BEIRUT: Small- and medium-size Lebanese banks are looking into ways to survive in a competitive local market amid international demands to increase their capital, and making more investments in risk management and qualified personnel, bankers said Thursday.
To date, lenders operating in Lebanon have successfully managed to meet or even exceed the capital requirements set by Basel III.
But challenges still lie ahead for these banks as eventually they will be required to raise their private equity even further and make additional investments in risk management and human resources.
The county’s 12 leading banks control nearly 82 percent of the market, while the rest is divided among 47 other medium and small banks.
Most Lebanese lenders remain family owned, and even the larger institutions are still run by the founding families, although Lebanese and Arab investors have bought substantial stakes in these banks.
Francois Bassil, the president of the Association of Banks in Lebanon, believes that nearly all banks operating in Lebanon have met the conditions of Basel III.
Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures are intended to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, improve risk management and governance, and strengthen banks’ transparency and disclosures.
Bassil told The Daily Star some of the small family-owned banks may consider either seeking foreign investment to raise their capital or consider selling if the heirs are no longer interested in running the businesses.
“Some small banks are doing quite well even if their shares in the market are not considerable. Smaller banks do not necessarily need to make huge investments in technology and can even assign more tasks to one or two individuals instead of distributing these responsibilities to numerous departments,” Bassil added.
But he did not rule out the possibility that some of the banks controlled by large foreign lenders may contemplate exiting the Lebanese market.
Relative to “the standards of large foreign banks, the operations in Lebanon are very small and for this reason some could consider consolidation in the future,” Bassil argued.
He said the Central Bank could not force smaller banks to merge or sell their assets, but it could maintain tight supervision on their operations to ensure they are in line with the strict regulations.
Several smaller banks are reportedly holding talks with larger Lebanese lenders to consider the possibility of a merger or acquisition.
But these talks have not produced real results so far.
“It’s possible to see acquisitions in the future not because of incapacity of banks to raise the capital but for various reasons such as inheritance problems. Sarrader Bank was acquired by Audi Bank a few years ago for inheritance problems,” a former vice governor of the Central Bank told The Daily Star.
He added that small family-run lenders might be acquired if the current owners do not have children to run the business.
Among the other options small banks have is to seek new investors to raise the capital, but some bankers say that foreign investors are not too keen to operate in Lebanon due to the high risks involved.
“Some large banks are eying other small banks. It is the question of pricing. If the price is right then the owner of the small bank may sell his stake,” one banker explained.
He said some of the foreign banks in Lebanon that have been operating in the country for a long time may exit the market for restructuring reasons.
“Huge international banks want to exit emerging markets to cut costs, and Lebanon is one of these countries. It is only a matter of time when these foreign banks sell their stakes to Lebanese counterparts,” the banker explained.
Joe Sarrouh, adviser to the chairman of Fransabank, said the capital requirements set by Basel III were not the only factor that could induce some of the small banks to sell or merge.
“So far all of the Lebanese banks have met the conditions of Basel III. But the issue of small banks from a fundamental point of view is that they are under some pressure because they need to make some investments in technology and some investments on people. You need this sort of expenditure. The additional pressure will come from investments rather than from compliance with requirements,” Sarrouh said.
He added that if some of the small banks wanted to grow then the pressure would increase on them.
“Whether it will lead to verbal consolidation in the market then the answer is yes, it might,” Sarrouh said.
But the banker does not believe that all family-run banks will rush to sell once the opportunity arises, adding that most of these families are wealthy and have other types of businesses.
“The pressure may be on the banks that are not listed on the Alpha bank groups, which have deposits exceeding $2 billion,” Sarrouh said.
Some bankers did not rule out the acquisition of some small lenders in the next couple of years as competition in the sector intensifies.
“Some of the owners of family-owned banks who have been living abroad for more than two decades may consider selling their stakes if they get good offers,” one banker said.
He added that most of the small banks had not seen a considerable growth in deposits for the past three or four years.