No additional loss provisions
are expected to be taken

Banks have succeeded in covering market risks and improving the quality of their portfolios

Banks are not expected to increase the amount of provisions against losses in 2015 as credit risks are well under control, according to banking experts.

Retail loans amounted to more than $16 billion at the end of 2014, out of the $50 billion total lending portfolio of the financial sector. “The Central Bank (BDL) had considered that this ratio of retail loans is relatively high and could become too risky for banks and borrowers. It had therefore asked banks in 2014 to take extra provisions against possible losses from these loans. This explains why provisions are today as high as they are,” said Mansour Bteich, General Manager at Fransabank. “Banks are expected not to increase their provisions this year as they already meet the BDL’s requirement and have also managed to reduce their exposure to the Syrian market,” he said.

The quality of loans has been affected by prevailing political and security turmoils in the region. “Banks have reacted quickly to the crisis and reduced their assets in turmoil countries, in order to protect depositors and shareholders,” said Bteich.

Over the past few years, banks have continued to improve the quality of their loan portfolios and to take provisions against doubtful loans. The ratio of doubtful debts over net total loans is low, according to the Association of Banks (ABL). It stood a 3.6 percent at the end of 2014, 3.4 percent in 2013, and 3.5 percent in 2012. The percentage of provisions to doubtful debts was almost unchanged over the past three years: 75.5 percent in 2014, 75 percent in 2013, and 74.7 percent in 2012. Doubtful loans are estimated to have been around $4 billion at the end of 2014.

Banks have also expanded their presence in the GGCand Egypt, in recent years. “No major risks are expected to emerge from Gulf countries as they are expected to maintain growth in their economies. This is also applicable for Egypt, where the macro-economic indicators of that country are improving after three years since the revolution of 2011,” said Fahim Mo’dad, Advisor to the Chairman at Blom Bank.

Improving the quality of loans reflects positively on the banking sector. “Banks will prove the soundness of their financial position, get better ranking by international rating agencies and prove to be working by international standards,” said Bteich. “Credit risks are under control now, bearing in mind that risks affecting the quality of loans may be legal, political, sectorial, or individual,” he said.

Mo’dad said that “banks have been less exposed to financing the public sector in the last three years and are far from facing risks.” He said that banks are more likely to maintain the good quality of their loan portfolios as the economy growth is still positive and inflation is low.