BEIRUT: Lebanese bankers say the need to increase provisions amid the crisis in neighboring Syria has dragged down profits, but most insist that Lebanon’s banking sector will remain strong despite the turmoil in the region.
Local banks have reported only a slight rise in profits in the first six months of 2012 and in some cases a sharp decline in net income.But most Lebanese banks, which have previously survived devastating wars and international economic recessions, still feel comfortable about the overall results despite the flat profits recorded this year.
Makram Sader, the Secretary General of the Association of Banks in Lebanon, said that the drop in profits is quite normal under the current circumstances, predicting profits for the entire sector to fall by an average of 5 percent by the end of the year.
“In light of the situation in the region, Lebanese banks had to allocate more provisions than in previous years. These are allocated in case of losses,” Sader said.
“We expect profits to fall by 4 to 5 percent and this is linked to the situation in Lebanon and the region,” he added.
He noted that the profits of banks in 2011 also fell by an average of 5 percent due to political wrangling over the composition of Prime Minister Najib Mikati’s government.
Bankers also point out that while profits have fizzled, assets and customer deposits are still growing at an average of 7 to 8 percent each year thanks to the influx of capital and remittances from abroad.
“Lebanese banks are still making profits and this is a direct signal of the direct strength of the banks,” Joe Sarrouh, the adviser to the Chairman of Fransabank, told The Daily Star “We are still seeing growth in the balance sheets and deposits albeit even at slower pace.”
Banks operating in Syria admit that the situation in that country has had ramifications on lenders, prompting them to increase provisions for non-performing loans.
These provisions, while crucial, usually affect the profitability of banks, as evidenced in the balance sheets.
Sarrouh said Lebanese banks in Syria will continue to serve their clients in Syria if the situation permits.
“For example, banks will operate in areas which are relatively safe. But bank employees living in volatile areas prefer to stay home until the dust clears before opening these branches to customers,” he said.
One bank which as apparently affected by the situation in Lebanon and Syria was BEMO, which saw its profits fall by more than 85 percent in the first six months from $4.9 million last year to only $700,000 up to June of this year.
The bank did not say why its profits fell to this extent, although most analysts attribute the results to the situation in the region and the decision of BEMO to increase provisions on loans.
Sarrouh stressed that Lebanese banks are trying to cope with situation by maintaining high liquidity.
“We have high liquidity that is close to 50 percent of our deposits and this is very reassuring to us and the market,” he explained.
Bankers insist that they can override all difficulties provided that the economic and security situation in Lebanon improves.
They also proudly point out that remittances and capital are still flowing to Lebanon thanks to the large Lebanese community abroad.
BLOM Bank, which also has major presence in Syria, noted in its earnings statement released Tuesday that the country’s three main Lebanese banks – BLOM, Audi and Byblos – have managed to maintain high profits despite dire conditions.
“Despite a slower economic growth rate and increasing uncertainty in Lebanon and the region, the three banks registered growth in most of the key balance sheet items,” the bank said.
BLOM reported $23.82 billion in assets, growing by 2.85 percent since the beginning of the year. Its loan portfolio grew by 3.9 percent to $5.8 billion while its deposits increased by 2.8 percent to $20.86 billion.
As for Audi Bank, its assets grew by 0.19 percent to $28.79 billion with its loan portfolio reaching $9.07 billion, or 5.61 percent higher than end of 2011. However, Audi’s deposits retreated by 0.37 percent to $24.7 billion.
Assets at Byblos Bank shrank slightly to $16.58 billion at a rate of 0.09 percent, while its loan portfolio increased by 2.15 percent to $4.09 billion with deposits growing 3.51 percent to $13.27 billion.
Bankers operating in Syria say they have no intention to close their branches in Syria or scale down operations, adding that the situation will eventually return to normal in the country.