NECESSARY PROVISIONS

Lebanon 2013 | FINANCE | INTERVIEW

TBY talks to Saad Azhari, Chairman & General Manager of BLOM Bank, on the impact of the Syrian crisis, investment plans, and e-banking development.

Saad Azhari
BIOGRAPHY
Saad Azhari started his banking career in 1986 at PBZ Privatbank, an affiliate of the UBS Group, where he was promoted to run the bank’s operations in the Middle East and Hong Kong. He joined BLOM Bank in Switzerland in 1991 and became the General Manager in 1997. Following success in several other positions within BLOM Bank, he became the Chairman and General Manager.

What have been the milestones for BLOM Bank over the past year?

Frankly speaking, this period was a difficult one for the region. The situation in Syria has been deteriorating and Lebanese banks, including BLOM, have a presence there. Also, almost all banks in Lebanon, even if they lack a Syrian presence, have connections to Syria. Without doubt, the situation there has affected Lebanon in terms of tourism and the broader economy because many tourists, like the Jordanians, come by land, which they can no longer do. Having said that, I would add that the banks were able to absorb the negative effects of the Syrian crisis and are still able to grow, albeit moderately. Overall, the situation has affected negatively impacted provisions due to the reduced growth of the balance sheets once operations in Syria shrank. However, other operations have risen. We simply had a lower growth rate than normal; this is the Syria effect.

BLOM Bank has a strong presence in other countries. How are your international operations performing?

Our business has been improving relatively well in almost all other countries in the region, including Egypt. We are doing better in that country, and recently launched operations in Qatar and Saudi Arabia, albeit with limited licenses. We have been doing well and achieving good results in Saudi Arabia in terms of investment banking, real estate, and equity funds. In Qatar, our operations are also becoming profitable and are growing. These operations revolve around corporate banking licensed under the Qatar Financial Centre, where we offer private and corporate banking. These operations are also expanding. Our asset management business—whether in Lebanon or around the region—has been expanding significantly. We have also been able to grow in all areas of lending in Lebanon, especially in the retail and housing segments, thanks to the central bank's special stimulus package.

How does the stimulus package assist growth and what segments are set to benefit from it?

Many areas will benefit from it, but the biggest effect is on lower- to middle-income housing. Meanwhile the economy overall is probably set experience around 1 percentage point more growth of 2%-2.5% rather than the previously forecast 1%-1.5%.

“ We see great potential for Islamic banking not only in Lebanon, but also in the region. "

How has your product portfolio evolved in recent years?

Our products are always expanding. We have products in all areas: private banking, asset management, and funds. The latest fund we issued is on the Saudi Arabian equity market, and is a new product that is performing very well. We have also launched many new retail products, such as a range of credit cards. We have expanded our activities in all areas, and rank in first or second place in all areas. We are also active in non-traditional areas, such as Islamic banking, where BLOM Development Bank is our Islamic banking unit. We have one branch in Beirut, and opened a second branch in 2012 in Tripoli. We are planning to open a third branch soon.

How is Islamic banking developing in the country?

It is growing. And although it remains of limited scope in Lebanon, its growth is important. In fact, we see great potential for Islamic banking not only in Lebanon, but also in the region. We have a good base here, a good structure, and we can use that in other countries. Islamic banking is becoming increasingly important, especially in the Arab world, which accounts for around 40% of the total worldwide. We foresee major growth potential.

What are some of your short-term investment plans?

We are planning to open two branches in Iraq, one in Baghdad and one in Erbil, by the end of 2013. We are also continuing to expand our network in Lebanon, Jordan, and Egypt—basically, in places where we have a distribution network. For example, in May 2013, I opened a branch in Jordan in the free zone. It was branch number 12 in Jordan. BLOM really controls the retail market. We are by far the number one in car loans in Jordan, with 45% of the market. I think the number two player has a 12% share. Also, in Lebanon, we are the number one in retail credit cards, car loans, and mortgages. Also in Lebanon, we are opening new branches in Beirut and elsewhere. In September 2013, we will open branch number five in Tripoli, the second biggest city in Lebanon. Overall, our branch network is expanding reasonably well in Lebanon.

How would you evaluate the development of electronic banking in recent years?

We always pursue new developments in electronic banking. We have done things that nobody else has, like e-Cash, for example, namely the ability to transfer funds electronically to people who do not have accounts at the bank. BLOM's customers can transfer money over their computer to someone located remotely, for example. You can send them $500 and they can go to an ATM and withdraw it with the code that you give them, even if they don't have an account with us. We have truly pioneered phone and internet banking. We are advanced in IT, and we mostly develop our systems internally.

What was the bank's performance in 2012, and what do you expect for 2013?

We have already published our 1Q2013 results, which revealed improvement over our 1Q2012 results. We are still maintaining the best ratios compared to our peers; we have the highest return on equity (ROE) and the lowest cost to income ratio. Even in terms of absolute profit, we had the highest level among banks in Lebanon, which in turn improved our profitability ratios. We are expecting 2013 to be a good year; however, growth will be moderate.

Where do you see banking in Lebanon in terms of Basel III?

Overall, the level of capital adequacy in the banking sector is already above the 10% level. BLOM is currently at around the 14% level. The banking sector is required to arrive at a level of 12% before 2015, which I think it can achieve. This is a higher level in a shorter period than other international banks have managed to achieve. Also in Lebanon, effectively, almost all of our equity is tier one. The banks here do not issue a lot of subordinated debt, and mostly have tier-one equity, which is the optimum type. I think we are okay in the banking sector, and we have tighter restrictions than have been imposed by the Banque du Liban in terms of reaching these objectives.

How do you envision the banking sector evolving in the near future?

The banks in Lebanon are very resilient and solid. If the situation improves in the country and the region, I think Lebanese banks are going to see a huge improvement and significant growth. If the situation remains tight and difficult as it is now, due to regional and political factors, I think Lebanese banks are set to grow moderately over the next couple of years. Really, nobody can predict what will happen because it is linked to a challenging political environment. If conditions improve and we regain our tourism industry, we can easily see growth of 6%-8%. If matters do not change, however, we might see a rate of just 1% or 2%. Meanwhile, the question of oil and gas has become essential. If there is the political stability to proceed with this, it could give a major boost to the economy. The investments required can definitely have a major impact on the economy, even before we extract the gas. The question is whether or not foreign companies will invest millions of dollars in exploration. Hopefully, we will have a functional government and be able to continue going down this path.