Alpha banks still growing at a slower pace

Tough operating environment puts pressure on assets, loans and deposits

Alpha banks, the first 14 banks with deposits exceeding $2 billion each, have reported a slowing activity this year, according to the Alpha report issued by Bankdata Financial Services.

Consolidated assets grew by 2.6 percent over the first nine months, against 6.6 percent during the same period last year. Domestic assets grew by three percent, while foreign assets rose by 1.1 percent. Out of total activity, 80 percent was tied locally and 20 percent abroad, as of the end of September, the report said.

Two effects are impacting this performance. “Locally, banks have registered a slower pace of growth in deposits this year compared to last year, although this growth remains satisfactory and acceptable, as it’s enough to finance the domestic economy in its private and public components,” said Marwan Barakat, Head of Research at Bank Audi.

Because of a deterioration of major currencies, such as in Turkey and Egypt where Lebanese banks are present, Barakat said that “banks had a slower growth in activity in US dollar terms this year in foreign markets. This influenced assets, loans, and deposits in US dollar terms negatively.”

Deposits grew by 2.6 percent over the first nine months, against 6.3 percent during the same period last year. However, the report said that deposits remain the main driver of growth.

Consolidated loans rose by 1.3 percent up till this past September, against 8.7 percent during last year’s corresponding period, revealing scarce lending opportunities in an increasingly tough operating environment, domestically and regionally, the report said.

The sluggish operating environment did not generate deterioration in asset quality, according to the report. Gross doubtful loans as a percentage of total gross loans stood at 5.79 percent, close to their beginning of year levels.

In terms of profitability, Alpha banks maintained an elevated primary liquidity ratio of 31.6 percent, although declining from its beginning of year level of 33 percent. Alpha banks were able to increase their profit position this year, the report said. Consolidated net profits reached $1,498 million in the first nine months, an annual increase of 9.7 percent, relative to last year’s corresponding period (5.5 percent for domestic profits). The report attributed this result to a rise in the net operating income, outpacing growth in operating expenses.

Return ratios did not improve, despite the rise in net profits. The return on average assets stood at 1.01 percent, while the return on average equity stabilized at 11.52 percent. “These are modest levels when compared to the cost of equity,” said Barakat. “They reflect the tough operating conditions in Lebanon and foreign markets of presence,” he said.