

[Loai Naamani]

Lebanese banks provide welcome stability


By Anna Fifield in Beirut

http://www.ft.com/cms/s/0/6ca4f2b0-9ec8-11dd-98bd-000077b07658.html?nclick_c
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Lebanese traders at Bank Audi in Beirut

As the financial crisis sends shock waves through global markets, Lebanon's
banks are bucking the trend as the beneficiaries of an unprecedented flow of
remittances from overseas.

Unlike their counterparts in many western financial centres, Lebanese banks
find themselves in the enviable position of having excess capital - bank
deposits are on course to grow by almost 50 per cent this year from 2007.

"Contrary to what is happening in the rest of the world, Lebanon has seen a
very significant increase in deposits over the past few weeks," says Marwan
Barakat, head of research at Bank Audi, the country's largest lender.

"This is due to the confidence that Lebanese have in their banking system,
which is conservatively managed and very well regulated," Mr Barakat says.

The inflow into bank deposits totalled $7.7bn in the first eight months of
this year, according to central bank figures, easily surpassing the 2007
full-year total of $6.6bn, itself a record.

The increase in deposits has been driven by an increase in overseas
remittances, which are set to top the $5.5bn total recorded last year. There
are 4m Lebanese at home but about 12m abroad, many of whom retain strong
ties to their country, sending money home and investing in local real
estate.

Many analysts expect deposit growth to reach $10bn by the end of this year,
putting banks on track to improve on a 27 per cent growth in profits they
recorded last year.

This strong cash base - deposits comprise 85 per cent of Lebanese banks'
assets, making them among the most liquid in the world - and experience of
survival through times of turbulence mean that Lebanese lenders are still
confident enough to expand aggressively across the Middle East. They say
that they are almost entirely unaffected by the international financial
crisis.

Banks are prohibited from having more than half of their equity outside the
country, and from investing in real estate or derivative products.

"Lebanese banks have very little room to place bets - they are not allowed
to invest in or lend to non-investment grade entities, and that protects the
system," says Jean Riachi, chairman of FFA Private Bank, Lebanon's biggest
investment bank.

"Some banks might have some exposure to Lehman Brothers because it was an
AA-rated company, but because of the limitations, the exposure cannot be
big. The banking system in Lebanon is quite immune," he says.

Lebanese banks were already enjoying an improving domestic economy, after
three years of sluggish growth due to political disasters that included the
assassination of Rafiq Hariri, the former prime minister, and the 2006 war
with Israel.

Private sector economists expect Lebanese gross domestic product to increase
by about 5 per cent this year, partly thanks to a peace agreement signed
between rival Lebanese factions in Doha in May that has ushered in a period
of relative stability.

That deal, coupled with investors from the Gulf looking for places to invest
their oil profits, has contributed to a sudden jump in capital inflows into
Lebanon, which has one of the most advanced banking systems in the region.

This has led to an unusual situation where banks dwarf the real economy -
Lebanese banks have total assets of $100bn in a country with a GDP of $25bn.

"You don't find that in any other part of the world, except maybe
Switzerland," says Mr Barakat.

This environment means Lebanese banks will be able to continue to expand
around the Middle East. In just three years, Bank Audi has gone from having
no branches in the region to having operations in Syria, Jordan, Egypt,
Saudi Arabia, Qatar and Sudan.

Meanwhile, Blom, Lebanon's second-largest bank, will start a corporate and
private banking business in Qatar before the end of this year, and will move
into the Saudi Arabian financial sector soon after, says Saad Azhari,
chairman.

"There are a lot of companies in Saudi Arabia that need to do IPOs [initial
public offerings]. The stock market there is very important, so we are going
to have a brokerage and do fund management," Mr Azhari tells the Financial
Times.

Blom has businesses in five Arab countries, including Egypt, Syria and
Jordan.

"In the future, our plan is to grow our network in the countries where we
already are, and to enter into new Arab countries," he says, adding that
these were likely to be in the Gulf but declining to specify target markets.

 <http://www.ft.com/servicestools/help/copyright> Copyright The Financial
Times Limited 2008

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