Roundup of num­bers and sen­ti­ments

Rise of fi­nan­cial op­ti­mists

Executive Magazine - - Front Page - By Thomas Schellen

Af­ter a long and de­press­ing dry spell that made lo­cal mar­kets yearn for fresh in­vest­ments, the Le­banese in­vest­ment cli­mate is look­ing up, says Jamil Koudim, the head of the as­set man­age­ment team at Beirut-based Banque Libano-Française (BLF). He pre­sides over a fam­ily whose off­spring has just dou­bled from a sin­gle fund to two. Af­ter the BLF To­tal Re­turn Fund, which saw its in­cep­tion in Septem­ber 2012, the team put to ef­fect the BLF In­come Fund in Novem­ber of last year. This new fund is open-ended, de­nom­i­nated in dol­lars and fo­cused on fixed-in­come in­stru­ments. “We have mainly govern­ment bonds, cen­tral bank [cer­tifi­cates of de­posit], maybe pre­ferred shares of banks [in the port­fo­lio] and any other fixed-in­come se­cu­ri­ties by in­sti­tu­tions or cor­po­ra­tions, and se­cu­ri­tized prod­ucts. Any fixed-in­come se­cu­rity is our mar­ket for this fund,” Koudim ex­plains.

Though Koudim con­cedes that funds of this type are al­ready of­fered by sev­eral Le­banese banks, the more sig­nif­i­cant part of the story sur­round­ing the new prod­uct is its in­ter­na­tional at­trac­tive­ness. He says that this rise in ap­peal is ev­i­denced in the fact that fi­nan­cial en­ti­ties out­side of Le­banon have shown in­ter­est in this fund, and other lo­cal in­vest­ment prod­ucts. Khoudim goes on by stat­ing that what makes the new In­come Fund (I.F.) al­lur­ing is the ex­tra earn­ings po­ten­tial that is en­cased in the pos­si­bil­ity of Le­banese eco­nomic per­for­mance im­prov­ing be­yond ex­pec­ta­tions, which would en­able the I.F. to pro­vide re­turns in ex­cess of its nor­mal target. “If you of­fer an in­vest­ment prod­uct, you have to be sat­is­fied with the mar­ket that you are look­ing at. This is where the story is. We re­ally think there is up­side to [the Le­banese mar­ket] fol­low­ing what we have been through. We view last year as wors­en­ing of the econ­omy, but the swap trans­ac­tions [by Banque du Liban] put a floor to that,” Koudim tells Ex­ec­u­tive.


He adds that he met with sev­eral rep­re­sen­ta­tives of in­ter­na­tional funds dur­ing a re­cent trip to Lon­don and that these funds, as well as some banks in the Gulf re­gion look­ing for coun­try-fo­cused funds to rec­om­mend to their clients, are all show­ing an in­creased in­ter­est in fi­nan­cial in­vest­ment op­por­tu­ni­ties in Le­banon. In­ter­na­tional funds were aware of the 2016 fi­nan­cial engi­neer­ing mea­sures adopted by Banque du Liban (BDL), Le­banon’s cen­tral bank, but their resurg­ing in­ter­est was mainly based on po­lit­i­cal fac­tors. “Their fo­cus was more on the po­lit­i­cal out­look and po­lit­i­cal sta­bil­ity, both do­mes­ti­cally and re­gion­ally. Syria is very im­por­tant and the war of the past years is [now sup­planted by ris­ing sta­bil­ity]. All this is pos­i­tive,” Koudim says.

His mes­sage of up­side po­ten­tial and op­ti­mism cor­re­lates with other re­cent lo­cal mood in­di­ca­tors for the econ­omy in both soft and hard data. A Jan­uary 2017 Econom­ena sur­vey of 17 economists work­ing at Le­banese banks, uni­ver­si­ties, cor­po­ra­tions and in­sti­tu­tions found that the me­dian ex­pec­ta­tion of the sur­veyed economists is for 2.5 per­cent growth of GDP in 2017, Econom­ena re­ferred to this as a “par­tic­u­larly bullish sign,” which was yet above the In­ter­na­tional Mon­e­tary Fund’s (up­wards re­vised) pro­jec­tion of 2 per­cent growth. No econ­o­mist in the sur­vey ex­pected growth of less than 1 per­cent for the Le­banese econ­omy this year. Some even es­ti­mated growth to ex­ceed the 3 per­cent real GDP growth pro­jected by the In­ter­na­tional In­sti­tute of Fi­nance for 2017.

