BEIRUT: No one can dispute that Lebanese banks in general reaped high profits in 2010 thanks to the sustained capital inflow and customer deposits that came from different directions.

This growth in assets and deposits has even surpassed many leading international banks, and some say that Lebanese banks have managed to record solid profits at a time when some of the large U.S. and European banks have either seen a sharp decline in net income or a loss.

According to the latest figures, total assets reached $130 billion at the end of February 2011, increasing by 0.9 percent or $1.1 billion from year-end 2010; whereas deposits totaled $106.8 billion, falling by 0.4 percent during the same period.

Bankers say that the fall in deposits, however, was mainly due to the adjustments in January to the “window dressing” of deposits that customarily take place at the end of the year (December 2010) for ranking purposes, since deposits actually increased in the month of February by $673 million.

This slow pace in the growth of assets and deposits can be partly traced to the fall in capital inflows which stood at $1.67 billion in the first two months of 2011, down by 33.1 percent from the same period last year, and largely caused by the unstable political situation in the country.

Some of the bankers interviewed by The Daily Star believe that the flow of assets and deposits in 2011 may not be as high as 2010, but nevertheless the overall results may be better than most countries in the region.

Lebanese banks operating in some of the countries that saw political upheaval and overthrow of regimes may feel a decline in revenues from these states and this will ultimately reflect on their balance sheets.

The chairman of BLOM Bank, Saad Azhari, acknowledged in a recent interview that the events that shook Egypt and other regional countries may have an impact on profits.

“To a large extent yes, and this can be explained by two channels. The first channel is indirect, operating through lower economic activity in Lebanon due to reduced exports, tourists and remittances from the Arab world, that in turn translates to lower banking activities and profits and affects all banks. The second channel is more direct, affecting the major Lebanese banks who have a presence in the Arab region, especially in the non-Gulf Arab countries like Egypt, Syria, Jordan etc,” Azhari said.

He added that the short-term impact of the political developments happening in these countries is of course reduced economic activity and growth, which naturally does not bode well for growth in banking business and profits.

“In this respect, I would like to point out, though, that BLOM Bank’s short-term prospects in these countries – especially in Egypt which has undergone the most substantial developments – are not being significantly affected since a lot of its assets are in businesses that are not very much correlated with the economic cycle, and because the bank has adopted stringent lending and liquidity measures to protect itself from the adverse economic circumstances,” the chairman said.

BLOM, Audi and Byblos banks have expanded their operations outside Lebanon in an attempt to diversify their revenues, open up new markets and above all reduce risks that stem from subscriptions of treasury bills and Eurobonds.

These endeavors have paid off in the last two years as consolidated assets, deposits and profits grew steadily.

But banks stress that despite the importance of their operations outside the country, most of their revenues to date still come from Lebanon.

Analysts attribute the solid profits of Lebanese banks to their reliance on subscriptions on government bonds that represent the bulk of their income.

“Many Lebanese banks still show interest in rolling over the maturing T-bills and Eurobonds because the annual yield on these bonds is still relatively high compared to the rates offered in other countries. Banks still have abundant cash in their coffers and this cash needs investment and the best investment so far is government bonds,” one analyst said.

A quick look at the profits of the five Lebanese banks listed on Beirut Stock Exchange shows that these banks did manage to see higher profits in the first quarter, but most of them saw a very small growth in assets and deposits.

Bank of Beirut consolidated net profits in the first quarter of 2011 reached $20.2 million, up 1.4 percent only from $19.9 million in the same period last year. Bank Audi Group announced consolidated net profits of $90.4 million in the first quarter of 2011, up 12.7 percent from $80.2 million in the first quarter of 2010.

BLOM Bank net profits of $82.1 million in the first quarter of 2011 were up 11.5 percent from $73.6 million in the first quarter of 2010.