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MarketScreener Homepage  >  Equities  >  SAUDI ARABIA STOCK EXCHANGE  >  National Commercial Bank SJSC    1180   SA13L050IE10

NATIONAL COMMERCIAL BANK SJSC

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Globe-trotting Lebanese lenders face toughest test at home

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10/25/2019 | 10:24am EST
An ATM is covered with metal sheet outside a closed Bankmed branch in downtown Beirut

LONDON (Reuters) - Lebanon's economic crisis is a litmus test for the resilience and domestic support of its banks as well as their potential for sparking contagion abroad.

Lebanese lenders remained closed for a seventh working day on Friday, with the small, heavily indebted Mediterranean country paralysed as hundreds of thousands of people protest over economic strife, leaving schools and businesses shut.

The government has responded by promising reforms which involve banks stumping up 5.1 trillion Lebanese pounds ($3.4 billion) towards deficit reduction in next year's budget, partly through a rise in tax on their profits.

"These measures should weaken the banking sector as they will cut into their profit margins over the next year," said Natasha Smirnova, portfolio manager at PineBridge Investments, pointing out the levy was just a one off for next year.

Financial services make up 8% of gross domestic product in the country of 6 million. Bank deposits to GDP stand at 243%, the third highest ratio globally after Luxembourg and Hong Kong.

"Banks have an enormous role in government funding, as they are almost their only source of financing, and the cabinet/ central bank will proceed with utmost caution so they do not hurt the sector too much," Smirnova added.

Lebanon's unorthodox "financial engineering" relies on them drawing in FX deposits from abroad by offering high interest rates to help shore up the country's pressurised FX reserves.

Lebanon has 66 registered lenders, with commercial banks holding just over $260 billion of assets, central bank data showed, though a handful of large players dominate.

But while banks in Lebanon have an unusually wide geographic spread due to its estimated diaspora of around 14 million, their closure so far appears to pose relatively little threat to wider financial stability.

The Lebanese have a long history of emigration and settling around the world, with large, mostly Christian, expatriate populations in Brazil and the United States in addition to Shi'ite communities in Africa.

"Lebanese banks have significant operations in the region, but this is mainly through a subsidiary model, where those operations are ring-fenced," said Farouk Soussa, senior economist with Goldman Sachs. "This minimises the risk of financial contagion either way."

Bank Audi - Lebanon's biggest bank by assets - operates in 11 countries including Saudi Arabia, Egypt, France and Switzerland. Its annual report showed that of its total assets of $47.2 billion, nearly 70% came from Lebanon at the end of 2018 compared to just over 60% the previous year.

Its Turkish arm Bank Odea, in which Bank Audi holds a 75% stake, accounted for nearly 13% of assets while Egypt accounted for 8.2%. However, the share of both countries in total assets had declined due to currency depreciation.

"Bank Audi's branches and subsidiaries abroad are stand alone entities and are therefore not affected by the crisis Lebanon is currently witnessing," it said on Friday in response to questions from Reuters.

Blom Bank operates in around 10 countries including Britain and Romania. But of the bank's $36.7 billion of assets at the end of 2018, nearly 83% came from Lebanon, with another 9% from MENA, including Egypt, Jordan and Iraq.

Asked what effect the crisis in Lebanon was having on its branches and subsidiaries abroad, Blom Bank said it had "witnessed an increase in its foreign operations", without giving any further details.

Bank of Beirut in 2011 bought Australia's Bank of Sydney, which offers mortgages, home loans and savings accounts and states on its website that deposits were covered by the Australian Government Deposit Guarantee.

Salim Sfeir, chairman of Bank of Beirut and the Association of Banks in Lebanon said he expected banking operations will fully resume once banks re-opened. Bank Audi said it was servicing and replenishing ATMs, collecting cheques deposited at smart ATMs and "processing emergency requests".

WHENEVER, WHEREVER

Many of Lebanon's lenders focus on banking expatriates rather than being systematically entangled in the financial ecosystems of other nations.

The other factor limiting the potential repercussions of the stresses in the Lebanese banking system is that many western banks have limited exposure to the country, which was shattered by civil war between 1975 and 1990.

It now faces sluggish growth and high unemployment.

"It might make you think of Ireland where banking sector stress will completely bring down the whole economy," said Nafez Zouk at Oxford Economics.

"But Lebanon's banking sector is pretty plain vanilla - it is not risky, there is lot of macro-prudential regulation...it's very, very pure and simple banking."

Of the major western banks, Citigroup remains one of the few with a presence, with 35 staff offering corporate and investment banking as well as trade finance, the U.S. bank's website shows.

JPMorgan has just a handful of people based in Lebanon, who work in Treasury Services, which is part of wholesale payments.

Others have withdrawn altogether.

HSBC sold its Lebanon subsidiary to Blom Bank some two years ago, while banks from other Arab countries have also dialled down their activities.

Some are pointing to cooling relations between Beirut and some of its historic allies such as Saudi Arabia over Hezbollah and the group's growing influence in Lebanon's government.

Saudi Arabia's largest lender, National Commercial Bank, closed its two branches in Lebanon in 2016.

Qatar National Bank, the largest bank in the Middle East, still has operations in Lebanon, yet a spokesman said on the ground it has just one branch with limited business.

"The situation in Lebanon is idiosyncratic and unlikely to have any contagion on emerging markets as we have seen historically with political developments there," PineBridge's Smirnova said.

($1 = 1,505.7000 Lebanese pounds)

(Reporting by Karin Strohecker; Additional reporting by Davide Barbuscia in Dubai; Ellen Francis and Tom Perry in Lebanon, Elizabeth Dilts Marshall and Imani Moise; in New York; Tom Arnold in London; Editing by Alexander Smith)

By Karin Strohecker

Stocks mentioned in the article
ChangeLast1st jan.
BANK AUDI -10.00% 1.89 End-of-day quote.-17.83%
BANK OF BEIRUT 0.00% 18.8 End-of-day quote.0.00%
BLOM BANK SAL End-of-day quote.
DOW JONES AFRICA TITANS 50 INDEX 0.01% 538.28 Delayed Quote.0.23%
HSBC HOLDINGS PLC 0.00% 581.2 Delayed Quote.-1.81%
NATIONAL COMMERCIAL BANK SJSC End-of-day quote.
QNB 0.34% 20.96 End-of-day quote.2.49%
S&P AFRICA 40 INDEX -0.07% 167.44 Delayed Quote.-2.57%
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Financials (SAR)
Sales 2019 19 999 M
EBIT 2019 13 439 M
Net income 2019 10 326 M
Debt 2019 -
Yield 2019 4,68%
P/E ratio 2019 13,9x
P/E ratio 2020 13,7x
Capi. / Sales2019 7,03x
Capi. / Sales2020 6,80x
Capitalization 141 B
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 11
Average target price 49,13  SAR
Last Close Price 47,00  SAR
Spread / Highest target 19,8%
Spread / Average Target 4,53%
Spread / Lowest Target -8,51%
EPS Revisions
Managers
NameTitle
Faisal Omar Al-Sakkaf Chief Executive Officer
Saeed bin Mohammed Al-Ghamdi Chairman
Lama Ahmed Ghazzaoui Head-Finance Group
Anees bin Ahmed Moumina Non-Executive Director
Zaid bin Abdul Rahman Al-Gowaiz Independent Director
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