Lebanon banking sector crumbles amid a deepening economic crisis

Lebanon banking sector crumbles amid a deepening economic crisis
The Lebanese banking sector has been marred with corruption and fund misappropriation allegations, and many knew this was coming. (AFP/File)
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Updated 10 April 2022

Lebanon banking sector crumbles amid a deepening economic crisis

Lebanon banking sector crumbles amid a deepening economic crisis
  • Court ordered in March that the Lebanese Customs administration to prevent six banks from sending money abroad

RIYADH: The recent Lebanese court order restricting lenders from moving money abroad is the fallout of deep rot long building in the banking sector. This comes on the back of the country’s mounting debt amidst the deteriorating economic condition – the crisis that many blame on Lebanon’s corrupt political class and the government which defaulted on repaying the debts to banks.     

On March 24, Lebanese judge Ghada Aoun ordered the Lebanese customs administration to prevent six Lebanese banks from sending money abroad. The banks targeted were Bank of Beirut, Bank Audi, Creditbank, Bankmed, SGBL and Blom Bank.

“Lebanese banks are technically broke, but until this moment, they aren’t legally so,” said economist Roy Badaro in an interview with Arab News.

He explained that the word ‘illiquid’ might be more appropriate as no one really knows about banks’ possible undeclared assets. In addition, no Lebanese bank has so far officially declared bankruptcy. 
Badaro said banks are in denial of their situation. “Their main issue is that they were lured by the unhealthy profits offered by the government to finance its debt. Meanwhile, they abstained from financing the economy,” he pointed out.


 
Liquidity crisis

As the Lebanese government is embroiled in massive corruption charges, the state has amassed over a $90 billion debt that it is no more capable of paying, which in turn affected the liquidity of banks.

The banking sector responded to the asset freeze with a two-day strike on March 21 and 22. This might be repeated if more pressure is placed on the banking sector, warned a banking source on condition of anonymity Judge Aoun is a close ally of President Michel Aoun, who is demanding a forensic audit of the Lebanese central bank, in the wake of Lebanon’s default on over a $90 billion debt as a fallout of state mismanagement and corruption.

Ironically, Aoun’s party has been in power for the past decade and exclusively handled the electricity portfolio. Experts believe the latter accounts for over 40 percent of the debt. Industry observers tracking the development fear the banking sector’s insolvency crisis that has been triggered by the state’s failure to meet its debt payments is expected to worsen with time. The sector will further unravel, with banks having to shut down possibly. 

Judge Aoun had previously frozen the assets of these banks, including members of their boards. The judge is in the process of investigating transactions they undertook with the country’s central bank.

Additionally, Judge Aoun issued travel bans against the heads of the boards of these banks.

While the banks are facing the heat now and are being blamed for the current economic crisis, industry observers believe that the country’s corrupt political class should take the blame as it failed to discharge its duties and responsibilities. 

“The political class is attempting to divert attention from its failings prior to the (May parliamentary) elections. They want to show that they are doing something by making the banking sector their scapegoat,” said one of the bankers whose assets have been frozen, on condition of anonymity, in an interview with Arab News.

Lebanon will hold its first post-uprising parliamentary elections in May. In October 2019, Lebanese rose and protested against Lebanese political parties’ corruption. 

“If the authorities implemented official capital controls measures, we would not be in the current quagmire of lawsuits, asset freeze, and other judicial decisions,” said Nassib Ghobril, chief economist at Byblos Bank, in an interview with Arab News.

One of the main aims of a capital control law is to ensure equal treatment to all depositors, he underscored. The capital control law will additionally limit preferential treatment that non-resident and well-off depositors can afford by retaining lawyers at elevated costs. At the same time, local judicial decisions discriminate against the other depositors by giving advantage to one over many, added Ghobril.

Banking sector to shrink 

Previous market dynamics allowed for the existence of 47 commercial banking groups, he said, adding that the market forces will determine the future number of banks in Lebanon. 

Ghobril feels that the outlook of each bank will be decided by the plan for solvency and liquidity and the business model that banks will submit to the central bank.