Ac­cord­ing to the monthly EcoNews pub­li­ca­tion of bank SGBL, a con­sumer con­fi­dence in­di­ca­tor for Le­banon by re­gion­ally ac­tive ARA Mar­ket­ing Re­search reached 161 points in the fourth quar­ter of 2016, which rep­re­sents a 66.5 per­cent year-on-year in­crease, sig­nal­ing the high­est con­fi­dence level since 2011. EcoNews also pointed to eco­nomic up­side po­ten­tials from oil and gas prospects, tourism, real es­tate, ex­ports, ex­ter­nal po­lit­i­cal re­la­tions and what it called a “rare do­mes­tic politi- cal break­through in late 2016.”

Op­ti­mistic views were also re­ported from a re­cent round­table by the Le­banese In­sti­tute of Strate­gic Af­fairs (di­rected by econ­o­mist Sami Nader), which said that the “en­ter­prise land­scape in the re­gion is boom­ing” and that Le­banon – al­beit slow in em­brac­ing en­trepreneur­ship as a drive for eco­nomic growth, and thus, not yet hav­ing de­vel­oped to its full poten-

No econ­o­mist in the sur­vey ex­pected growth of less than 1 per­cent for the Le­banese econ­omy this year

tial in this re­gard – “has gone a long way in de­vel­op­ing its en­vi­ron­ment for en­trepreneurs.”

As far as hard in­di­ca­tors from the bank­ing sec­tor, the Le­banon This Week (LTW) pub­li­ca­tion of By­b­los Bank re­ported from Beirut Stock Ex­change fil­ings of six listed banks, that the ag­gre­gate net prof­its of these six banks rose 12 per­cent year-on-year to $1.36 bil­lion in 2016.


Alone, the coun­try’s largest bank, Bank Audi, pub­lished head­line num­bers of $44.4 bil­lion in as­sets, $36 bil­lion in cus­tomer de­posits, $17.3 bil­lion in loans and $3.8 bil­lion in share­holder eq­uity. Its net prof­its came in at $470 mil­lion, rep­re­sent­ing a 17 per­cent year-to-year in­crease, ac­count­ing for about 35 per­cent of the ag­gre­gate prof­its re­ported by listed banks, and, nota bene, a new record profit in line with the ex­pec­ta­tion noted in the year-end is­sue of Ex­ec­u­tive.

While as­sets grew mod­er­ately, and net loan port­fo­lio dropped 2.9 per­cent in year-to-year com­par­isons, Bank Audi noted that these dents in its fig­ures were con­nected to cur­rency de­pre­ci­a­tion in its largest two mar­kets out­side of Le­banon, Egypt and Tur­key. When cal­cu­lated on a con­stant ex­change rate, the growth rates of con­sol­i­dated de­posits and loans both would have been 10 per­cent in 2016, the bank said, mark­ing a dif­fer­ence in spirit to the open­ing sen­tence of its state­ment on its con­sol­i­dated ac­tiv­ity high­lights in 2016, which read: “The year 2016 was dif­fi­cult for the en­tire Mid­dle East and North Africa re­gion.”

Con­sol­i­dated fig­ures for the per­for­mance of Le­banon’s 14 largest banks were not yet avail­able from spe­cial­ized con­sul­tancy Bank­data at time of this writ­ing, but to­tal as­sets of banks op­er­at­ing in the coun­try grew 9.9 per­cent to 204.3 bil­lion at the end of 2016, ac­cord­ing to cen­tral bank num­bers. Based on Bank Au- di’s pub­li­ca­tion in Le­banon Weekly Mon­i­tor (LWM), the growth of ac­tiv­ity was higher than in 2015, and also higher than in the av­er­age of the past five years, by 78 and 61 per­cent re­spec­tively.

