Blom Bank's cautious approach is a winner

Lebanese lender leads peers in returns on equity and assets

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Blom Bank deploys its money very carefully but also very effectively. The Lebanese bank decided several years ago not to compete with foreign banks in the corporate loan space and instead invest in securities, in search of higher returns. The strategy worked: for the five years ending in 2008, the bank had a loan-to-asset ratio of 20 per cent versus the sector average of 23 per cent, and a loan-to-deposit ratio of 22 per cent versus the sector average of 28 per cent.

But Blom also has the highest return on equity and assets, and highest net interest margin among the biggest listed banks in Lebanon. Janany Vamadeva, a senior analyst at HC Brokerage in Dubai, said the bank also held a healthy portfolio of retail loans, adding to its margins. Ms Vamadeva has a "buy" rating, with a price target of US$115. The shares closed yesterday at US$86.7. The Lebanese lender generated an average return of 20 per cent on equity over the five years to 2008 versus the sector average of 15 per cent.

Blom owes much of its profitability to cost-control initiatives, which brought the cost-to-income ratio down to 43 per cent last year. Ms Vamadeva expects it drop to 39 per cent by 2014. The bank's main competitors, Bank Audi and Byblos Bank, are at 45 per cent and 43 per cent, respectively. Blom is the second-largest bank in Lebanon, with market capitalisation of US$1.9 billion. It is listed on the Beirut and London stock exchanges and its major shareholders include the Bank of New York Mellon, which holds a 34.4 per cent stake.

Blom is the only bank in its sector enjoying strong loan recoveries, which has enabled it to avoid provisioning for non-performing loans.