In turn, the authorities will put certain criteria for recapitalization, which will determine which banks will continue and which banks will exit the market.
Badaro believes nonetheless that only a few banks will survive.

“As we foresee a GDP of less than $30 billion in the next five years, and as the ratio of banks assets to GDP would be around 100 percent, this means we will end up having 7 to 12 banks,” he emphasized.

The sector’s role will also evolve. In his opinion, its main functions will be focused on trade financing and short-term loans in small amounts.

According to figures provided by Badaro, banks currently possess an estimated $4 billion, which means that for most depositors, money cannot be accessed.

The government and central bank estimated the financial gap at $69 billion, or what they consider as the “losses,” specified Ghobril.

What was leaked to the press is that 74 percent of this amount will have to be borne by depositors and commercial banks, while the state and the public sector escape without assuming any part of the burden, he added.

“This is absurd, as it is the abuse of power, the mismanagement of the public sector, and the mismanagement of the ensuing crisis that led to the current state of the Lebanese economy and banking sector,” said the Byblos Bank economist.

Therefore, Ghobril warned that the state should assume most of the burden of the losses, not depositors, “as putting the burden on depositors will lead to a long-term loss of confidence.”


Saudi commercial banks’ June consumer loans rise 13% to $118.9bn

Saudi commercial banks’ June consumer loans rise 13% to $118.9bn
Updated 08 August 2022

Saudi commercial banks’ June consumer loans rise 13% to $118.9bn

Saudi commercial banks’ June consumer loans rise 13% to $118.9bn
  • Share of consumer loans in total bank credit falls to 19.9 percent, data shows

CAIRO: Consumer loans of Saudi commercial banks increased 13 percent to SR445.8 billion ($118.9 billion) on June 30, 2022, compared to SR394.2 billion on the same day last year, the Saudi Central Bank, also known as SAMA, revealed.

This growth, however, pales in comparison to the 17.4 percent growth between June 30, 2021, and June 30, 2020, the data pointed out.

Moreover, the share of consumer loans in total bank credit has fallen to 19.9 percent on June 30, 2022, the lowest share percentage on record, data compiled by Arab News revealed. 

It is worth mentioning that consumer loans do not include real estate financing, finance leasing and margin lending, according to SAMA. 

From June 2017-2022, consumer loans have had a positive trend: The value grew 0.5, 0.6, 5.3, 17.4, and 13.1 percent year on year, respectively. The consumer loans stood at SR315.1 billion on June 30, 2017.

According to SAMA, 90 percent of consumer loans fall under the “other” products category.

The balance of consumer loans to finance “other” products increased 19 percent to SR402.3 billion on June 30 this year from SR338.2 billion the same day last year.

The remaining 10 percent is distributed among renovation and home improvement, vehicles and private transport, furniture and durable goods, education, healthcare, tourism and travel.

FASTFACTS

• Renovation and home improvement, which makes up 3.4 percent of the 10 percent, saw a 31.4 percent decline to SR15.2 billion on June 30, 2022, from SR22.2 billion a year ago.

• Car loans experienced a 20.6 percent year-on-year decrease from SR15.5 billion to SR12.3 billion during the period under study.

Renovation and home improvement, which makes up 3.4 percent of the 10 percent, saw a 31.4 percent decline to SR15.2 billion on June 30, 2022, from SR22.2 billion a year ago.

Moreover, car loans experienced a 20.6 percent year-on-year decrease from SR15.5 billion to SR12.3 billion during the period under study.

Furniture and durable goods underwent a 31.1 percent decrease from SR12.6 billion to SR8.7 billion over the same period. In contrast, education loans grew by 33 percent to SR5.9 billion.  

Looking at consumer spending during the first half of 2022, the total value of point of sale transactions grew 12.9 percent year on year, reaching SR271.2 billion in June year-to-date compared to SR240.3 billion over the same period in 2021, SAMA data stated.

The most significant change in POS value between the first half of 2021 and 2022 was in “miscellaneous goods and services,” which grew 42.6 percent from SR19.7 billion to SR28.2 billion during this period.

