With a strong ability to weather shocks and overcome challenges, the Lebanese banking sector has proved to be one of the main pillars of economic stability in the country. Amid a continued domestic political stalemate and regional turmoil, which still pose a serious challenge to the Lebanese economy, the banking sector managed to sustain growth in major key indicators over the period stretching between 2010 and 2014. Assets grew by an average of 8.1 percent annually, private sector deposits increased by 5.7 percent, loans to the private sector witnessed an increase of 9.9 percent and the loans-to-deposit ratio grew to 31.4 percent. The high liquidity provides Lebanese banks with high immunity to unstable conditions and the ability to absorb shocks. Relative to the size of the economy, the banking sector has grown over the years, accumulating assets in excess of 350 percent of the country’s GDP amid on-going deposits inflows.
As such, the Lebanese banking sector has earned the trust of the global financial community given its experience in risk and crisis management. The challenges faced by Lebanese banks at this volatile stage lie in the levels of growth and profits. The size of the banks relative to GDP has allowed them to fund both the public and the private sector, with loans to the private sector representing more than 90 percent of GDP.
Despite the delicate political and economic situations that have continued to loom over Lebanon and the surrounding region over the past five years, profitability has increased
However, the banking sector is not insulated from current events, and it is natural that it is affected by the economy. Therefore, the central question remains: how will the sector sustain its growth in the face of the mounting challenges that continue to weigh down on the Lebanese economy?
To address this challenge, over the past two decades, Lebanese banks have expanded the scope of their operations, developing a widespread external network of representative offices, branches, subsidiaries and sister companies. This expansion has been triggered by a number of pragmatic reasons, including the small economy and the small size of the population, in addition to other factors such as political instability and security issues.
Today, more than 15 banks, which constitute over 85 percent of the Lebanese banking sector, have an established presence in more than 30 countries including Turkey, Egypt, the Gulf states, the US and Australia, as well as other countries in Africa and Europe.
As one of Lebanon’s most dynamic banks, Bankmed has been a pioneer in this regard. With 70 years of solid banking experience, it has acquired a distinctive balanced risk approach. This know-how has endowed it with the competence to diversify its streams of profit as well as its concentration risk. Hence, the bank has broadened its scope of operations and expanded its footprint into new markets within the region. The latest opening at the Dubai International Financial Centre (DIFC) serves as a clear attestation of the bank’s continuous effort to maintain its leading position and sound reputation. It also reflects its forward view to widen its client base and address its customers’ financial needs wherever they are.
Bankmed has successfully positioned itself at the forefront of Lebanese banks, displaying a notable ability in sustaining growth year after year and exhibiting an unmitigated capability in exploring new opportunities locally and regionally.
It is because of this broadened scope of operations that Bankmed has been successfully moving on a path of steady growth. The sustained expansion into regional markets and the diversity of business lines have positively impacted the bank’s performance. Hence, despite the delicate political and economic situations that have continued to loom over Lebanon and the surrounding region over the past five years, profitability has increased.
Bankmed in 2014 assets
Trade finance volume
The bank has been exhibiting consistent growth in its balance sheet and bottom line objectives. In 2014, the bank’s net income increased to record $133.5m (see Fig. 1) – the highest in its history – while its total consolidated assets increased by 12 percent annually to reach $15.4bn by the end of the same year. The increase in the bank’s investment portfolio, as well as its growth in loan portfolio, have been the main drivers behind this growth. Loans grew by six percent to reach $4.7bn and customer deposits increased by 10 percent to reach $12.1bn. Loans-to-deposits stood at 39.1 percent and the provisions coverage ratio exceeded 150 percent. Moreover, the bank’s liquidity ratio stood at 35.45 percent, and its capital adequacy ratio reached 14.3 percent, exceeding, yet again, the regulatory requirement of 11.5 percent, which is set by the Central Bank of Lebanon. The high liquidity and strong capitalisation are some of the fundamentals that the bank’s management continually focuses on.
In addition, Bankmed achieved several milestones across its various business lines in 2014. The bank still holds one of the largest commercial lending portfolios in the Lebanese market, covering top-tier corporate clients across myriad industries. The success realised in corporate banking has eventually spanned into other areas as Bankmed has adopted several initiatives, which enabled it to enhance other essential business lines. Realising the great potentials that lie within the small- and medium-sized enterprises (SMEs) sector, the bank actively worked on capturing a large segment of the market in an aim to leverage economic opportunities within the sector. As a result, the bank’s SME portfolio has grown by more than 20 percent per annum over the past five years, while its headcount was increased accordingly to support this expansion.
In parallel, Bankmed realised growth in other areas. Its retail loan portfolio witnessed an increase of 20.6 percent year-on-year. This upsurge was driven by growth in loans to retail customers (including mortgages) in Lebanon and Turkey (through Turkland Bank). Moreover, despite the critical regional conditions, Bankmed grew its trade finance volumes to reach more than $2.5bn by the end of 2014.
In terms of microfinance, Bankmed continued to assume leadership in this regard. The bank’s fully owned subsidiary, Emkan Finance, has provided over $95m worth of microloans for its 47,000 borrowers among economically active low-income earners in Lebanon.
