Lebanese banking thrives in tough economic conditions

The Lebanese banking sector has a reputation for strong solvency and reliability – and has been integral to the country’s economic growth


The Lebanese banking sector has always been the cornerstone of the country’s economy, remaining resilient throughout the various crises that have shaken the country, the region, and the world over the years, and constituting a solid foundation for an emerging market economy. More specifically, the Lebanese banking sector has been a major source of financing for the Lebanese government, retaining 50.5 percent of the country’s LBP-denominated debt. The contribution of the central bank to LBP-denominated debt, meanwhile, stands at 32 percent, as of the end of July 2013.

[T]he Lebanese banking sector has been a major source of financing for the Lebanese government, retaining 50.5 percent of the country’s LBP-denominated debt

In fact, the Lebanese banking sector continues to garner international attention and remains the subject of praise by renowned rating agencies for its outstanding performance even during rough periods of economic stalemate and instability. Banks operating in Lebanon remain characterised by high liquidity (primary liquidity in excess of 78 percent), strong solvency and solid capitalisation levels, which shield the sector from local or external shocks. In parallel, Lebanese banks are also acclaimed for their rigorous risk management and corporate governance practices, in addition to their impartial internal audit, which altogether play a pivotal role in protecting and shielding the sector’s strength and asset quality.

Lebanese banks are determined to preserve their pioneering role across the globe in terms of abidance by international norms and standards, especially the Basel I, II, and III requirements, enhancing the sector’s image and credibility in the eyes of the international community. During our last visit at the head of the Union of Arab Banks delegation to attend the World Bank Group IMF Annual Meetings in Washington DC, we met with several high-ranking officials from the Federal Reserve System and US Department of Treasury who announced they had witnessed an improvement in compliance functions in Arab banks in general, and expressed comfort towards the compliance of Lebanese banks with international rules and regulations, namely those of AML/CFT.

Lebanese banks are also governed by an extensive set of laws, regulations, and periodical circulars issued by Banque Du Liban (BDL), continuously hailed by international rating agencies for its prudent and scrupulous monetary policy. The central bank is also resolute in combating money laundering under the provisions of Law No. 318, with the SIC bearing the responsibility of investigating suspicious transactions and detaining the exclusive right to lift banking secrecy when deemed essential. The necessary actions and related sanctions are subsequently decided upon by the Higher Banking Commission and the relevant judicial authorities in Lebanon. Moreover, the central bank strives to confine banks’ allowable scope of investments away from exotic and toxic financial instruments. The fruit of that policy was tested during the global financial crisis of 2008, with the sector posting a healthy performance at a time when major international institutions and economies were crumbling. In this context, BDL works hand-in-hand with four committees and commissions, namely the Higher Banking Commission, the Banking Control Commission of Lebanon (BCCL), the Special Investigation Commission (SIC), and the Consultative Committee, to ensure a closer monitoring of Lebanese banks’ operations and the proper implementation of all laws and regulations.

Personnel and services
From a human resources angle, the Lebanese banking sector is renowned for employing the finest personnel, hiring highly qualified university graduates and adopting continuous learning programmes to further sharpen their skills and knowledge. This is mirrored through the ever-increasing efficiency, competitiveness, and quality of services across the sector. Lebanese banks have similarly been devoting great attention to technological advancement, constantly enhancing their IT infrastructure to support all business requirements, employing front-end technology solutions, and renewing their methods and techniques. In addition, Lebanese banks gain a competitive edge by continuously tailoring new products and services that respond to an educated customer base and the market’s ever-changing needs and unique preferences. In this context, it is worth noting that BDL and the Association of Banks in Lebanon (ABL) were behind the launching of several subsidised loan schemes with the objective of stimulating lending activity and spurring economic growth. Said schemes target various factions of society, including members of the Lebanese Army, internal security forces, judges, and small- and medium-sized enterprises (SMEs). Lebanese banks have also displayed throughout the years their eagerness to contribute to the welfare of civil society, offering numerous products that support the environment, education, anti-drug campaigns, cultural and heritage associations and events, among others.

