Lebanon 2012 | FINANCE | INTERVIEW

TBY talks to François S. Bassil, Chairman and General Manager of Byblos Bank, on the bank's growing presence in the region, the strength of the sector, and on the seven main tasks facing Lebanon's new government.

Byblos Bank has a growing presence around the region. How is the bank looking to expand its presence overseas, and what are the key signals you follow in establishing international operations?

The Byblos Bank Group has a direct presence in Iraq, Syria, Sudan, the UAE, Nigeria, Armenia, and the Democratic Republic of Congo, as well as in Belgium, France, the UK, and Cyprus through fully owned subsidiaries, branches, or representative offices. Byblos is targeting domestic and regional inorganic expansion should there be any attractively priced targets. Byblos would like to increase its market share in Lebanon to 15% from 10% currently, as well as continue expanding into markets with low lending penetration and high potential.

In 2010, we increased our branch network in Lebanon, Iraq, Sudan, and Syria, and entered our 11th overseas market by acquiring a bank in the Democratic Republic of the Congo. We also attracted two illustrious new names to our list of shareholders: the International Financial Corporation, which is the private sector arm of the World Bank Group; and PROPARCO, the private sector arm of the French government's Agence Française de Développement. In parallel, Byblos Bank continued to build a liquidity profile that independent analysts rank among the very best in the global financial industry.

Are you looking to expand your branch network locally? Which areas of the market are your new branches looking to target?

Byblos Bank has 78 branches in Lebanon, which constitutes the largest branch network of any bank in the country. Byblos has recently opened branches in rural areas that are underserved by banks in order to meet the growing financing needs of these areas as well as to support the economic development of these regions and contain migration to the cities. As in all of our branches, we look to serve SMEs as well as the retail and trade segments.

“In 2010, we increased our branch network in Lebanon, Iraq, Sudan, and Syria, and entered our 11th overseas market."

During the global financial crisis the Lebanese banking sector was seen by many as a “safe harbor" for deposits. What do you think are some of the reasons why Lebanon's banks are considered reliable partners in the global financial industry?

The banking sector remains the backbone of the Lebanese economy, and is profitable, highly liquid, and well capitalized, unlike many banking sectors in advanced and emerging economies. Bank assets are equivalent to about 334% of GDP and deposits equivalent to 274% of GDP at the end of 2010, among the highest such ratios in the world. The banks continue to compete aggressively for corporate and retail clients domestically, while the sector continues its asset diversification strategy by expanding regionally and into emerging markets. The sector has shown its resilience to global financial shocks and proved it can finance the private sector while supporting the public sector needs, at a time when governments around the world have been forced to bail out their banking systems. A main characteristic of Lebanese banks is their sound, experienced, and conservative management, which has helped banks adjust to domestic and external turmoil. So it was not surprising for the Lebanese banking sector to avoid the structured financial products that brought down some of the biggest global financial institutions. As a result, trust in Lebanese banks increased even more during the global financial crisis, which led to massive deposit inflows into the sector. In addition, Lebanese banks will overcome the turmoil in the MENA region, and will not be significantly affected by ongoing developments across the Arab world.

Do non-performing loans (NPLs) represent a major problem in the local banking sector, and what is your bank doing to keep an eye on NPL growth?

Byblos Bank continues to build the quality of its already sound loan portfolio in a number of ways, including a very high coverage ratio of NPLs (by specific, general, and collective provisions and reserved interest) of 154.94% as at end-March 2011. In addition, Byblos Bank continues to show a decreasing trend in the ratio of NPLs to total loans, recording a figure of 2.32% at end-March 2011, down from 2.42% at end-December 2010.

What is your economic outlook for Lebanon over the medium term?

The Lebanese economy grew by an average of 8.4% during the past three years due to domestic political stability, massive capital inflows, and a favorable global and regional environment. However, the Lebanese authorities missed a major opportunity to implement reforms during this period, which would have put growth on a sustainable path. Right now, 2011 looks to be challenging, given the convergence of domestic political uncertainties and regional instability, and growth estimates range between 2% and 3%. However, reforms remain essential to improve Lebanon's economic outlook over the medium term. The new Lebanese government has its work cut out for it on the economic and financial levels. First, it has to put economic and financial issues at the top of its agenda, and take political decisions to serve these priorities. Second, it has to restore consumer and investor confidence after uncertainty and political tensions over several months negatively affected confidence. Third, it has to pass the 2010 and 2011 budgets, given that we haven't had a budget ratified since 2005 and that the recent budgets have been blocked by political infighting. Fourth, it has to commit to implement structural, financial, administrative, and legal reforms that have been on hold for many years. Fifth, these reforms have to lead to reducing the government's borrowing needs in order to put the fiscal and debt levels on a sustainable path. Sixth, it has to improve the investment climate and the business environment in order to improve the competitiveness of the Lebanese economy, which would help create jobs.