No time to cry wolf

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

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.