TBY talks to Maurice Sehnaoui, Chairman & General Manager of BLC Bank, on the company’s external strategy, growing SME portfolio, and lending trends.
TBY How has the banking sector’s excess liquidity given it higher confidence in terms of financing needs?
MAURICE SEHNAOUI In all economies, the public sector is financed by the private sector. What is relevant is that the Lebanese financial sector, namely Lebanese banks, have substantially more means and potential than the local economy’s needs. The banking sector’s resources are around $110 billion, while the Lebanese economy and the public sector utilize only 59% of these resources, which give banks an excess of $40 billion to finance other demands. From this perspective, Lebanon is similar to Switzerland from two perspectives: first that we are able to finance any need of the local economy or the state, and second is the confidence in the banking sector as a result of these strong means. The difference, however, lies in the fact that Lebanon is not a regional player in terms of financing, but it is starting to be and some banks have initiated a regional presence through the opening of subsidiaries and branches. One example is BLC Bank, which has just acquired a subsidiary: USB Bank in Cyprus.
How important was the acquisition of the majority stake in USB Bank in Cyprus for BLC’s external growth strategy?
When I took over, BLC Bank didn’t have any subsidiaries outside of Lebanon. The Lebanese banks have much more to offer than the internal market’s demand, which gives way to excess liquidity. The means presented by this excess, coupled with the professional banking know-how, paved the way for many local banks to look for alternatives outside Lebanon. After carefully studying the options for a year and a half, I chose Cyprus because I know the country and its market very well, and it is in Europe.
Given that USB is a European bank, do you see possibilities to expand further into Europe?
We definitely plan to expand internationally, and not necessarily limit our growth to Europe only. Nonetheless, our starting point is a European bank. With USB, it will become even easier to expand in Europe and maybe Russia, and I am already studying many projects from Cyprus. We currently own 95% of USB, a publicly listed bank. We have the means to fully own the bank; however, we intend to keep this structure to maintain the benefits of being a company listed on the stock exchange—specifically to call investors easily to contribute to new projects.
BLC Bank has experienced a high growth rate in deposits. Where are these funds coming from?
The majority of the deposits in the sector come from Lebanese residents and expatriates, making up to 80%, while 20% to 25% are from Arab depositors.
After being appointed as Chairman of BLC in 2008 you increased the bank’s loan portfolio. What is the bank’s loan activity now?
My objective was to have the same bond investment ratio as other Lebanese banks. I am happy to say that, at present, the bank’s lending ratio to the state is similar to that of the market. We are constantly increasing our lending activity to the private sector at the retail and corporate levels. This does not mean that we will stop investing in Lebanese bonds, but when there is strong growth, you have to stabilize it by maintaining a healthy equilibrium between the public and private sector.
How is BLC targeting the SME segment?
We are actively working on increasing our SME portfolio. Over the past two years we have grown our exposure in this very important market segment substantially. Furthermore, for the purpose of continuing to strongly develop an exposure to SMEs, we have signed an agreement with IFC, which after having evaluated many local banks, has chosen BLC Bank to be the pilot bank for the methodology of growth of SME activities, due to the capabilities displayed and the bank’s active involvement in this market.
What competitive advantages do Lebanese banks hold?
A highly qualified human resource pool as well as very developed professional banking know-how are the major advantages of the Lebanese market. These parameters make Lebanon a potential future financial hub in the region. We are only at the beginning and there is a very high level of competition from other markets that are already established hubs, but we are willing to go into this competition. From a micro approach, Lebanese banks will expand by taking along their local resources and know-how. This is not a state strategy, but rather a normal development given the above-mentioned parameters and the financial means due to the excess of liquidity. It also plays to the Lebanese advantage that there is general trust from regional investors in Lebanon’s banks. I would like to reemphasize that the major advantage of Lebanese banks is that the banking sector is the most successful sector due to the high level of know-how among its very highly skilled personnel.
In what sectors are you seeing an increase in lending?
The biggest increase was seen in the real estate sector, where there was a palpable demand that led to an increase in prices by almost three fold. When there is such an increase in demand, be it from Lebanese residents, expatriates, or foreigners, there is automatically an increased demand in financing. The positive aspect in this is that Lebanese banks are not as involved in financing real estate projects as are US or European banks, whereby the Lebanese banking sector’s participation represents only 23% of lending to the economy. This means that ours is a relatively safe market, and should we see a downturn in the real estate sector, it will not have as dramatic an impact on the economy and the banks as if we had financed 50% of the sector’s needs. A second sector that has witnessed an increase in lending is tourism and its related segments, revealing the commercial nature of the Lebanese market. On the other hand, private-public projects (PPPs) will one day reach us, and fortunately, as mentioned above, the banks have the means to finance such projects. Currently, there is no single project ready to be discussed, but the need is there and we have the means for it. PPP will be a big growth area in the future and will definitely be a good approach. The most difficult step is to actually propose the project; the rest is easy as the structure is ready.
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