ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

The United States hails ’s operating in Lebanon are expected to come advanced banking system under pressure in the face of unfolding developments both in the country and the Lebanon has many advanced features in its region. economy and one of these interesting landmarks is there well-developed baking But S&P stressed that the business system, according to the United States confidence and economic recovery were Department of Commerce's 2014 Country gravelly affected by the political and Commercial Guide for Lebanon (CCG). security events that has plagued the country in recent years. It added that Lebanon's key advantages include a free-market economy, the The agency believes that Lebanon cannot absence of controls on the movement of insulate itself from the rapid and dramatic capital and foreign exchange, a well- in neighboring Syria although the banking developed banking system, a highly- sector, the main pillar of the economy, educated labor force, good quality of life, managed to weather all the major storms and limited restrictions on investors. and even achieved relative growth.

This is not the first time the United States It emphasized that if the banking sector and other prominent countries heaped can prosper and grow if the political and praise on the Lebanese and the geopolitical risks receded. financial institutions which are seen as the main pillar of the economy. The report S&P insists that Lebanon has all elements expected the business climate to remain of quick economic recovery thanks to the sensitive to domestic and regional political strong financial sector, educated and security developments. It anticipated workforce and well established businesses. that spillovers from the Syrian crisis would continue to negatively impact It noted that the domestic banking sector, domestic activity that is expected to unlike the country's political institutions, remain below potential in the near-term. has coped well with the prevailing challenging conditions. It added that the U.S. exported $1.5 billion worth of goods to Lebanon last year, The agency expressed confidence of the accounting for 7.1 percent of total ability of the banks to improve ratings of Lebanese imports, compared to U.S. the country’s sovereign rating, giving lot exports of $2.4 billion or 11.2 percent of of credit to the Lebanese banks which total imports in 2012. played a crucial role in meeting the government’s financing needs, and that their role has increased as sovereign Lebanese banks to weather creditworthiness has deteriorated and security-political challenges: S&P because foreign investors' appetite for International rating agency Standard & sovereign debt has regressed. Poor’s said Lebanese and foreign banks

Association of Banks in Lebanon | , Saifi, Gouraud Str | ABL Bldg P a g e | 1/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb

ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

S&P anticipated that commercial lending the government and to the Central opportunities for banks operating in that is consistent with the Basel capital Lebanon would remain limited during the adequacy framework. 2014-15 period, given the prevailing domestic political and economic conditions. OUR MEMBER BANKS’ LATEST NEWS:

www.abl.org.lb/NewsRoom.aspx?pageid IMF advises Lebanese banks to =29 maintain one digit deposit growth only

The International Monetary Fund underlined the importance of maintaining Eight Lebanese banks ranked modest growth in customer deposits that among the top 1000 international should not exceed one digit growth in banks 2014 in a bid meet the urgent needs of the Eight leading Lebanese banks have been economy but did not favor a double digit named among the top commercial banks in growth since this step would generate the world, according to the Banker higher liquidity and ultimately this result Magazine which conducted the survey in in a higher cost for the Central Bank to 2014. The ranking of the Lebanese banks absorb this excess liquidity. remained unchanged compared to last year. It said that banks could reduce the spread between the local interest rates on dollar The rankings are based on Tier One capital deposits and on global dollar rates in order at year-end 2013 as defined by the Basel to slow down the growth in the deposit Bank for International Settlements. The stock when needed. Banker said the definition is stricter than total shareholders' equity and covers only The IMF did recommended the banks not the core of a bank's strength, namely the to digest more sovereign bonds and T-bills shareholders' equity available to cover that are issued by the government which actual or potential losses. taps the local and international markets to meet its financial needs. The eight Lebanese banks are , Bank of Beirut, BLOM Bank, It even advised the banks to downsize their Crédit Libanais, , Fransabank, balance sheet if the government's Banque Libano-Française and . borrowing needs decline significantly and if regional opportunities remain limited.

The IMF hailed the Central Bank’s stricter Lebanese banking sector has requirements than those implied under similar level of vulnerability as Basel III, but it urged the authorities to Saudi Arabia, Canada and have an approach to banks’ exposure to

Association of Banks in Lebanon | Beirut, Saifi, Gouraud Str | ABL Bldg P a g e | 2/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb

ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

International rating agency Fitch said in a assessment. In October 2013, Fitch recent report that Lebanon’s banking upgraded Lebanon's score to '1' from a sector is ranked among the 73 countries in previous score of '2' due to a sharper-than- terms of low level of potential expected slowdown in credit growth in vulnerability and this vulnerability is 2012. similar to the vulnerability of rich and advanced countries such as Saudi Arabia, This constituted the second consecutive Canada and Germany. upgrade for Lebanon's MPI score, as the agency upgraded the country's MPI score This report came in its semiannual risk from '3' in August 2012 to '2' in January assessment of 110 banking systems in 2013. Lebanon, along with , Cape advanced and emerging economies. Verde, Egypt, Israel, Kuwait, Morocco, Namibia, , , Saudi Arabia, Fitch added that Lebanon’s ranking among the Seychelles, South , Tunisia and the 73 banking system in the world, is the UAE had an MPI score of '1' in the considered in the highest category on & Africa region. Other Fitch's Macro-prudential Indicator (MPI). countries in this category included Canada, Denmark, Germany, Japan and the United Lebanese banks are highly regulated and States. have consistently pursued ways to adopt safety measures to protect both the banks The agency said Lebanon's banking sector and their depositors. was among 18 banking systems that had a Banking System Indicator (BSI) of 'b'. The As such, the Lebanese banks has to some BSI is a measure of intrinsic banking extent passed the stress test which was system quality or strength, derived from designed to determine if banks around the Fitch's Viability Ratings for banks. world can survive financial and economic crisis similar to the ones that occurred in Lebanon has the highest loan 2008 and 2009. penetration among the Arab

The MPI tries to identify the build-up of countries in 2013 potential stress in banking systems due to Lebanese banks remained one of the a specific set of circumstances. It aims to highest loan providers per 1,000 adults highlight potential systemic stress that although this rate slightly fell by 4.7 could materialize up to three years after an percent in 2013 compared to 2012, early warning is first indicated. according to the International Monetary Fund. It identifies instances of rapid real credit growth over successive two-year periods, The IMS said that there were 299 along with growth in real property prices, borrowers per 1,000 adults at commercial an appreciation in the real exchange rate or banks in Lebanon at the end of 2013, a rise in real equity prices. constituting a decrease of 4.7 percent from Fitch maintained Lebanon's MPI score 313.5 borrowers per 1,000 adults in 2012 unchanged from its October 2013

Association of Banks in Lebanon | Beirut, Saifi, Gouraud Str | ABL Bldg P a g e | 3/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb

ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

and compared to 200 borrowers per 1,000 Lebanon had the 13th highest branch adults in 2006. penetration rate among 177 countries worldwide with available figures for 2013, In terms of penetration rate, the IMF said the third highest among 49 upper-middle that Lebanon ranked in the 24th place income countries (UMICs) and the highest among 93 countries with available figures among 16 Arab countries. Globally, for 2013 and the 10the place in the upper- Lebanon had a higher penetration rate than middle-income countries and first among Switzerland, Korea and the Netherlands, the Arab states. and a lower rate than Italy, Mauritius and Japan among economies with a GDP of Globally, Lebanon had a higher $10bn or more; while it ranked behind penetration rate than mainland China, Mauritius among UMICs. Bosnia & Herzegovina and Namibia, and a lower rate than Macedonia, El Salvador and Thailand. Lebanese banks attract the most talented graduates and applicants, According to IMF, there were 832.1 depositors per 1,000 adults at Lebanese survey shows commercial banks in 2013, constituting a A new study showed most new job drop of 3.2 percent from 860 depositors hunters, who are 18 years and older, per 1,000 adults in 2012 and compared to believe that Lebanon’s banking sector still 773.6 depositors per 1,000 adults in 2006. attracts the most talented and resourceful graduates and persons.

Lebanon has one of the highest According to the survey conducted by job portal Bayt.com, the employers in bank branch and ATM penetrations Lebanon are more likely to hire staff in the in the world coming three months as well as in the The spread of branches of the Lebanese coming 12 months than they did at the banks across the country is quite beginning of the year. impressive even by the international standards and for this reason the IMF said The survey shows that respondents in Lebanon had the 13th highest branch Lebanon think that the banking and penetration in the world and 16th in terms finance sector is attracting the top talent in of ATM penetration rate in 2013. the country, followed by advertising, construction, & hospitality, the According this study by the IMF, there recreation & entertainment sector and were 101.8 branches per 1,000 square business consultancy. kilometers in Lebanon in 2013, constituting a rise of 2.5 percent from 99.3 The survey covered a sample of 2,279 branches per 1,000 square kilometers in adults who are 18 years or older in 2012, and compared to 85.9 branches per Algeria, Bahrain, Egypt, Jordan, Kuwait, 1,000 square kilometers in 2005. Lebanon, Morocco, Oman, Qatar, Pakistan, Saudi Arabia, Syria, Tunisia, and

Association of Banks in Lebanon | Beirut, Saifi, Gouraud Str | ABL Bldg P a g e | 4/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb

ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

the UAE. The survey was conducted The circular said that banks should build online between June 10 and July 31, 2014, specific provisions against these loans in and covered a sample of 173 respondents case of difficulties by the borrower in in Lebanon. settling monthly payments.

