Blom Bank, Lebanon's largest lender by assets, expects a 50 per cent growth in profitability of its Egyptian operations, which will offset a projected decline in the earnings of its network at home, the chairman said.
"Blom is blessed that we have outside presence and our oversees operation, especially in Egypt. [It] is growing very fast and the profits are increasing in a good manner," Saad Azhari told The National at the World Economic Forum in Jordan. "We hope that the decrease in profits in Lebanon can be compensated by the increase of profit in other countries in the region. Our bank is expecting to see double-digit growth [there], maybe profits will be 50 per cent more than last year."
North Africa's largest economy suffered major setbacks due to political turmoil in 2011, causing economic contraction, increase in capital outflows and higher inflation. However, in line with an International Monetary Fund assistance programme, the country continues to implement widespread reforms that helped the economy rebound to 5.5 per cent growth last year and may push expansion to 6 per cent this year.
“We are growing very fast there, we are opening new branches we are growing our lending portfolio in retail, [to] SMEs and corporates,” said Mr Azhari. “We see big potential for us in Egypt and we will be pushing very hard to grow there.”
Blom Bank aims to boost its network of 41 branches in Egypt by seven additional outlets over the next 12 months, as it also continues to invest heavily in digital banking, he said.
Although the bank is lowering its costs across its entire network, it is not decreasing its physical presence because of the pivot to digitisation as some lenders are doing elsewhere in the Arab world.
Blom Bank registered a 35 per cent increase in digital transactions last year across its network in Lebanon.
“It’s for the first time last year that physical transactions are starting to come down, I guess with the younger population they prefer to deal digitally, so there is a shift. We stopped opening new branches, but we are not thinking of closing branches,” Mr Azhari said.
Blom Bank, which reported a 5.2 per cent increase in net profit last year to $510.4 million, will likely post a similar result in 2019, Mr Azhari said.
“In terms of balance sheet growth, we expect single-digit growth and in terms of profit our aim is to be able to keep the same level if we can, which is going to be very challenging,” he said.
Mr Azhari expects the profitability of Lebanese banks to drop this year from 2018 due to a slowdown in the economy and increased taxation of lenders in the country, which he said contributed to a 15 per cent decline in the profit of all banks in Lebanon last year.
“This year it’s expected to have even a higher decrease in profits,” he said.
Blom Bank, which once operated in Syria, is unlikely to venture back until there is a comprehensive political settlement that removes sanctions on Damascus and ushers in stability.
“Effectively we have written off our investment in Syria. First and the most important thing for us is to have the sanctions removed, when the sanctions are removed then we can think of re-entering the Syrian market,” said Mr Azhari.
The war-torn country has potential in the long term but it is unlikely there will be immediate major reconstruction, he said.
“I don’t expect things to change very fast,” he said. “Our main concern now is that the new Lebanese government does the right reforms, lowers the budget deficit, grows the economy and benefits from the Cedre conference where there is $11bn waiting for them to be used to strengthen the infrastructure of Lebanon and move the growth higher.”
Donors from various countries pledged at the Cedre investment conference in Paris in April last year to provide Lebanon with more than $11bn in soft loans to mainly fund infrastructure projects. The aid is linked to reforms, which include lowering the fiscal deficit by 1 percentage point annually over five years, among other measures.
Lebanon has the third-highest debt to GDP ratio in the world at about 150 per cent. The country is struggling to control finances as a result of the ballooning public debt that reached $85bn at the end of last year due to anaemic economic growth and the strain from hosting over a million Syrian refugees.