[LCM Articles] From the New York Times: Armored Against Turmoil, Lebanon Lures Investors

[Fadi Kanaan]

October 29, 2008
Armored Against Turmoil, Lebanon Lures Investors
By ROBERT F. WORTH
BEIRUT, Lebanon — As financial panic spreads across the globe, some
investors are moving their money to an unlikely place: Lebanon.

This small country, chronically battered by war, turns out to have a
banking sector that has so far been a beacon of stability and growth.
Its banks are posting record profits, aided by conservative central
bank policies, skillful management and money from Lebanese
expatriates.

Lebanon's very instability — its 15-year civil war and frequent
political crises — appears to have bred the banking sector's fiscal
prudence, analysts say.

Three years ago the central bank here barred investments in
derivatives and other structured financial products, giving banks
virtual immunity to the widening financial contagion. The banks here
have done little borrowing on international markets. Deposits account
for about 83 percent of their assets, making them among the most
liquid in the world.

"The banks here are used to turmoil," said Nassib Ghobril, the head of
economic research and analysis for Byblos Bank, the country's third
largest. "Since the end of the civil war in 1990, there has been no
loss of deposits, and there's great confidence in the sector."

As of August, the money flowing into deposits grew 16 percent over
2007 — itself a record year. Lebanon had no working government for
most of that period, and at times seemed to be on the verge of civil
war.

Those inflows appear to be rising further. The central bank released
statistics showing that it increased its foreign assets by $572
million in the first two weeks of October, possibly a sign that
foreign deposits are growing.

Lebanon has also attracted the hedge fund industry, which has until
now focused more on Persian Gulf markets. "We consider the
well-capitalized Lebanese banks as safe as the safer banks in the
gulf," said Florence Eid, the regional managing director for Passport
Capital, a hedge fund based in San Francisco.

An added asset is Lebanon's often wealthy expatriates. About 4 million
Lebanese live in the country, but an estimated 12 million live abroad,
and many send money home and invest in real estate. The total of such
remittances is expected to top last year's, $5.5 billion, one of the
world's highest per capita rates.

Partly for that reason, banks here have grown so large that they dwarf
the national economy. Lebanese bank assets are about $100 billion, in
a country with a $25 billion gross domestic product, said Marwan
Barakat, in charge of research at Bank Audi, the country's largest
lender.

This growth has allowed the banks to expand internationally. Bank
Audi, for example, now has branches in Egypt, Saudi Arabia, Jordan,
Syria, Qatar and Sudan.

The continued growth here is probably also related to some modest good
news in politics. In May, after 18 months of deadlock, Lebanon's
warring factions agreed to a compromise. So far, the deal seems to be
holding. But the banks are also doing their part, holding much of
Lebanon's $45.4 billion public debt.

"In this crisis, governments in the U.S., Europe and elsewhere have
been stepping in to rescue their banking sectors," Mr. Ghobril said.
"Whereas in Lebanon the sector is so large it has been supporting the
state for years."

Souad Mekhennet contributed reporting.