Financial performance of Lebanese banks’ subsidiaries in Syria
Year end


Total assets


Net profit

Sept 2013


Total assets


Net profit

% change


Total assets


Net profit

Source: Syrian Commission on Financial Markets and Securities, Credit Libanais Economic Research Unit

Notes: SYP figures in billions; *Figures as of September 2012

From a rating perspective, the Lebanese banking sector remains constrained by Lebanon’s sovereign rating. Moody’s Investors Service has assigned each of Bank Audi, BLOM Bank, Byblos Bank, and Bank of Beirut with a rating of ‘B1’ with a ‘negative’ outlook, while Fitch Ratings has assigned Bank Audi and Byblos Bank a rating of ‘B’ with a ‘stable’ outlook. Capital Intelligence has also assigned each of Bank Audi, BLOM Bank, Credit Libanais, Byblos Bank, BBAC, and Fransabank a rating of ‘B’ with a ‘stable’ outlook. Most rating agencies cited Lebanese banks’ strong domestic franchise, experienced management, relatively sound asset quality, and resilient profitability, in addition to hailing the central bank’s wise policies and decisions. Nevertheless, the rating agencies had warned that the sector’s significant exposure to Lebanese sovereign debt, in addition to the regional turmoil and governmental void, could constrain any future rating improvement.

From a financial performance perspective, and despite the prevailing local and regional instabilities, the consolidated balance sheet of commercial banks operating in Lebanon has grown by 7.83 percent year-on-year to around $158.56bn as at the end of August 2013 (see Fig. 1), with customer deposits increasing by 8.88 percent to $134.19bn and loans to the private sector expanding by 9.22 percent to $45.57bn. This robust performance can be attributed to depositors’ and investors’ confidence in the Lebanese banking sector, the sustainable flow of remittances from the Lebanese diaspora to its native country, and the continuous promulgation of new subsidies and financing schemes by Banque Du Liban to foster growth. It is worth noting that the Lebanese banking sector has earned a prominent position in the region, ranking third with respect to the number of banks appearing on the top 100 Arab banks list for the year 2012 (10 banks), and fourth in terms of total balance sheet size ($147.52bn).

Growth despite uncertainty
Similarly, Lebanese banks have managed to record a 5.5 percent annual growth in net consolidated profits to $845m in the first half of 2013. One cannot deny, though, that the profitability of Lebanese banks that have a foothold in turbulent markets like Egypt and Syria, for instance, has been hampered by the ramifications of the current uprisings.

Nevertheless, the contribution of the foreign operations of Lebanese banks represents a mere 15 percent of the sector’s consolidated profits, limiting any major repercussions on the sector as a whole. In parallel, Lebanese banks have adopted corrective measures, including full provisioning of doubtful and non-performing loans, the results of which have already been reflected.

More specifically, and notwithstanding the aggravated political uproar in Syria which exacerbated uncertainties and risks surrounding the country’s operating environment, the Syrian affiliates of Lebanese banks managed to reshape their financial standing in the first three quarters of 2013 (see above, right), recording an astounding 1,933.12 percent annual surge in net profits to SYP 10.7bn ($78.19m) as at the end of September 2013. This sizeable rebound in profits is explained by the unrealised gains on our foreign exchange position, which aggregated to SYP 28.26bn ($206.56m). The consolidated balance sheet of Lebanese banks’ subsidiaries in Syria was no exception, soaring by 49.12 percent during the first nine months of 2013 to SYP 462.41bn ($3.38bn).

On the foreign expansion front, Lebanese banks have been eagerly expanding their foothold around the globe over the last decade on the back of fierce competition and unstable political and economic environments. Banks succeeded in obtaining licenses across the Middle East, North Africa and Australia; from Algeria in the West to Iraq in the East. Lebanese banks’ current geographical foothold comprises more than 31 regional and international cities distributed over five continents, added to a wide correspondent banking network covering some 111 cities around the globe.

In this context, Credit Libanais’ corporate priority centres primarily on maintaining and improving its strong retail image in the market, spread over a domestic network of 66 branches, a branch in Limassol, Cyprus, two branches in Iraq (Baghdad and Erbil), a fully fledged bank in the Kingdom of Bahrain, a joint-venture bank in Dakar, Senegal, and a representative office in Montreal. Credit Libanais is also looking to tap new markets, with plans for additional expansions within the Middle East, West Africa, and Europe. Based on the panoply of factors mentioned above, the outlook surrounding the Lebanese banking sector’s future performance remains quite rosy.