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 Lebanon’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 banks 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 | Beirut, 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 Bank 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 Byblos Bank, Bank of Beirut, BLOM Bank, It even advised the banks to downsize their Crédit Libanais, BankMed, Fransabank, balance sheet if the government's Banque Libano-Française and Bank Audi. 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 Germany 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 Bahrain, Cape advanced and emerging economies. Verde, Egypt, Israel, Kuwait, Morocco, Namibia, Nigeria, Oman, Saudi Arabia, Fitch added that Lebanon’s ranking among the Seychelles, South Africa, 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 Middle East & 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.