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Basel III, competition compel consolidation

  • File - Banks street in Beirut, Wednesday, Sept. 25, 2013. (The Daily Star/Mohammad Azakir)

BEIRUT: The Basel III requirements and fierce competition are leading to further consolidation in Lebanon’s banking sector, as several foreign-owned lenders move to sell their retail business in the country, experts said Wednesday.

“Foreign banks have to mobilize a lot of capital in accordance with Basel III requirements, and in a country with a low credit rating, this is not worth the effort because these subsidiaries in Lebanon are not making sufficient money in return for their investments,” Chadi Karam, an economist and banker, told The Daily Star.

Almost all of the Lebanese banks have met the requirements of Basel III, the global standard that requires lenders to increase capital and invest more in risk management.

In addition to the effects of Basel III, small and medium banks face stiff competition from the large Lebanese lenders.

Nassib Ghobril, the head of research at Byblos Bank, said some of the foreign-owned banks felt that they could no longer compete with local lenders and offer the same products and services.

“They [foreign banks] discovered after a while that there is a limitation to their growth in Lebanon and ability to compete with the big players,” Ghobril said.

The 10 leading Lebanese banks control 80 percent of the market, with the rest divided between medium and smaller lenders.

In recent weeks, Lebanese banks have made bids to acquire the retail operations of Ahli International Bank, Standard Chartered and Emirates Lebanon Bank.

The talks to acquire these banks have been shrouded in total secrecy despite reports that results could appear in less than two weeks.

An insider told The Daily Star that Byblos was well placed to acquire the retail operations of Ahli.

“ Byblos may have a very good chance to acquire the operations of Ahli Bank, although Fransabank made an offer recently,” he said.

The total assets of Ahli Bank reached $724.7 million in 2012 compared to $615 million in 2011, an increase of 17.8 percent.

Sources also said that the race to acquire the retail operations of Standard Chartered was now down to Bank Audi and Cedrus Investment Bank.

An official at Standard Chartered Bank declined to comment on the progress of the talks to sell the bank.

“Negotiations are still going on with bidders. We can’t tell for sure when the talks will come to an end,” the official said.

Lebanese banks have also bid on Emirates Lebanon Bank, which had $1.45 billion in assets in 2012.

But not all foreign banks have exited the Lebanese market, despite the low return on their investment.

HSBC downsized its operations three years ago, but the bank kept its headquarters and two branches.

Karam said there was no logic for any foreign bank to raise its capital to $50 million and increase its investment in products and branches for net profits of less than $1 million.

Karam argued that a $1 million profit in Lebanon for a foreign-owned bank was insignificant compared to operations in other countries.

“They [foreign banks] can easily make this profit from one transaction or the sale of a certain amount of shares in a single operation,” he said. “Why should these banks make such big investments if they can make more money in other countries?”

Karam stressed that this policy was not only applied to Lebanon.

“Foreign banks are applying this policy in some of the emerging markets as well, unless the return on investments in these countries is quite high,” he added.

But international banks have shown they can overlook security and political problems when enticed by high returns.

One example is Nigeria.

Nigeria has political and security problems, but the foreign banks are still making good money in this country,” Karam explained.

 
A version of this article appeared in the print edition of The Daily Star on January 16, 2014, on page 5.
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Summary

In recent weeks, Lebanese banks have made bids to acquire the retail operations of Ahli International Bank, Standard Chartered and Emirates Lebanon Bank.

The total assets of Ahli Bank reached $724.7 million in 2012 compared to $615 million in 2011, an increase of 17.8 percent.

Lebanese banks have also bid on Emirates Lebanon Bank, which had $1.45 billion in assets in 2012 .

But not all foreign banks have exited the Lebanese market, despite the low return on their investment.

HSBC downsized its operations three years ago, but the bank kept its headquarters and two branches.

Karam argued that a $1 million profit in Lebanon for a foreign-owned bank was insignificant compared to operations in other countries.


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