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BEIRUT: The profits of Lebanese banks in 2019 are expected to drop compared to 2018 due to the high cost of deposits and the dire economic situation, the BLOM Bank Chairman Saad Azhari said Thursday.
The profits of the banking sector have dropped by 15 percent in 2018 compared to 2017.
The way we are going, and based on the results of the first few months, profits will decline further, Azhari told reporters during a lunch event held by BLOM in honor of the news media.
But Azhari stressed that Lebanese banks that have subsidiaries abroad - like BLOM - have managed to increase profits thanks to revenues generated internationally.
We expect the profits of BLOM in Lebanon to drop, but the net earnings from our operations to go up - and this will make up the difference.
BLOM recorded a net profit of $510 million in 2018. A large portion of this profit came from its operations in Egypt and Jordan.
Azhari also expected the return on equity to drop further in 2019.
In response to a question on whether Lebanese banks were willing to subscribe in bonds with zero percent interest as they did after a 2002 Paris conference to help Lebanon reduce its budget deficit and revitalize its economy, Azhari said the situation now was different.
The banks portfolio in bonds with the Lebanese state is only generating 7 percent interest, while the interest rates in the market are 10 percent and above, he added.
But Azhari suggested that banks might be willing to help in the future if the government implemented radical reforms and the interest rates in the markets dropped.
What I would like to focus on in my speech today is the most prominent characteristics of the Lebanese banking sector on the one hand, and the importance of economic and financial reforms on the other. We are all aware of the banking achievements of the sector, he said.
Azhari said banks were the main financier of the productive private sectors, where loans account for more than 100 percent of GDP and subsidized loans for $15 billion.
The sector employs more than 26,000 employees, and those under the age of 40 represent 60 percent of the entire staff.
In addition, banks play a pivotal role in cooperation with Banque du Liban in stabilizing monetary and financial stability, he added.
What is not well-known about the banking sector is its pioneering activity in the areas of social responsibility, stemming from its firm conviction that the strength and safety of the sector stems from the strength and safety of society, which has consequently strengthened human, educational and social life in Lebanon, Azhari said.
But the chairman underlined the need to promptly work on reducing of the fiscal deficit, which has reached alarming levels. What I would like to focus on is that the difficulty of this stage requires comprehensive reforms to benefit from the CEDRE conference and to revitalize and modernize the economy.
These include reforms in the investment climate aimed at enhancing competitiveness and investment promotion, and reforms in good governance aimed at halting corruption and improving the performance of public utilities, he said.
Azhari pointed out that some of the most important reforms were fiscal reforms.
The budget deficit as a percentage of GDP rose to 11 percent in 2018 as a result of the salary scale. The deficit should be reduced to 8 percent in 2019 to comply with the requirements of the CEDRE conference, he added.
Azhari noted that financial reform was the main gateway to inclusive economic growth and job creation, as it increased credit ratings, cut interest rates and provided more financing to the private sector.
He called for an end to tax evasion and improvements in tax collection that could gradually increase revenues to $4 billion, and the rationalization of spending, especially with regard to Electricite du Liban, in addition to reforming the pension system to reduce expenses and provide equality between beneficiaries.
It goes without saying that the salvation of the economy depends primarily on the salvation of public finances. It is no secret that the political, economic and financial conditions that need to be addressed by the various concerned parties are difficult and sensitive, he said.
We hope that all these efforts in the near future will lead to a better performance for the Lebanese economy, which is suited to the aspirations of its sons and daughters and to keep abreast of the recent developments in the global economies, he added.
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