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French Version

Bank of Beirut chair readies for another challenging year

Sfeir pins high hopes on lebanon
The chairman says 2004 was marked by tough competition, with many banks

For the chairman of the Bank of Beirut Salim Sfeir, 2005 represents another challenging year for a bank that endured unusual competition in 2004.

The bank made better profit in 2004, but this was not as easy as other years. The bank made a profit of $25.1 million in 2004 compared to $22.1 million in 2003. "The markets have become more competitive in an unprofessional way. Some banks only care about luring customers any way they can. One way to do that is to offer customers higher yields on deposits," Sfeir said. Financial analysts all agree that making a hefty profit and increasing the market share have been the goals of all banks in Lebanon since the country emerged from the chaos of war 14 years ago. After all, competition is part of the capitalist system in all developed countries and in emerging markets. However, this competition among banks here has taken a different twist in the past two years as some banks started to offer higher interest on deposits to attract more customers. "They are offering higher interest rates on the creditor accounts and at rates which they cannot lend they are offering much lower interest rates then the usual borrowing rates," Sfeir explained. Following the success of the "Paris II" conference in November 2002, Lebanese banks started to reduce interest rates on deposits and credits in 2003 and 2004.

But some banks continued to offer tempting rates on deposits that exceed the levels that were agreed upon during meetings organized by the Association of Banks in Lebanon (ABL). Sfeir said no one can prevent a bank from setting the level of interest rates because Lebanon is a free market economy. Banque du Liban and ABL tried to ease the "interest rates war" among some banks through direct talks but not all banks abided by what was a gentlemen's agreement. "ABL cannot force any bank to stick to a certain interest rate," Sfeir said. He said that banks managed to maintain their business ethics at the peak of the civil war. "I don't see why some banks have to offer higher yields on deposits just to win another one percent of the market share. It's simply not worth it."

Sfeir said that the average rate on deposits fell by two percent on deposits and more than three percent on lending after "Paris II." The chairman of the bank also expressed regret that the government did not take advantage of "Paris II" to implement badly needed reforms to reduce the public debt. "The injection of money from 'Paris II' relieved the market and boosted the foreign currency reserves of the Central Bank, but this gesture was not matched by effective measures by the government." The commercial banks, which now have assets of more than $62 billion, granted the Central Bank $3.6 billion in loans at zero percent rates for three years to help the government reduce debt servicing by $360 million a year. Sfeir said that the Central Bank is negotiating with the commercial banks to keep these deposits but at the current market rates.

This means that the government's debt servicing will rise again in the coming years after a considerable fall in 2003 and 2004. Unlike some of the major banks in the country, the Bank of Beirut is not considering, at least in the medium term, expanding outside Lebanon. Sfeir said he believes that Lebanon still has a lot of potential for growth, and added that banks are able to draw more clients. "Expansion is not a diversification of income because any bank which wants to open a branch outside the country must invest more money before this investment finally pays off."

Sfeir said that his bank will start operating in Syria soon because the neighboring country is a natural market for Lebanon. The bank has introduced new products for the retail market and improved and expanded corporate banking. With a market share of more than 8 percent, the Bank of Beirut has assets of more than $3 billion, making the bank one of the top five leading banks in Lebanon. The bank acquired several medium-size banks over the past five years and thus increased its market share. However, the bank has no plans to acquire or merge with another bank soon. Despite the Sfeir's remarks about the level of competition among banks, the chairman is still pinning high hopes on the country's future. "This market is our natural domain and we are here to stay," Sfeir said.

Beirut 10-01-2005
Osama Habib
The Daily Star

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