No time to cry wolf

The al­pha hounds of Le­banon’s bank­ing sec­tor still per­form as needed in H1 2015

Executive Magazine - - Finance Banking - By Thomas Schellen

In the Le­banese bank­ing sec­tor’s cher­ished game of claim­ing the de­posit throne, month-on­month drops of pri­vate sec­tor de­posits are usu­ally re­served for the Jan­uary sta­tis­tics, in what has be­come known as the an­nual cor­rec­tion of win­dow dress­ing at the end of the busi­ness year. That is why, when the rel­e­vant cen­tral bank data is pulled up as a line graph, Jan­uary 2011, Jan­uary 2014, and Jan­uary 2015 look like lit­tle pot­holes on a long, ever ascending high­way to a heaven of pri­vate sec­tor de­posits.

Be­sides the Jan­uary cor­rec­tions, de­posit dips in the past five years have been few and far be­tween, such as Fe­bru­ary 2011, July 2012 and April 2013. None of down­ward moves lasted more than a month and none amounted to more than a few dec­i­mals in the sec­tor’s de­posit tally of bil­lions of dol­lars. This fact alone was enough to make alarm sig­nals sound in the news, that July was another of those months with a minute con­trac­tion in pri­vate sec­tor de­posits ap­pears un­seemly; namely a 0.2 per­cent fall from $148.58 bil­lion in June to $148.39 bil­lion in July ac­cord­ing to Banque du Liban data re­leased in mid-Septem­ber.

In num­bers based on cen­tral bank re­port­ing, to­tal pri­vate and public de­posits at all com­mer­cial banks rose by $4.26 bil­lion from $143.4 bil­lion at the end of June 2014 to $147.6 bil­lion at the end of last year and by another $4.15 bil­lion to $151.8 bil­lion at the end of June be­fore re­ced­ing to $151.5 bil­lion in July. To­tal de­posits are gen­er­ally a few bil­lion dol­lars higher than to­tal pri­vate sec­tor de­posits. But look­ing at ei­ther data stream, the growth rate in H1 2015 has clearly slowed per­cent­age wise when com­pared with six-month pe­ri­ods in re­cent years. How­ever, this ob­ser­va­tion it­self can­not be a pre­cur­sor of the sky be­ing about to crash down.

The pic­ture of our bank­ing ac­tiv­ity also re­mains within bounds of nor­mal­ity when re­view­ing the per­for­mance of top banks in the first half of 2015. Mar­ket leader Bank Audi recorded very mi­nor growth of as­sets and de­posits. Both its do­mes­tic and for­eign as­sets ex­panded by less than 1 per­cent in the first half of 2015. Do­mes­tic as­sets de­nom­i­nated in USD saw the largest in­crease, at 2 per­cent year to date. Loans in the bank’s for­eign oper­a­tions con­tracted when ex­pressed in USD, do­mes­tic loans in the Le­banese Pound ex­panded by over 5.6 per­cent in the year to date but this in­crease could not keep the con­sol­i­dated lend­ing growth in the black; the over­all loan port­fo­lio shrank by 0.8 per­cent.

GROWTH AND PROFIT

At BLOM Bank, the growth rates looked stronger but not de­cid­edly stronger. As­sets edged up by 2.3 per­cent, de­posits by 3.1 per­cent and loans by 1.6 per­cent. Do­mes­tic growth sur­passed growth of BLOM’s for­eign en­ti­ties in all three cat­e­gories, by about one per­cent­age point in loans, two per­cent­age points in as­sets and al­most three per­cent­age NONE OF DOWN­WARD MOVES LASTED MORE THAN A MONTH AND NONE AMOUNTED TO MORE THAN A FEW DEC­I­MALS IN THE SEC­TOR’S DE­POSIT TALLY OF BIL­LIONS OF

DOL­LARS points in de­posits. While Audi and BLOM’s com­bined mar­ket share of to­tal de­posits dropped by about 30 ba­sis points when com­pared with mid-2014, com­bined, their po­si­tion re­mained dom­i­nant with a 37 per­cent con­trol of al­pha group de­posits.

Rev­enue stream com­po­nents at the two largest banks showed an up-shift­ing of net in­ter­est in­come while trad­ing and in­vest­ment in­come and non-in­ter­est in­come de­clined. Ac­cord­ing to FFA Eq­uity Re­search the year-on-year im­prove­ments in net in­ter­est in­come for H1 2015 were 8 per­cent at BLOM and 16.5 per­cent at Audi. Both banks im­proved their fees and com­mis­sions in­come; how­ever, these gains were jux­ta­posed with year-on-year drops in trad­ing and in­vest­ment in­come of 43.1 per­cent at BLOM and 18.3 per­cent at Audi that con­trib­uted to the two banks’ con­trac­tion of non-in­ter­est in­comes by 16.5 per­cent (BLOM) and 4.4 per­cent (Audi).

The first-half net prof­its of the two top banks amounted to $202.1 mil­lion for Audi and $190.4 for BLOM, fol­lowed by $70.1 mil­lion at By­b­los Bank, the third largest Le­banese bank by as­sets and de­posits. Year on year, Audi achieved a 6.5 per­cent profit in­crease, BLOM 6.2 per­cent. For By­b­los Bank, the in­crease was 1.1 per­cent. The lat­ter bank’s firsthalf per­for­mance, which was a mix of net in­ter­est in­come ver­sus non­in­ter­est in­come, un­der­went a rather dif­fer­ent de­vel­op­ment to that of Audi and BLOM. By­b­los Bank’s fees and com­mis­sions in­come dropped 10.4 per­cent year on year, its trad­ing and in­vest­ment in­come, how­ever, jumped 24.7 per­cent higher. By­b­los Bank achieved im­prove­ments of 8.8 per­cent in net in­ter­est in­come and 8.7 per­cent in non-in­ter­est in­come.

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