Old Ties, New Directions

Bank Misr Liban (BML) has been in the Lebanese market for a long time. What has been its core customer base over that time?

BML was established in 1929 by Bank Misr Egypt and a number of leading businessmen in Lebanon and Syria, and set up branches in Beirut, Tripoli, and Damascus. When the United Arab Republic was formed in 1958, banking institutions in Egypt and Syria merged, and so the branches of Banque Misr in Syria became Bank Misr Egypt, and Banque Misr Syrie Liban became Banque Misr Liban, incorporating the Lebanese network. The bank was one of the major players in the market from 1929 until the early 1980s. Its customer base encompassed the largest companies and commercial enterprises, as well as the leading families in Lebanon and Syria, as well as high-net-worth individuals.

How has BML looked to modernize itself as a sector player?

The whole banking sector needed to adapt during the civil war. From the early 1980s to 2007, the bank developed slowly. Egypt went through economic reform and privatized all the banks except Banque Misr, Banque du Caire, and the National Bank of Egypt in 2005. Nonetheless, it was decided to make Banque Misr a private company with shares owned by the government, thus giving it the ability to restructure the bank completely. In 2007, it was decided to develop the bank’s external network. I was recruited to restructure and upgrade Banque Misr Liban and return it to its position as a major player on the Lebanese market. At the beginning of 2007, there were no computers, telephones, or English-speaking employees in our branches. A major reorganization, refurbishment and modernization program has been implemented since then, guided by a new board of directors and implemented through the recruitment of a skilled and experienced management team. The result is that BML is now completely on par with its competitors.

What has BML done to reassess its branch strategy?

Originally, the bank had only five branches in Beirut. BML today has 15 branches across the country, but we are expanding the branch network gradually and will have 18 branches by the end of 2011. We have a strong presence in the regions, but fewer branches in the suburbs of Beirut and we are working to correct that. Economically speaking, 80% of Lebanon’s GDP is produced in Beirut and its suburbs, with 20% coming from the rest of the country. This is why we are planning additional branches in Beirut and its suburbs as well as relocating some existing ones into more rapidly growing urban areas and commercial areas.

How is the banking sector making use of the high levels of liquidity?

The banks in Lebanon are facing a problem with regards to the use of the growing inflow of deposits because of the limited lending and investment opportunities on the local market, particularly taking account of risk management guidelines. We are looking for opportunities to finance more projects, and one of the more promising sectors remains the real estate development business and housing loans. There are also good opportunities in tourism projects, trade finance, and some industrial projects.

What is BML’s level of loan activity?

We are always on the lookout for good projects and lending opportunities to expand our loan portfolio, but we are not able to provide as much finance as we would like because we might end up taking on too much risk. It is easy to get funding, but that means you have to be selective and vet all operations before investing these funds.

BML was part of a number of Lebanese banks that financed the purchase of Medgulf Insurance. What was the magnitude of this deal?

The deal is important. Medgulf was a company owned by LFZ Holding and Saudi Oger. They decided that one party would have the choice to buy or sell to the other party. LFZ Holding decided to acquire the whole company and asked a group of banks headed by Deutsche Bank in Dubai and Bank Audi to finance and participate in that acquisition. The insurance company, which is number one in Lebanon and number two in Saudi Arabia, was appraised at more than $1 billion. It was a very good deal. Some of the banks were Saudi, but most were Lebanese as Medgulf is basically a Lebanese company.

The Lebanese economy has seen a change in the dollarization rate. What is the country’s reliance on the dollar?

The dollarization rate changed from 63% to 66%. The Lebanese economy is very much dollarized and most transactions can be denominated in US dollars, except for taxes and public sector and most private sector salaries, which are in Lebanese pounds. Any real estate deal is normally done in US dollars, and this has been the case for the last 20 years. This is why Banque du Liban has been promoting the wider use of the Lebanese pound in recent years by subsidizing housing loans and university tuition loans in Lebanese pounds.

What reforms can the government introduce to tackle the debt-to-GDP ratio?

The government has many options for significant reforms to decrease the country’s debt. Many of these options were included in the program of reforms that was initiated to comply with the Paris I, II, and III requirements, but are still far from being completed. We have many sectors that need to be privatized, including the national airline company, Middle East Airlines. It is publicly owned because this company faced so many problems and the government had to ask Banque du Liban to take it over. We have to look to restructure our energy sector and we have to privatize the fixed and mobile phone networks because it is abnormal for these to be owned by the government. The private sector has proved that it can successfully manage these operations.

How is BML, as part of the finance sector, maintaining its prudential nature?

The banking sector has proved to be quite immune to adverse developments in Lebanon and the region. The sector has faced many problems, but is still dynamic, sound, and profitable. We are among the leading countries in applying Basel III requirements. If you look at the accounts of our bank for 2010, it’s clear that we have prematurely met international standards. I know that by 2013 we will satisfy tier-one capital and shareholder equity guidelines. There are continuing discussions between banks and the Banking Control Commission at the Banque du Liban to speed up the implementation of all Basel II and III requirements. Immunity in the end is a matter of organization, and prudential rules have to be part of the setup of an institution and its culture.