TBY talks to Mohamed Ali Beyhum, Executive General Manager of BankMed, on sector resiliency, the deposit business, and equity growth.
TBY Lebanese banks are known for their resiliency to both domestic as well as regional and international shocks. What factors contribute to this resiliency?
MOHAMED ALI BEYHUM The banking sector in Lebanon is made up of very well-established institutions that have been around for some time. The banks went through the economic boom of the 1950s and the 1960s, continued through the civil war between the 1970s and 1990s, and then the surge again in the 2000s. These are very traditional, family-owned banks. By family-owned, I mean banks, some of them publicly listed, that have a major entity or individual(s) that possess a large stake and who are still very much involved in the banks’ operations and management. The positive side of having this concept of family-owned banks is that there is strong personal interest in the continuity and profitability of the banks coupled with the latest corporate governance standards including transparency reporting. In many cases worldwide, we’ve basically seen the fall of major financial institutions because, frankly, there was no major player among the shareholders monitoring or being actively involved in day-to-day operations that really ensured the continuity of the institution. We saw instances where the boards of directors’ responsibilities were not carried out fully and the set triggers were not enough to avoid the banking meltdown. That’s not the case here. Many of the major banks, and all of the smaller ones, have significant family money as part of their ownership structure. Having said that, you still need to have transparency for depositors, and this is what the regulators and the external auditors provide. We have very thorough banking laws. These regulations allow us to do business in Lebanon and to be competitive externally as well, while imposing on us high standards of risk guidelines and transparency. This is extremely important. This solid base was not just recently established; it’s something that has been building up over the years.
Does the fact that Lebanese banks are deposit driven also contribute to risk management and stability?
This is what is maybe helping the banks in general. The liquidity is there because first there was an economic boom in the Middle East, followed by a period of stability. That environment produced significant remittances and FDI into Lebanon. However, that’s not the only reason. Liquidity is very important, but it has to be within the framework of strict regulations. We have very stringent rules for minimum liquidity, not only in terms of level of liquidity and reserve requirements, but also in terms of what is considered to be liquid. At face value that appears to be a basic concept, but barring regulation, a bank could claim it is investing in a certain type of liquid securities, which may not always be the case. Again, liquidity has to be defined within a strict regulatory structure. And yes, the banks are liquid. In general, the banks have left tremendous liquidity on their balance sheets because they understand what the region in general, and Lebanon specifically, goes through in terms of political tension and turmoil. This liquidity goes hand-in-hand with our daily operations. At the same time, we are very traditional in terms of lending; we are typical conservative lenders. We look at the major risks and take all the necessary measures to mitigate them not just by ensuring a first way out, but also with additional tangible securities as collateral.
Considering this historic resilience despite political tensions, do you think that the deposit growth seen in the sector in 2011 is a flight-to-quality coming from so-called Arab spring countries?
We hope that’s the case and we think that it most probably is the case. Yes, there has been an increase in the deposit base, which initially began in 2009-2010, and is still going on in 2011. But there have always been inflows from neighboring countries. This is not a new phenomenon. However, sometimes these deposits increase tremendously and in other periods they drop. These days we are seeing a bit more of an increase in deposits from abroad.
Since 2006 BankMed has doubled its equity. Can you tell us about the long-term strategy that has made growth possible?
Back in 2005 our net profits were low. We managed to increase them tremendously and grew the balance sheet as well through various initiatives. First, back in the 2005-2006 period the bank underwent a major reorganization. Since then we have had a shift in strategy. Internally, in terms of reorganization and the re-engineering of all the procedures and policies, we rebuilt the organizational structure and reviewed how we conducted our daily operations. In terms of major business lines, we started entering into specific business lines geared more toward consumers and retail. Previously, we were very much into corporate banking, with a focus on blue-chip type institutions. We also changed that by moving more into SMEs. At the same time we brought some new blood into the bank, including very well-qualified and well-experienced individuals. That was an essential move that proved very effective because you had existing people in the bank who knew the clients, knew the business very well, and you had people from the outside coming in with new ideas. Looking back, even though what we did was quite basic, the combined efforts produced a major turnaround for the bank within a five-year span. The results definitely speak for themselves. BankMed has accessed the capital markets for the first time in 2009 by raising $100 million in preferred shares, and the bank now generates in excess of $100 million in net profits.
What’s your medium-term outlook for the Lebanese economy?
Outlooks are tough to discuss, especially with the turmoil in our region. The fact is that the economy will be affected by two major aspects, at least in Lebanon: the political side, meaning instability, and the business environment and investments. Barring additional political issues, business appears to be slowing slightly compared to the previous two years. And actually, that is a good thing in my opinion. It isn’t always ideal to have consistent very high growth years, and I think we are going through a stable period right now, with moderate growth. The peculiarity of this country is that businesses and operations are not constrained within Lebanon. Your typical large corporation in Lebanon has its network of operations all over the region. If there is a slowdown in the economy here, you still have these businesses operating in the GCC, for example, or in other areas of the Middle East and Africa. Therefore, I am not concerned about the future of the Lebanese economy. The public sector side might affect the growth of our economy. We have the ambition to see certain types of reforms implemented, especially in terms of increased partnership between the public and private sectors and the reduction of the country’s budget deficit. This will help the economy in the long run. Again, this is not a concern, but this is where I would like to see a bit more effort being made.
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