[wvns] Lebanese banks flourish as ailing world looks on

Copyright (c) 2009 The Daily Star

Wednesday, October 21, 2009

Lebanese banks flourish as ailing world looks on

Prudent subprime move results in 'abundant' liquidity

Daily Star staff

BEIRUT: A healthy suspicion of the subprime market appears to have paid off, as Lebanese banks flourish in the face of the global economic crisis. A recent report released by the Economist Intelligence Unit (EIU) on the Lebanese banking sector said that Lebanese banks are continuously attracting inflows of deposits, which in current times of crisis, has left them among the few banks of the world enjoying abundant liquidity surpluses. The report, published by Bank Audi’s Weekly Monitor, noted that one cannot but point out to the evident immunity of Lebanese banks, which is to a large extent the result of the central bank’s proper foresight in barring the country’s banks from investing in subprime. The EIU praised the strong asset growth of Lebanese banks in the first half of the year, at a time when many banks across the globe and the region have seen the crisis take its toll on their balance sheets. Central bank figures for the year’s first half show that banks operating in Lebanon had total consolidated assets of LL156.2 trillion at the end of June, more than three times the size of GDP: a growth of 17.2 percent over the same period in 2008. The study said banking was one of the most important industries in Lebanon’s service-based economy, followed by tourism. The banking sector has enjoyed growth in assets, deposits and loans for several years, with a sharper rise in deposits since the onset of the global financial turmoil in mid-2008. Both residents and non-residents have apparently viewed Lebanese banks as a relative safe haven. Banks have also been increasing their reserves and provisions, while channeling much of their new deposits into secure, liquid assets. At the end of June, private sector deposits were equal to LL108.5 trillion, up by 16.9 percent from the same point last year. Almost all new funds were put in local-currency accounts, which reached LL40.3 trillion, up 51.3 percent, while foreign currency deposits were almost stagnant, ending June at LL68.2 trillion, up by 3 percent. The report indicated the robust growth in Lebanese currency deposits was due to investors taking advantage of high interest rates available on the Lebanese pound, deposits at a time when dollar rates are very low. Lebanese pound deposit rates stood at 7 percent in July, compared to dollar rates of 3.2 percent. The EIU acknowledged that such inflows suggest that the interest rate differential has outweighed Lebanon’s sovereign risk premium, leaving the country’s banking system steadfast against any potential internal or external shocks. Furthermore, the country’s largest banks have reported rising profits in the first half of 2009, at a time when several banks across the region witnessed shrinking profits. The report stated that profit growth has generally slowed compared to last year, but is strong by global standards. Looking at the other side of the balance sheet, it seems much of the new funds received by banks were channeled into reserves rather than new loans. Commercial bank reserves at the central bank reached LL48.8 trillion at the end of June 2009, up 47 percent from the same point in 2008. Lending continued to rise, but at a slower rate than in previous months. Total lending to the Lebanese state (in the form of T-bills and foreign-currency eurobonds) reached the equivalent of LL38.1 trillion, up 9.7 percent. Private sector lending also rose to LL36.2 trillion, up 19.1 percent. The loan/deposit ratio fell to 68.5 percent at the end of June, down from 70.2 percent in June 2008. The EIU noted that the majority of domestic credit is extended to the government, as it is given at high interest rates that few private companies can afford to match. The EIU concluded its report by suggesting cuts in commercial lending rates in order to stimulate higher demand for bank loans. – The Daily Star

Copyright (c) 2009 The Daily Star

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