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FFA revises downward three listed lenders’ shares

The value of BLOM shares, like those of Bank Audi and Byblos, has fallen compared to last year.

BEIRUT: A leading Lebanese investment bank said the stocks of three listed Lebanese lenders in Beirut’s bourse are not expected to surge in the short term due to slower earnings and relatively weaker investor appetite. “While lower share prices have brought bank shares to more attractive valuation levels, we see no major catalyst in the short term that could drive shares higher as earnings are expected to remain lackluster amid weakened investor appetite and challenging operating conditions,” FFA Private Bank said in its report on the overall performance of Bank Audi, BLOM and Byblos.

“We continue to value banks’ ability in reporting moderate balance sheet growth within less favorable macro dynamics, coping with the pressures on earnings generation while adopting prudent provisioning measures.”

FFA Private Bank has revised the target prices of these banks in light of these factors.

“We lowered our target prices on Bank Audi, BLOM Bank and Byblos Bank reflecting downward revisions on our earnings estimates and increased cost of equity assumptions. We maintained our recommendations unchanged for the three banks although encouraged by Bank Audi’s recent performance in seeing earnings growth and preserving asset quality compared to the sector, improving visibility in Egypt and growth expansion strategy including the branch rollout in Turkey,” the report said.

The bank revised the target price of BLOM bank shares from 2011 to 2012 from $11 to $10, Bank Audi shares from $7.5 to $7, and Byblos Bank from $1.80 to $1.60.

BLOM, Bank Audi and Byblos are considered the key players in the Lebanese banking sector since they hold a large market share.

Stocks of all listed banks and companies on the Beirut Stock Exchange fell since the beginning of this year both in volume and value.

The political standoffs in Lebanon, the volatile situation in Syria and a sharp economic slowdown have all contributed to the poor performance of the Beirut bourse.

All three of the Lebanese banks have a strong presence in war-ravaged Syria and naturally the deposits and assets have fallen.

But FFA Private Bank still saw relatively healthy results for these banks despite the deep economic recession in Lebanon. “The Lebanese banking sector seemed to hold up well in the first half of 2012 despite sluggish economic conditions on the local scene and impact from the Syrian unrest,” it said.

“Key activity growth indicators continued to report decent performance with assets, deposits and loans growing at a respective percent 4 percent and 6 percent in the first half of this year. In our coverage universe, Bank Audi, BLOM and Byblos Bank saw their deposit bases grow by 0 percent, 3 percent and 4 percent respectively, and their loan portfolios grew by 6 percent, 4 percent and 2 percent respectively.

But the report noted a decline in the growth of profits this year compared to previous years although the reasons behind this decline are understandable.

“After reporting double-digit growth in earnings from 2005 to 2010, Lebanese banks’ profits declined by 3 percent in 2011 to end the year at $1.6 billion. This slowdown in earnings continued to be felt in 2012. In fact, the financial results at end-June 2012 show that the combined profits of the five banks listed on the Beirut Stock Exchange (including Bank Audi, BLOM Bank, Byblos Bank, Bank of Beirut and BEMO) reached $484 million in the first half of 2012, edging up 1.3 percent from $477.8 million in the corresponding period of last year. Central Bank chief Riad Salameh expects the consolidated profits of Lebanese banks to stagnate or to witness a slight drop in 2012,” FFA Private Bank said.

It added that the weaker earnings momentum could be attributed to tightening margins and a higher level of provisioning as measures are taken against rising uncertainties in Syria despite a continuous improvement in cost-efficiencies.

“Furthermore, moderate balance sheet expansion is slowing the growth of fees and commissions, which in turn is pressuring earnings generation,” the report said.

 
A version of this article appeared in the print edition of The Daily Star on September 28, 2012, on page 5.

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