Local banks in Beirut are bucking the trend by maintaining a lead over international rivals. Published in Euromoney, February 2012
Note: the version here is the original unedited version, not the published one.
Based on the results of this year’s survey, Lebanon is now one of the few markets in the Middle East where local private banks can still compete effectively with their international rivals. While international banks such as HSBC and Credit Suisse lead the way in Bahrain, the UAE, Egypt and elsewhere, in Beirut the situation is far more mixed.
Audi Saradar Private Bank, part of the Audi Saradar Group, is ranked as the top provider of private banking services, moving up from second place last year. The winner in 2011, Credit Suisse, has dropped to fifth place. At the same time Blom Bank, which provides private banking through its BlomInvest division, has moved up from fourth to third position overall.
Georges Abboud, head of private banking at BlomInvest, attributes much of the strong performance of the local banks to the fact that interest rates for Lebanese deposits are still high.
“We keep on paying decent money on the deposits,” he says. “If you look around at the interest rates being paid abroad we’re still 2-3 per cent above that, so it still makes sense to have money placed on deposit. In Europe your money is sitting and effectively earning zero per cent, so you have to invest somewhere. Here I have the luxury to wait and see and in the meantime put it on deposit and make 3 per cent.”
But it is not just in deposits that the local banks are beating their international rivals. They are also performing well in other categories. For example, Audi Saradar leads the way in terms of services for the super affluent and high net worth clients with up to $10 million in investible assets, as well as in family office services. Blom Bank, meanwhile, is seen as having the best range of investment products.
Alongside high interest rates, the situation in the Lebanese banking sector has also been helped by the conservative stance taken by the Central Bank of Lebanon over recent years. The governor of the bank, Riad Salameh, has a well-deserved reputation for caution which has meant that local banks were not able to invest in many of the toxic assets that lead to the 2008 banking crisis.
“The central bank didn’t let us invest in subprime and we had more or less zero exposure to European debt,” says Abboud. “Now they’re putting extra restrictions, even more than in Europe and the US, in terms of what we can buy, what we can issue in terms of structured products, and what we can use as collateral to do leverage. They’re trying to be very cautious.”
Such a position has meant that Lebanese banks did not hit the heights of banks in other markets during the bull market before 2008, but it also means that they have not swung as low since them, although they have still been affected by wider market trends.
In a research note released in mid January, Bank Audi pointed out that Lebanese banks’ profits fell by just over 10 per cent in the first 11 months of 2011 – the first time they have fallen for eight years. Prior to that, bank profits had grown by an average of 24 per cent a year from 2004 to 2010.
Things would have been better this year, were it not for the domestic political problems in Lebanon which prevented it from being seen as a safe haven during the Arab Spring revolutions. The country was in the hands of a caretaker government for most of the first half of the year, while the numerous groups that make up Lebanon’s fractured political system struggled to agree a viable coalition.
Events in neighbouring Syria have also dampened Lebanon’s economic prospects, with tourism and trade both hit hard by the uprising across the border.
In December, credit ratings agency Moody’s Investors Service downgraded the outlook for Lebanon’s banking system from stable to negative, partly as a result of such factors. The agency said it expected profits to come under pressure and provisions for bad debts to rise. Even so, Stathis Kyriakides, assistant vice president at Moody's, said at the time that “The banking system’s liquidity buffers and resilient depositor base will likely be maintained... thereby mitigating some of the downside risks.”
In the future, the market for private banking in Lebanon is likely to get more competitive for the local banks. While the sector is currently dominated by Audi Saradar and Blominvest, others are preparing to step up their offerings. In particular, the last of the country’s big three banks, Byblos Bank, has said that it aims to strengthen its private banking offering as part of its efforts to become a full-service bank.
The fact that more local banks are getting serious about entering the market is, in itself, proof of just how healthy the private banking business is in Lebanon today.