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Lebanon: Banking sector shows growth signs

Global Arab Network - - Amina Murtada

Wednesday, 22 June 2011 02:12

http://www.english.globalarabnetwork.com/images/stories/2010/MAR/lebanon_bank-.jpg

Global Arab Network - Economic growth in Lebanon has been forecast to slow in 2011, but the country’s banking sector remains sound and showed some signs of growth earlier this year, Global Arab Network reports according to OBG.

Data reveal that the Lebanese economy has weakened in recent months, most likely the result of turmoil across parts of the Middle East and political instability at home. The tourism industry, one of the mainstays of the economy, has seen overseas arrivals fall by up to 13% this year, while hotel occupancy rates in Beirut have dropped below 50%, according to a Standard Chartered Bank report issued in late May.

Real estate sales are down 21% for the first four months of 2011 compared to the same trimester last year, the Directorate of Real Estate at the Finance Ministry reported in May, while there has also been a decline in foreign trade, with both imports and exports falling after last year’s boom, when GDP grew by 7.5%.

As the economy has weakened, the central bank, the Finance Ministry and agencies such as the International Monetary Fund (IMF) have lowered their expectations for growth, with most forecasts putting GDP expansion at around 2.5%.

The banking sector nonetheless expanded in the first quarter of this year, at least by certain measurements. According to the central bank, aggregate domestic assets increased by 2.8% during the first three months of the year. A report issued by Bank Audi in early May said that this $3.6bn increase was well down on the $4.7bn rise in the first quarter of last year.

Despite a $1.1bn fall in deposits in January – the month in which the national unity cabinet led by Saad Hariri collapsed – there was a $941m increase in deposits for the quarter. Lending by banks was also up, although the 4.3% increase for the quarter – corresponding to a total of $1.5bn – was below that of a year before.

Bank Audi further cautioned that future results were contingent upon certain political events. “The economic outlook for the year ahead actually depends on the consecutive outcome of the forthcoming domestic political milestones and regional security milestones with what this would entail in terms of spillover effects on private consumer and investor confidence over the foreseeable future,” the report said.

Bank Audi has not been alone in voicing concern over the effects of ongoing instability on the economy. In late May, the governor of the central bank, Riad Salameh, said that, although the banking sector and monetary system remained sound, efforts should be made to protect the advances made and not allow the economy to slip back into the doldrums.

“Preserving the monetary and economic achievements is the responsibility of all sides and we have witnessed over the past six months a decline in economic indicators. This should induce us to cooperate to curb this drop and reverse this trend,” he said.

Some of Lebanon’s lenders may experience a very direct impact on their profits due to the wave of unrest in the Middle East, with those operating in countries such as Syria, Egypt and Jordan more exposed than banks that have stayed closer to home in their activities.

According to Saad Azhari, the chairman of Blom Bank, the slowing of economic activity in these countries due to political instability will affect growth and profits, although he told media that the bank had protected itself by having adopted “stringent lending and liquidity measures to protect itself from the adverse economic circumstances”.

The regional turmoil will also have an impact domestically, Azhari told the Daily Star, as “lower economic activity in Lebanon due to reduced exports, tourists and remittances from the Arab world … in turn translates to lower banking activities and profits and affects all banks”.

Over the years Lebanon’s banks have shown themselves to be remarkably resilient, and thanks to the stringent regulatory regime enacted by the central bank, easily rode out the global financial crisis. However, with unrest close to home, Lebanon’s lenders are finding it harder to promote themselves as a safe haven for overseas investors to park their funds.

While there is little chance of the Lebanese banking sector falling into difficulties any time soon, thanks to their high reserves and relatively low levels of non-performing loans, it is likely that wariness about the policies of the newly formed government and ongoing political strife and social unrest abroad will prompt a more cautious approach by banks in the near future. (OBG)

Global Arab Network

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