On the investment front, Bankmed has been successfully diversifying its liquidity profile minimising risks while enhancing profitability. The treasury’s online trading turnover has been steadily growing since 2013 to reach $4bn; similarly, its FX turnover has also been progressively expanding over the past five years to record $60bn. In the same manner, Bankmed’s investing banking arms, SaudiMed Investment Company, MedSecurities Investment and MedInvestment Bank, also played a pivotal role contributing to the bank’s success.
SaudiMed continued to focus on building its core competency business line of corporate finance advisory. In 2014, SaudiMed earned the » Best GCC Structured Finance Company award, which marks the success of the first inventory securitisation operation in the Middle East, which it executed in collaboration with MedInvestment Bank. Following this recognition, Bankmed witnessed an increase in demand in terms of investment products, namely within structured finance. As for MedSecurities, it continued to realise increased success in 2014, introducing new investment solutions to a growing client base, an aspect that also earned it global recognition. In fact, MedSecurities was named Best Broker by Global Investor magazine.
The bank’s continued success is largely attributed to its prudent risk management, strong corporate governance, and sound strategy. By focusing on locally driven growth in parallel with a well-planned regional expansion, specifically in markets that have sustainable growth potential, Bankmed has succeeded at establishing strong relationships with local, regional, and international clients, hence solidifying its position wherever it is present.
Pursuing a prudent expansion strategy, Bankmed has succeeded at establishing presence in selected markets with sustainable growth potential. The bank is present in Switzerland through its fully owned private banking subsidiary, Bankmed (Suisse), in Saudi Arabia through its investment banking arm, SaudiMed Investment, in Turkey through its subsidiary commercial bank, Turkland Bank (T-Bank). Bankmed has also established presence in Cyprus, Iraq, and UAE through a number of branches.
Through its well-planned expansion, Bankmed has grown to become the preferred partner to a long list of local as well as regional corporates and investors. The bank has also recognised a huge potential for business activities that can be generated from cross-selling to its customer base. It continually supports its entities within emerging and thriving economies, and through these endeavours it remains strategically positioned to prudently capitalise on opportunities that could be available in new markets.
Emerging economies like Saudi Arabia and Turkey have presented the suitable attributes for the bank’s regional expansion as they both continue to present the right venue for growth. The Turkish economy, in particular, has witnessed a lot of reform and is expected to sustain growth in the near future. Within this context, T-Bank has been laying a specific focus on the SME sector, especially significant given that the vast majority of companies in Turkey are classified as SMEs. T-Bank has been steadily growing its SME portfolio, extending further financial solutions to its widening client base. In 2014, its portfolio grew by 22 percent, contributing significantly to the bank’s overall growth. In addition, the bank has been expanding into economically vibrant regions within Turkey, where most of these businesses exist.
As for the Saudi economy, it has also been witnessing positive growth based on its long-run prospects. In this regard, SaudiMed, which is licensed and regulated by the Saudi Capital Market Authority (CMA), offers a wide range of innovative and customised financial advisory and financing services and solutions. These cover: debt and equity arranging and advising, mergers and acquisitions advisory, corporate restructuring, as well as private placements. The company is also licensed to structure and market a range of local, regional, and international investment funds and to offer services covering various asset classes and investment strategies.
With respect to Iraq, the bank solidified its presence in the major cities in the country by inaugurating a branch in Basra in 2014, following the establishment of its branches in Baghdad and Erbil in 2012. Despite the challenging environment in Iraq, Bankmed continues to recognise a growth potential within the country. The Iraqi economy was at a point one of the fastest growing economies in the MENA region, and this attribute is extremely important for Bankmed’s strategic expansion. In addition, the bank’s expansion into Iraq came also as a result of the trade magnitude between Iraq and Turkey. Operations in Iraq cover both, retail and commercial activities. On the retail side, Bankmed offers personal and housing loans as well as typical retail services. However, on the commercial side, the bank endows corporate commercial lending and caters for high-quality trade finance services.
An enriching platform
Most recently, driven by the success it has realised in regional markets and in line with its prudent expansion strategy, Bankmed and MedSecurities established a presence in the DIFC, one of the world’s most prominent global hubs for financial activity. Through this step, Bankmed became the first bank in the MENA region to operate in the DIFC under a Category 1 license, the most comprehensive license granted by the Dubai Financial Services Authority. This fact underpins the stringent regulatory framework in which the bank operates and highlights its expertise in risk management. As for MedSecurities, it received a Category 3 license that entitles it to address the evolving needs of customers and to offer a wide range of financial services within a world-class regulatory framework.
Given the well-entrenched position of the banking group in the region, the opening at the DIFC serves as a new and enriching platform that enables Bankmed to broaden the scope of our operations. The move has been triggered by the economic growth prospects in the GCC, which offer a business opportunity for Bankmed (Dubai). Moreover, the DIFC enjoys an excellent regulatory and judicial reputation in addition to its excellent regional and international business platform, which has turned it into one of the world’s financial hubs, attracting global and regional financial institutions. Similarly, the UAE’s prime position as a trade platform between Asia, Africa and the Middle East, serves as a key business destination for the Levantine as well as for Iraq and Turkey. Hence, Bankmed (Dubai) is ideally positioned to optimise its performance due to its synergies with the banking group’s other entities.
Moving forward, Bankmed is strategically placed to carefully capitalise on opportunities that could be available in new markets within the region. The bank will continue to explore expansion opportunities while cementing its presence in existing markets.