BLOM BANK has maintained the position of an industry leader in Lebanon for quite some time now. With customers requiring a range of different banking options, as well as unpredictability remaining a stubborn fact across the world, Saad Azhari, Chairman and General Manager of BLOM BANK tells The European just how they are dealing with change and uncertainty.
In what is proving to be a tough year in the region, how does the bank assess its performance in 2019?
Saad Azhari: BLOM BANK’s performance has been relatively good, given the difficult operating conditions facing the Lebanese banking sector, as characterised notably by higher taxes, lower interest margins, and a severe economic slowdown. Net profit stood at $238.71m at the end of June 2019, lower by only 2.09% from the same period in 2018. The bank was almost able to fully compensate for its falling profits in Lebanon by higher profits from its overseas operations, especially in Egypt and the UAE. This net profit level implied the highest profitability ratios among listed banks, with the rate of return on average assets reaching 1.27%.
Also, the performance of the bank’s balance sheet aggregates was adequate. Assets increased to $38.53bn, up by 11.35% from the end of June 2018; customers’ deposits rose to $28.14bn, higher by 3.86%; shareholders’ equity climbed to $3.27bn, up by 8.63%; while loans to customers settled at $6.66bn, down by 10.46%. BLOM BANK managed additionally to score strong financial and managerial indicators. This is reflected in its capital adequacy ratio of 20.8%; its primary liquidity ratio of 85.36%; its coverage ratio of non-performing loans including real guarantees of 157%; and its cost to income ratio of 35.85%, the lowest among listed banks.
What are the primary measures required to help the Lebanese economy achieve sustainable growth?
SA: I think the economy’s main structural weakness is its twin deficits: large and chronic budget and current account deficits. And taking care of these deficits can largely lead to strong and sustainable growth. The budget deficits require structural reforms to ensure fiscal sustainability and to scale back the public sector, primarily reforms to the public pension system, to stopping tax evasion, and to better governance in public enterprises including privatisation. The 2019 budget and the electricity plan were steps in the right direction, but more is needed along the lines I have just summarised. As to current account deficits, the major reason behind them is the huge trade deficits: large imports compared to little exports. This calls for reforms that increase the productive capacity of the economy and enlarge output and employment. Prime among these reforms are industrial and trade policies that increase exports and substitute for imports; and investment policies that improve the investment climate and ease doing business. And a very good place to start is implementing the major tenets of the “McKinsey Report”. Not only will reforms lower risk and interest rates and increase investments accordingly, but they will also strengthen monetary and external stability by reducing balance of payments deficits and saving if not accumulating foreign reserves.
How important is CSR to BLOM BANK?
SA: We take sustainability and corporate social responsibility (CSR) very seriously at BLOM BANK. It is an important part of the bank’s mission, and the bank has led a pioneering role in these areas. Four notable programmes stand out. First, the BLOM-MasterCard “Giving” Card that is designed to contribute funds to removing mines and cluster bombs in Lebanon and it is the first of its kind in the world. So far, it has removed 300,000 mines over an area of more than 218 square kilometres and planted trees and greenery in their stead. Second, is “BLOM Shabab”, which is an extensive online programme that provides graduating students with guidance on how to best pursue their university and career goals; more than 400,000 students have benefited from the program. Third, is the BLOM-Beirut Marathon, which is the largest sports activity in Lebanon, and is one of the most recognised marathons in the region. More than 45,000 runners participate in this annual event, supporting more than 200 social, humanitarian, and cultural causes. Fourth, is the Hult Prize, which is an annual competition for projects with wide social benefits. The bank provides a prize of $250,000 to the winner, helping the winning project to move to a startup phase and beyond, and supporting in the process the entrepreneurial spirit in the country.
How is Lebanon changing, and how does BLOM BANK plan to continue providing for its Lebanese clients through this period of transition?
SA: I think the country is changing constantly and my hope is that it will change for the better. At least two important changes are noteworthy. The first is that the country has to scale back its public sector and employment and put its fiscal finances in order. This will give the private sector its leading role in the economy, a role that it had played quite successfully in the past. The second is that the economy should increase and widen its productive base, including potentially those from oil and gas, so as to reduce its external imbalances, in particular its trade deficits. Of course, there is also the change towards a more digital-based economy.
As to how BLOM BANK will help through these transitions, I can say that the bank will be more active in funding worthy private sector projects, including for those companies involved in “cedre” projects and in oil and gas explorations. And the bank is already active in IT funding, through BDL’s 331 initiative, having invested about $50m from its own capital in “knowledge economy” startups. Equally important is the bank’s steady transformation into a digital bank, constantly modernising and expanding its digital banking products and services and spreading its use among its client base.
What gains does BLOM BANK hope to have achieved in five years?
SA: It is not easy to project performance and achievement five years into the future, especially in this part of the world that is liable to frequent but unexpected political and economic shocks. All I can say is that the bank will try its best through its measured vertical and horizontal expansion strategies to be a leading bank in the region. More concretely, this means increasing the contribution of its foreign operations to around 50%; executing a successful digital transformation policy; participating effectively in the structural change of the Lebanese economy; and keeping its continuous flow of innovative banking and financial products.