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Lebanon Weekly Monitor

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Lebanon Weekly Monitor LEBANON WEEKLY MONITOR FEBRUARY 22 - FEBRUARY 28, 2021 Economy WEEK 09 ____________________________________________________________________________ p.2 A US$ 20 BILLION CONTRACTION IN DEPOSITS IN 2020 AMID A US$ 14 BILLION LOAN REDEMPTION Amid the combination of a widening domestic economic crisis, contracting inflows towards Lebanon CONTACTS and the default of the State on its Eurobonds, banks operating conditions have deteriorated significantly over the course of the year 2020 that reported significant deposit and loan contraction, Treasury & Capital Markets pressure on bank liquidity, and net losses in income statements thus drawing on shareholders equity Bechara Serhal as per statistics released this week by BDL. (961-1) 977421 [email protected] Also in this issue p.3 Lebanon's GDP likely to contract 10% in 2021 as economic and political woes persist, as per Capital Private Banking Economics Toufic Aouad p.4 Cement deliveries down by 44.7% in first ten months of 2020 (961-1) 954922 p.4 Imports of petroleum derivatives down by a yearly 9.9% in first ten months of 2020 [email protected] Corporate Banking Surveys ____________________________________________________________________________ Carol Ayat p.5 OCCUPANCY OF LEBANON’S FOUR AND FIVE STAR HOTELS AT 18% IN 2020, AS PER EY (961-1) 959675 Ernst & Young issued its latest Hotel Benchmark Survey on the Middle East for 2020, with Lebanon's [email protected] hotel occupancy reporting 18% in 2020 Also in this issue p.6 Growth in consumer spending will be driven by spending on essential categories, as per Fitch Solutions Corporate News ____________________________________________________________________________ p.7 BALANCE SHEET OF FINANCIAL INSTITUTIONS TOTALS US$ 1,172 MILLION AT THE END OF THE YEAR 2020. According to the latest statistics issued by the Central Bank of Lebanon, the total balance sheet of financial institutions amounted to US$ 1,172.4 million at end year 2020, down by 15.2% from end-2019 RESEARCH Also in this issue p.8 Lebanese owned CMA CGM Foundation mobilizes its resources in response to the sanitary emergency Marwan Barakat in Lebanon (961-1) 977409 [email protected] p.8 AZADEA buys Adidas operations and franchise p.8 Berytech is looking for textile, clothing and fashion entrepreneurs Salma Saad Baba (961-1) 977346 Markets In Brief [email protected] ____________________________________________________________________________ p.9 MARKETS IN BRIEF: BOND PRICES AT RECORD LOWS AHEAD OF BDL’S FEBRUARY 28 Farah Nahlawi DEADLINE FOR BANKS TO BOOST FC LIQUIDITY (961-1) 959747 [email protected] With no breakthrough in the stalled cabinet formation process and shortly ahead of BDL’s February 28 deadline for Lebanese banks to raise capital by 20% and boost liquidity at correspondent banks to at least 3% of their FC deposits, Lebanon’s capital markets saw this week a plunge in the Lebanese pound against Zeina Labban (961-1) 952426 the US dollar on the black FX market and across-the-board price contractions on the Eurobond market, while [email protected] the equity market followed an upward trajectory. In details, the LP/US$ exchange rate deteriorated to LP/ US$ 9,650-LP/US$ 9,700 on Friday, down by 3.2% when compared to the previous week, amid dwindling FX Michele Sakha reserves and stubborn cabinet gridlock. In parallel, the bond market saw across-the-board selling operations (961-1) 977102 from domestic market players, which drove prices to record low levels of 12.50-13.13 cents per US dollar. [email protected] Finally, the equity market posted price gains, as reflected by a 2.2% rise in the BSE price index, while the total turnover contracted by 78% week-on-week. LEBANON MARKETS: WEEK OF FEBRUARY 22 - FEBRUARY 28, 2021 Money Market BSE Equity Market LP Tbs Market Eurobond Market ⬆ LP Exchange Market CDS Market - ⬌⬆ ⬇ Week 09 February 22 - February 28, 2021 ⬇ 1 Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected] FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09 ECONOMY ______________________________________________________________________________ A US$ 20 BILLION CONTRACTION IN DEPOSITS IN 2020 AMID A US$ 14 BILLION LOAN REDEMPTION Amid the combination of a widening domestic economic crisis, contracting inflows towards Lebanon and the default of the State on its Eurobonds, banks operating conditions have deteriorated significantly over the course of the year 2020 that reported significant deposit and loan contraction, pressure on bank liquidity, and net losses in income statements thus drawing on shareholders equity as per statistics released this week by BDL. Measured by the consolidated assets of banks operating in Lebanon, banking activity contracted by US$ 28.7 billion over the year 2020, the equivalent of 