“Others,” which makes up 21.2 percent of the total value of POS transactions in the first half of 2022, the highest share for a category, surged 33.6 percent from SR42.7 billion in the first half of 2021 to SR57.1 billion in the first half of 2022.

Food and beverages, another component that exhibits a prominent share of 14.7 percent in POS sales, showed an increase of 14.8 percent from SR35.8 in June year-to-date last year to SR41.0 billion in June this year.

On the other hand, restaurants and cafes increased 31.4 percent from SR28.3 billion in the first half of 2021 to SR37.2 billion in the first half of 2022.


Dubai real estate market records $435.6m in real estate transactions

Dubai real estate market records $435.6m in real estate transactions
Updated 08 August 2022

Dubai real estate market records $435.6m in real estate transactions

Dubai real estate market records $435.6m in real estate transactions
  • Market saw 376 sales transactions worth 897.38m dirhams

DUBAI: According to data released by Dubai’s Land Department, the Dubai real estate market recorded transactions worth over 1.6 billion dirhams ($435.6 million), Emirates News Agency reported.

The market saw 376 sales transactions worth 897.38 million dirhams, 122 mortgage transactions worth 704.22 million dirhams, and 13 gift deals worth 23.3 million dirhams.

Villas and apartments worth 602.04 million dirhams and 78 land plots worth 295.34 million dirhams were sold.

On the other hand, mortgages were obtained for 92 villas and apartments worth 226.63 million dirhams and 30 land plots worth 477.59 million dirhams.

 


Saudi Arabia launches program to develop cybersecurity sector

Saudi Arabia launches program to develop cybersecurity sector
Updated 08 August 2022

Saudi Arabia launches program to develop cybersecurity sector

Saudi Arabia launches program to develop cybersecurity sector

RIYADH: Saudi Arabia’s National Cybersecurity Authority on Monday launched the “CyberIC” program to develop the Kingdom’s cybersecurity sector, the Saudi Press Agency reported.

The program aims to develop national capabilities in the field of cybersecurity, localize cybersecurity technology through training.

According to the authority, the first phase of the  program includes several initiatives including training of employees of national authorities, accelerating cybersecurity activities to stimulate the sector, and encouraging the development of national cybersecurity products, services and solutions. 

The program will also see the launch of the second version of the cybersecurity challenge and programs for chief information security officers in cooperation with international universities. The courses will include a set of cyber exercises that take place in a virtual environment that simulates real cyberattacks and incidents.

HIGHLIGHTS

The program will also see the launch of the second version of the cybersecurity challenge and programs for chief information security officers in cooperation with international universities.

It will support more than 40 startups through the cybersecurity accelerator and establish more than 20 startups through the cybersecurity challenge.

Around 10,000 Saudis in the cybersecurity sector will receive support through CyberIC.

More than 5,000 Saudis will be trained through advanced cyber exercises.

The initiative is based on six main tracks: Innovation and entrepreneurship, cybersecurity officers, cybersecurity trainers, fresh graduates, cybersecurity specialists, and law enforcement agencies. 

The first phase of CyberIC seeks to raise the number of cybersecurity startups in the sector by assisting more than 60 national companies. The program will support more than 40 startups through the cybersecurity accelerator and establish more than 20 startups through the cybersecurity challenge. 

In addition, around 10,000 Saudis in the cybersecurity sector will receive support through CyberIC, including more than 1,500 beneficiaries in national authorities; 150 cybersecurity officials, who will be offered leadership skills training; and more than 5,000 Saudis will be trained through advanced cyber exercises.


Goldman sees strong case for higher oil prices despite negative shocks

Goldman sees strong case for higher oil prices despite negative shocks
Updated 08 August 2022

Goldman sees strong case for higher oil prices despite negative shocks

Goldman sees strong case for higher oil prices despite negative shocks
  • The investment bank kept its 2023 outlook of $125 unchanged

BENGALURU: Goldman Sachs said the case for higher oil prices was still strong with current supply shortfalls well above its expectations in recent months, despite a recent retreat led by factors including global recession concerns.

The market will remain in unsustainable deficits at current prices and balancing it will still require “demand destruction on top of the ongoing economic slowdown,” the investment bank said in a note dated Aug. 7.

