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Bank assets growth jumps 117 pct

Traders are seen busy working in BEMO Bank's dealing room before the end of Beirut's stock exchange trading session in Beirut, Lebanon in this April 3, 2006 file photo. Picture taken April 3, 2006.

Traders are seen busy working in BEMO Bank's dealing room before the end of Beirut's stock exchange trading session in Beirut, Lebanon in this April 3, 2006 file photo. Picture taken April 3, 2006.

Reuters/Jamal Saidi

16 November 2016

BEIRUT: The Central Bank’s financial engineering was definitely a boon for Lebanon’s bank sector, as assets growth in the first nine months of 2015 jumped by more than 100 percent compared to the same period of 2015, a report by Bank Audi showed.

“The banking sector benefited from growing financial inflows toward Lebanon. In fact, banking activity saw a $12.1 billion growth in assets over the first nine months of 2016, against a growth of $5.6 billion realized over last year’s same period,” Bank Audi said in its third quarter report on the performance of the Lebanese economy. This represents an increase of 116.7 percent, one of the highest records in the history of the banking industry in Lebanon.

One banker who spoke on condition of anonymity told The Daily Star that there had been a huge inflow of funds to Lebanon from abroad in the past few months.We have seen an unusual inflow of funds thanks to the Central Bank financial engineering,” the banker said.

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The Central Bank asked Lebanese commercial banks to use surplus funds, which they generate by selling local-currency government bonds from their portfolio and buying Eurobonds simultaneously, as provisions in Lebanese liras to be included in their Tier 2 capital. “Lebanon’s banking sector witnessed a surge in activity growth during the third quarter of this year following the recent BDL financial engineering operations which led to substantial financial inflows into the country and gave a boost to year-to-date banking activity at large. Measured by total assets of banks operating in the country, sector activity grew by 6.5 percent in the first nine months of 2016 to reach a record high $198.1 billion at end-September 2016. The $12.1 billion increase in assets since the start of the year is more than twice higher than the corresponding period of 2015 growth and 64 percent higher than the growth of the previous five years’ similar period,” the report said.

Consequently, customer deposits saw high growth in the same reporting period. “Total deposits, a traditional activity driver in the sector, were positively impacted by the monetary policy that enabled banks to offer their customers attractive deposit packages. As a result, total deposits rose by $6.6 billion in the first nine months of 2016 (4.3 percent), after having lagged behind in earlier months, comparing to a lower $4.7 billion increase in the first nine months of 2015. Resident deposits accounted for 82 percent of the total deposit increase in the covered period (growth 27 percent), while non-resident deposits were 2.7 times higher than those of last year’s similar period,” Audi said.

This financial engineering dramatically beefed up the Central Bank’s foreign currency reserves.

“The first nine months of the year 2016 were characterized by a historical high level of the Central Bank of Lebanon’s foreign assets, a shift in the growth in net foreign assets from a negative territory to a positive one year-on-year, a strong money creation, and a tangible increase in foreign currency CDs portfolio, mainly supported by BDL’s recent financial engineering operations,” Audi said.

It added that the Central Bank’s foreign assets reached an unprecedented level of $40.6 billion at end-September 2016, rising by a significant $3.5 billion since year-end 2015.

“In parallel, the foreign sector reported an improvement in activity on the back of the recent BDL financial engineering operations that resulted in a noticeable growth in financial inflows over the first nine months of the year, generating a surplus in the balance of payments of $555 million.

The surplus of the balance of payments comes with the context of a 36.3 percent rise in financial inflows offsetting the 9.3 percent increase in trade deficit that was driven by growing imports and contracting exports,” Bank Audi said.

© Copyright The Daily Star 2016.

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