13.3%. Comparatively, they had contracted by 13.1% over the year 2019, following an average growth of 4.7% over the previous five years. Similarly, customer deposits, which represent the bulk of bank assets in Lebanon, reported a contraction of US$ 19.7 billion over the year 2020. Since the beginning of 2019, customer deposits contracted by a cumulative amount of US$ 35.1 billion, the equivalent of 20.2%. The decline last year in customer deposits is tied to both LL and FX deposits. LL Deposits contracted by US$ 10.8 billion, while FX Deposits dropped by US$ 9.0 billion. As such, the deposit dollarization went up from 76.0% in December 2019 to 80.4% in December 2020, i.e a 28-year high. In parallel, loans to the private sector, which contraction accounted for almost two third of deposits contraction, reported a decline of US$ 13.6 billion over the year 2020. Since the beginning of 2019, loans to the private sector contracted by a cumulative amount of US$ 23.2 billion, the equivalent of 39.1%. The decline last year in loans to the private sector is mainly tied to FX loans. LL Loans contracted by a mere US$ 1.0 billion, while FX Loans dropped by US$ 12.6 billion. As such, the loans dollarization went down from 68.7% in December 2019 to 59.6% in December 2020, i.e a 34-year low. In line with regulatory directives, banks continued to decrease interest rates on both creditor and debtor accounts. The LP deposit rate contracted by 472 basis points over the year to reach 2.64% at end- December and the US$ deposit rate shrank by 368 bps to reach 0.94% (getting closer to international reference rates with the spread between the US$ deposit rate and the 3M US$ Libor rate at a 12-year low of 70 bps). In parallel, the average LP loans rate shrank by 132 bps over the period and the US$ loans rate declined by 411 bps in 2020. Concerning sovereign exposure, banks Eurobond portfolio reported US$ 9.4 billion at end-December 2020, the equivalent of 8.4% of FX customer deposits, against 11.4% at end-2019 and 13.0% at end-2018. GROWTH OF MAIN BANKING AGGREGATES (US$ MILLION) Growth of main banking aggregates (US$ million) 10,910 7,160 6,169 5,617 3,326 2,955 2,506 -300 2015 2016 2017 2018 2019 2020 -9,617 -13,601 -15,418 -19,723 Bank deposits Bank loans Source: BDL, Bank Audi's Group Research Department Week 09 February 22 - February 28, 2021 2 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09 As to primary liquidity abroad, it witnessed a decline of US$ 2.1 billion over the last year. With respect to capitalization, banks shareholders equity amounted to US$ 19.9 billion at end-December 2020, against US$ 20.7 billion at end-2019 as a result of net losses in income statements. As such, banks are continuing to experience difficult and uncertain operating conditions, and have been focusing their efforts on provisioning against potential losses tied to their private sector lending portfolios and sovereign Eurobond holdings, while striving to boost capitalization (by a cumulative 20%) and meet liquidity requirements (3% of their FC deposits held in liquid form abroad) by February 2021 as per the latest BDL guidelines. _____________________________________________________________________________ LEBANON'S GDP LIKELY TO CONTRACT 10% IN 2021 AS ECONOMIC AND POLITICAL WOES PERSIST, AS PER CAPITAL ECONOMICS Lebanon’s economic downturn is unlikely to improve in 2021 as its GDP is set to contract by 10% this year, according to Capital Economics, a London-based consultancy. A severe COVID-19 outbreak has added to the long list of troubles in Lebanon and, given renewed social unrest and the fact that talks with both the IMF and international creditors are at a standstill, it is likely that economic conditions will remain dire over the coming months, said the agency’s MENA Economist. Lebanon is beset by a severe economic, political and humanitarian crisis. In March last year, the government defaulted on its Eurobond debts. In August, the blast at the Port of Beirut resulted in the deaths of 204 people and a further 6,500 injured. The blast led to the resignation of the government and a new administration has yet to be formed. The Coronavirus outbreak is straining its already stretched health sector and reports suggest that hospitals are operating far beyond their capacity and running out of resources to treat patients. The vaccine roll out has only just begun and is likely to be slow-going as supply remains constrained. According to the agency, caretaker PM, had previously outlined plans to turn to the IMF for financial assistance to help arrest Lebanon’s economic malaise. However, talks with Lebanon’s creditors over a debt restructuring, which is ultimately needed before Lebanon can secure an IMF deal, have been at a standstill for the best part of a year and were formally put on pause after the government resigned in August.
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