22 August 2017
BEIRUT: Cairo-based investment bank EFG Hermes expects Lebanon’s three largest banks to record a slight increase in customer deposits at the end of 2017 despite the challenges in the country.
“Nine months after the appointment of a new president, the recovery in credit appetite in Lebanon has been slower than expected. We do not expect a major shift in the current trends for 2H17 [the second half of 2017] (GDP growth unchanged year-on-year at [an estimated] 1 percent in 2017), and forecast low single-digit loan growth (excluding BLOM
’s consolidation of HSBC),” an EFG Hermes report said.
The report covered Bank Audi, BLOM Bank and Byblos Bank.
It noted that improved confidence has translated into stronger deposit growth.
“This has lifted year-on-year asset growth for banks to mid-single digits, a trend we expect to continue for the rest of 2017. We also factor in: i) spread stabilization in 2H17 as pricing competition for U.S. dollar deposits is easing, with risks for spreads on the upside on potential rate hikes by the Fed (banks already pay a large premium to Libor on their U.S. dollar deposits); and ii) low provisioning costs as banks have built large buffers after last year’s one-off gains from the central bank’s special financial transactions,” the report said.
It added that Bank Audi’s balance sheet declined as a result of depreciation of the Egyptian pound and Turkish lira. “Balance sheet growth rates on a year-on-year basis are negative for Bank Audi because of depreciation of the Egyptian pound and Turkish lira at the end-2016, but growth has picked up in 2Q17; BLOM’s balance sheet growth in 2Q17 was driven by consolidation of HSBC Lebanon, which added $470 million in loans, $600 million in deposits and $840 million in total assets,” the report said.
EFG Hermes stressed that BLOM’s stocks had outperformed the remaining listed shares of Lebanese banks on the Beirut Stock Exchange. “BLOM has outperformed Lebanon banking socks year-to-date, with the hike in the 2016 dividend (yield at 7.7 percent) acting as a key catalyst. We remain buyers of BLOM, which we view as a defensive name, with a strong capital adequacy ratio, high return on equity (18.9 percent [estimated] in 2017, flat year-on-year). We believe however that Audi offers stronger catalysts versus BLOM, focus on cost efficiency driving return-on-equity gains,” the report said.
EFG Hermes indicated Lebanese banks were vying to attract U.S. dollar deposits, most notably from smaller banks following the Central Bank’s financial engineering.
“There has been strong competition for U.S. dollar funding among Lebanese banks (particularly smaller ones) and an increase in the cost of U.S. dollar deposits starting from 2H16. This was mainly driven by the special Central Bank’s financial transactions with banks during 2H16, where the Central Bank bought part of their Lebanese pound T-Bill portfolios at attractive rates, and in turn, Lebanese banks bought U.S. dollar denominated certificates of deposit from the central bank and Eurobonds, with this driving higher competition for U.S. dollar deposits,” the report said.
It did not expect banks to continue to offer high interest rates on dollar deposits even if the U.S. Federal Reserve hiked the rates in the future.
“In the absence of further special transactions by the Central Bank, Lebanese banks expect this pressure to ease. If there are further rate hikes by the Fed, they do not expect that rates for U.S. dollar deposits in Lebanon will match this increase, as dollar deposit rates are already at a significant premium to Libor,” EFG Hermes explained.
It added that BLOM could benefit if there were a peace deal in Syria thanks to its presence there.
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