Central Bank sets new ceilings for IFC extends more loans to retail loans in Lebanon Lebanese financial institutions The Central Bank sets new conditions for As part of its efforts to strengthen its retail and housing loans to protect both the financial cooperation with the Lebanese depositors and the banks. banks and financial institutions, the International Finance Corporation, the The circular was issued to set a maximum private sector arm of the World Bank ceiling for the personal loans because the Group, extended a $2 million loan to the Central Bank fears that the exposure to Lebanese Association for Development higher loan could affect the income of the (Al Majmoua), the country's largest families as well as increase the debt microfinance institution. exposure on the banks. The loan would allow Al Majmoua to The circular 369 on August 21, 2014, grow its loan portfolio and expand its which amends basic circular 81 dated outreach to small business owners, February 21, 2001, defined retail loans as including female entrepreneurs and poor housing loans; as well as consumer loans, individuals. About half of Al Majmoua's including car, student and education loans; clients are located in the Bekaa, the north and revolving credits, including credit and and the south regions. debit cards. It is worth noting that the IFC has made The circular stipulates that the housing or similar investments in other Lebanese car loan should not exceed 75 percent of banks and most notably Audi Bank and the the value of the purchased home or that of First National Bank. the car. Recently, the IFC subscribed to $60 Furthermore, the Central Bank said that million of Bank Audi shares after the bank the cumulative monthly payment for retail announced plans to raise the capital by loans should not exceed 45 percent of a $300 million. family’s monthly income, except for housing loans where payments should not The IFC investments allow the Lebanese exceed 35 percent of a household's banks and financial institutions expand monthly earnings. It defined a family their operations and move to other markets monthly income as the combined incomes in the future. of the husband and wife.

Association of Banks in Lebanon | Beirut, Saifi, Gouraud Str | ABL Bldg P a g e | 5/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb

ABL Quarterly Newsletter Issue n° 3–October 2014 ABL’s “Economic Letter” free registration is available here: www.abl.org.lb

Lebanese and foreign banks in The US is the sixth largest source of allowed withdrawing more inward electronic cash transfers to funds Lebanon Lebanese and foreign banks in Cyprus can The cost of sending remittances from some now easily transfer and withdraw funds countries to Lebanon has slightly fallen in after the Cypriot Central Bank issued the second quarter of 2014 but this cost decree 24 that would relax restrictive remained unchanged or modestly risen in measures for branches and subsidiaries other countries, according to the World operating in the island. Bank. This measure will surely help the Lebanese banks in the island after the According to the figures released by the authorities put a ceiling for the withdrawal World Bank, the cost of remittances from of funds and deposits in a move aimed at the United States to Lebanon for example, protecting the banks at that time. has decreased 10.81 percent to 10.19 percent for a $200 transfer in the second Nine Lebanese banks operating in Cyprus quarter of this year. benefit from the decision. The banks are Byblos Bank sal, Bank of Beirut sal, But the World Bank did not give the BankMed sal, Banque BEMO sal, BBAC reasons behind the change in the cost of sal, BLOM Bank sal, sal, sending remittances to Lebanon. Lebanon & Gulf Bank sal and Banque SBA, the affiliate of Banque Libano- It added that the cost of sending $500 from Française sal. the U.S. to Lebanon reached 5.37 percent in the second quarter of 2014, compared to All cashless payments or transfers of 5.41 percent in the previous quarter and deposits and funds from an eligible bank 5.32 percent in the fourth quarter of 2013. will be allowed for its own account. The cost includes the transaction fee and It also permits all transactions between exchange rate margin, and represents the eligible banks and international customers, average cost of transferring money as well as all transactions among through commercial banks and money international customers. It allows all transfer operators (MTOs). In nominal transactions between an eligible bank and terms, the cost of sending $200 and $500 an entity outside the country, by the order from the U.S. to Lebanon was $20.37 and of an international customer or for the $26.84, respectively, in the second quarter bank's own account. of 2014 compared to $21.62 and $27.04, respectively, in the preceding quarter. ALL ABOUT ABL NEWS: However, Lebanon ranked as the second www.abl.org.lb/NewsRoom.aspx?pageid most expensive destination for sending =28 $200 from the U.S. among 30 countries with available data, after only Thailand (11.06 percent).

Association of Banks in Lebanon | Beirut, Saifi, Gouraud Str | ABL Bldg P a g e | 6/6 Postal code: Beirut 2028-1212 Lebanon | P.O.Box: 976 Beirut, Lebanon Tel & Fax: (+ 961) 1 970500/1 Website: http://www.abl.org.lb