Bank of Beirut is to merge with Transorient Bank in a move that marks the first consolidation in medium-size Lebanese banking.
The Transorient name will disappear as the new bank moves into Lebanon’s top 10 with combined assets of more than $1.1 billion.
The rise into the major banking league comes only five years after the present Bank of Beirut management took over. The speed and style of their expansion has taken their competitors by surprise.
“An agreement was signed this week between both chairmen to merge, subject to the approval of the central bank,” said James Ross, assistant general manager at BoB.
Transorient management confirmed the merger and said that chairman Adib Millet will be named vice chairman of Bank of Beirut. Sami Sfeir, the present chairman, will head the new bank.
“We’re enthusiastic about this union,” said Mr. Ross. “It’s a positive development that should provide Bank of Beirut with a solid branch network as we move forward into the 21st century.”
Mr. Ross did not give further details and said that the merger was concluded between the two bank heads.
At the end of last year BoB assets stood at $774.6 million, 16th in the country compared with $383.5 million for the 20th-placed Transorient. The new bank will have an estimated $100 million in capital and 28 branches.
Late last year, Emirates Bank International, one of the largest Gulf banks, acquired a 10 percent stake in BoB.
Mr. Sfeir, a banker who avoids publicity, declined to comment on the merger. He informed senior management of the deal Wednesday evening and shared champagne and cake with his staff at the bank’s Clemenceau headquarters yesterday.
“The two chairmen respect and have known each other for a long while. They have the same philosophy and culture. Their chemistry is positive,” said Mr. Ross.
A reluctance on the part of bank chairmen to relinquish control has stood in the way of mergers in recent years despite encouragement from the Central Bank, which would like the 68 Lebanese banks to be reduced by half through mergers and acquisitions. It encourages the process by extending soft loans to merged banks.
On paper, the secretive Transorient looks profitable and adequately capitalized, with a net profit of $5 million last year. It has a good branch network and recently began to develop consumer lending, a field in which BoB is a leader.
Financiers said that Transorient has been a candidate for merger or acquisition for some time, along with other medium-sized banks which operate with heavy reliance on income from treasury bills and traditional lending
BoB recognized the growth potential in consumer lending and grew very fast. The merger helps the bank gain more branches in one move, rather than by the two per year allowed by the Central Bank. “The ultimate test will be management’s ability to integrate without a track record of previous mergers,” said one banker.
“At $1.2 billion this is a big merger for Lebanon. You’re starting to talk about serious retail banking with 28 branches. Bob is considered a very good bank, and very aggressive. The chairman is widely respected and surrounded by a quality team which is very dynamic.”
The quality of Transorient’s loan portfolio however has raised questions among the banking community, with management resisting efforts to be rated. Transorient put aside provisions to cover 14 percent of outstanding loans last year compared with only a 1.48 percent loan loss provision for BoB.
“The bank was working along traditional lines without direction and without a niche,” said another banker. “It did the right thing. When a bank has a decent asset size and branch network such as Transorient, it should either sell or merge and become a major player.”
Nabil Aoun, head of leading brokers Fidus, said that the different customer base of each bank would be complementary. Transorient is considered more of a bank for the common man and woman.
‘The merger is a very good step that creates economies of scale,” he said. “It should be followed by other banks.’
Aoun said the BoB shares are the most liquid on the bourse. It is the only listed bank so far to surpass its 1997 best share price. The shares made their debut at $2.17 in April 1997. They finished the year at $6.625 and trade today above the $7 level .
Bank of Beirut net profits rose to $9.798 million in the first nine months of this year compared to $7.106 million in the same period of 1997, a rise of 38 percent. The bank’s interest on deposits and loans plus commissions on securities were the main reasons behind the growth in profits. Interest income, which covers clients, securities and banks, rose to $57.341 million from $40.875 million in the same period.
The bank also reported a surge in housing and personal loans this year. It was one of the first banks to create a housing loan program in 1993 and has recently expanded through its Red Roof campaign, which offers the first year of loan free of interest.