Baz: Lebanon to sustain high growth

A leading banker said that the high liquidity in the Lebanese market would allow Lebanon to sustain steady GDP growth in 2010.

“We had $14.6 billion additional deposits in the first 10 months of 2009 and this figure will be $18 billion at the end of this year. This is high liquidity. We are not talking sentiments,” Freddie Baz, the adviser of the chairman of Audi Bank and chief economist, told The Daily Star in an exclusive interview.

He added that even if growth in 2010 occurred at a slower pace, the liquidity is already ample in the system.

Baz added that there is already considerable financial flexibility in Lebanon, as measured by 12 percent Basil two capital ratios, which means that the credit will always be available and the country will witness a new wave of loans to the private sector.

Lebanon is one of the few countries in the world which not only weathered the negative impact of the global credit crunch but also managed to draw a record capital inflow and deposits in the first few months of 2009.
The high liquidity in Lebanese banks, coupled with strong measures by the Central Bank has enabled Lebanon to record a growth of 7 percent in 2009, at a time when many Western countries experienced their worst declines in growth.

“I don’t have major concern about the future provided that everything remains equal and this means that the country continues to enjoy stable political and security environment,” Baz said.

He also foresaw major improvement in the macro environment in Lebanon, noting that there is talk that the maturities for 2010 will be replaced with local currencies issues, which would normally translate into more liquidity in the system.

Baz underlined the importance of shifting debt in foreign currency into debt in local currency which would improve the overall rating of Lebanon.

He added that if the above scenario takes place then interest rates in foreign and local currencies would decrease even further.

Baz’ argument has been supported by many economists who believe that a continued decline in interest rates will automatically reduce the cost of debt servicing, which has represented the largest spending item in the government’s budget for more than 14 years.

He was also encouraged by the last visit of Prime Minister Saad Hariri to Syria that helped relax the political atmosphere in the country.

“We had a very good year in terms of tourism and remittances. If these things had happened during turbulent years in the world then I don’t see why we should not have similar if not higher growth in the number of tourists and remittances,” Baz said.

He also said that the current high liquidity in the Lebanese market is sufficient to extend loans to the private sector next year, even if inflows fell.

Citing projections from the World Bank and the International Monetary Fund, Baz said the economic outlook for the world and the MENA region would be better than 2009.

Baz was also upbeat about the growth of Lebanese banks in terms of deposits and profits, despite the fact that interest rates on deposits have fallen.

He added that some of the leading US banks which have filed for bankruptcy have defaulted because of lack of liquidity and not solvency

“They failed because they only had private capital but not enough liquidity.”

He added that the banks’ financial standing is improving, profits are increasing and “we are benefiting from growing lending to the private sector.”

However, Baz emphasized the importance of paying more attention to creating jobs and increasing the size of per capita in Lebanon in order to induce the real and not only the nominal economy to grow at a faster pace.

He said that local banks have adopted a series of measures such as reducing the cost of deposits and more importantly, they have engaged in dramatic cost-cutting steps.

As for Bank Audi’s overall performance, Baz said that the bank is continuing in the same two-fold approach.

“Further consolidating and strengthening our very important domestic franchise which allowed us to be a stronger number one bank in Lebanon. We are still focusing on drawing more customers and accounts in Lebanon.”

Baz added that Audi’s total assets have now reached $4.4 billion bigger than the second largest bank in Lebanon.

“We are the biggest employer, biggest lender and biggest tax payer in the country,” Baz said.

As for the second prong of Bank Audi’s approach, Baz said that Audi is expanding its presence in the Middle East with branches in six countries: Syria, Jordan, Egypt, Sudan, Saudi Arabia and Qatar.

“We have managed organically to raise $5 billion in assets from operations abroad and this constitutes 20 percent of total assets of Audi Bank,” Baz said.

He also voiced support for mega mergers among the top five banks in Lebanon, stressing that if two of the top five banks in Lebanon merged then the newly created bank would be among the 10 top banks in the MENA region.

- Daily Star