Cus­tomer de­posits ac­counted for al­most 80 per­cent of sec­tor bal­ance sheets and grew by $10.9 bil­lion in year-to-year terms, or 7.2 per­cent. Of this to­tal de­posits growth, $8.6 bil­lion, or 79 per­cent was in for­eign cur­rency de­posits. De­posits in Le­banese lira (LL) in­creased by the equiv­a­lent of $2.3 bil­lion. De­posit growth more than dou­bled from $3.1 bil­lion in the first half of 2016 to $7.8 bil­lion in the sec­ond half. Growth of res­i­dent de­posits and non-res­i­dent de­posits both showed up­trends from one quar­ter to the next through­out 2016, with the rise of res­i­dent de­posits be­ing more pro­nounced be­tween the two.

Whereas Le­banese Lira de­posit growth was lower than in 2015, the growth of de­posits in for­eign cur­rency ex­ceeded that of 2015 by about 153 per­cent. The com­po­si­tion of de­posit growth re­flected the in­flu­ence of BDL’s fi­nan­cial engi­neer­ing oper­a­tion in the May to Oc­to­ber pe­riod and re­lated of­fers by banks seek­ing to at­tract for­eign cur­rency de­posits in the course of the QE ex­er­cise. The dol­lar­iza­tion rate of de­posits in­creased by 90 ba­sis points to 65.8 per­cent.

Lend­ing growth in 2016 was of $3 bil­lion, a drop from the $3.3 bil­lion seen in 2015. Two-thirds of the loan growth in 2016 was a re­sult of an in­crease in the Le­banese Lira de­nom­i­nated loan port­fo­lio, which was driven up by the cen­tral bank’s fi­nan­cial engi­neer­ing, as in­tended. For­eign cur­rency de­nom­i­nated loans rose by less than $1 bil­lion. “Lend­ing ac­tiv­ity growth yet rose by a healthy 5.4 per- cent,” the LWM said.

By­b­los Bank’s LTW noted that to­tal bank­ing sec­tor as­sets and de­posits at the end of 2016 were equiv­a­lent, re­spec­tively, to 393 per­cent and 312.7 per­cent of GDP and that these ratesto-GDP were higher than in 2015. Loan-to-de­posit ra­tios were 38.8 per­cent in for­eign cur­rency and 28.2 per­cent in Le­banese li­ras. Ac­cord­ing to LTW, gross for­eign cur­rency re­serves by the end of 2016 stood at $34.03 bil­lion, hav­ing dropped by some 0.71 bil­lion since the end of Oc­to­ber last year. The year-on-year rate of in­crease, how­ever, was up to 11.06 per­cent.

Not all signs for the Le­banese econ­omy have switched from red to green, yet the mood in­di­ca­tors are broadly more pos­i­tive than in re­cent pe­ri­ods. But while BLF’s Koudim high­lights the good story for Le­banon that is en­tailed in re­gional sce­nar­ios of more sta­bil­ity, and do­mes­tic sce­nar­ios of bud­get and re­forms for tak­ing Le­banon in a more bullish di­rec­tion, he makes a point that the known do­mes­tic down­side sce­nar­ios of high risk and large pub­lic debts could be ex­ac­er­bated “if the po­lit­i­cal hopes do not ma­te­ri­al­ize.”

He elab­o­rates: “We have seen that in­ter­na­tional in­vestors, which nor­mally are un­der­weight on Le­banon, are now all in­ter­ested and want to al­lo­cate a cer­tain amount of money to trad­ing Le­banon. What could turn things [back into neg­a­tive sen­ti­ment] would be dis­ap­point­ment in terms of re­forms, [and] in terms of po­lit­i­cal sta­bil­ity.”

Not all the signs for the Le­banese econ­omy have switched from red to green, yet the mood in­di­ca­tors are more pos­i­tive than in re­cent pe­ri­ods

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