Oil prices hovered near multi-month lows on Monday, pressured by lingering worries about an economic slowdown.

Goldman said a divergence between benchmark Brent prices, which averaged $110 a barrel in June and July, and the corresponding Brent-equivalent global retail fuel price of $160 per barrel was not enough to trigger enough demand destruction to end the supply deficit.

“The unprecedented discount of Brent prices, even wider than we expected, can be explained by the worsening Russian energy crisis, as it boosts the costs of transforming crude out of the ground (Brent) into retail pump prices around the world through surging EU gas prices, freight rates, USD and global refining utilization,” it said.

Goldman trimmed its Brent price forecasts for the third and fourth quarters to $110 and $125 a barrel, respectively, versus previous forecasts of $140 and $130. It kept its 2023 outlook of $125 unchanged.

The investment bank forecast US retail gasoline and diesel prices to rebound to $4.35 and $5.50 per gallon, respectively, by the fourth quarter and average $4.40 and $5.25 in 2023.

“We forecast that US retail fuel prices will rally into year-end then decline from 2Q23 onward as refining and marketing margins start to normalize,” Goldman said.

The US average retail gasoline price hit a peak of $5.02 a gallon in mid-June, data from the American Automobile Association motorist advocacy group showed. 


Flush with cash, Pfizer buys Global Blood Therapeutics in $5.4bn deal

Flush with cash, Pfizer buys Global Blood Therapeutics in $5.4bn deal
Updated 09 August 2022

Flush with cash, Pfizer buys Global Blood Therapeutics in $5.4bn deal

Flush with cash, Pfizer buys Global Blood Therapeutics in $5.4bn deal
  • Pfizer’s 2021 revenue of $81.3 billion was nearly double the mark from the previous year, due to COVID-19 vaccine sales.

LONDON: Pfizer Inc. on Monday agreed to pay $5.4 billion in cash for sickle cell disease drugmaker Global Blood Therapeutics, as it looks to capitalize on a surge in revenue from its COVID-19 vaccine and treatment.
Pfizer will pay $68.50 per GBT share, which represents a 7.3 percent premium to its Friday closing price. The deal is at a more than 40 percent premium where GBT was trading before the Wall Street Journal reported that Pfizer was in advanced talks to buy it on Thursday.
Pfizer’s 2021 revenue of $81.3 billion was nearly double the mark from the previous year, due to COVID-19 vaccine sales. With the addition of its COVID-19 antiviral pill Paxlovid, Pfizer is expected to generate around $100 billion in revenue this year, but sales from both products are expected to decline going forward.
Pfizer has been on the lookout for acquisitions that could bring in billions in annual sales by the end of the decade.
“We have very deliberately taken a strategy of diversification in our M&A deals,” Aamir Malik, Pfizer’s top dealmaker, said in an interview. He said the company was focused on improving growth for the second half of the decade, rather than large deals that generate value through cost cuts.
“We think that there are opportunities across all therapeutic areas that we’re active in,” Malik said, noting that the company was also agnostic about size for future deals.
In May, Pfizer struck an $11.6 billion deal for migraine drug maker Biohaven Pharmaceutical Holding and recently also completed a $6.7 billion deal to buy Arena Pharmaceuticals.
With the acquisition of Global Blood Therapeutics, Pfizer adds sickle cell disease treatment Oxbryta, which was approved in 2019 and is expected to top $260 million in sales this year. It will also pick up two pipeline assets — GBT601 and inclacumab — targeting the same disease.
Pfizer said if they are all approved, it believes GBT’s drugs could generate more than $3 billion in sales annually at their peak.
Sickle cell disease is an inherited blood disorder that affects an estimated 70,000 to 100,000 people in the United States.
GBT Chief Executive Officer Ted Love said that Pfizer’s resources and multinational infrastructure will allow the company to launch Oxbryta in additional markets and boost its uptake.
“We really have no infrastructure outside of that (US and western Europe) and it takes time and money to build out those infrastructures and Pfizer already has all of it,” Love said.
Shares of Global Blood rose 4.5 percent following the deal announcement.