Tuesday 11, July 2017 by Georgina Enzer

Lebanon’s Byblos Bank will benefit from European Investment Bank Long-Term Funding

On 30 June, European Investment Bank (EIB, Aaa stable) Vice President Dario Scannapieco announced a euro 265 million line of credit for four Lebanese banks, with Byblos Bank (B2 negative, b21 ), the third-largest commercial bank by deposits, receiving around 40 per cent of the total credit line.

The  euro 100 million, 10-year loan agreement is Byblos’ fourth and largest agreement with EIB. The agreement is credit positive for Byblos Bank.

The new EIB credit line will diversify the bank’s funding structure, extend the duration of its liabilities to better match its assets, and diversify its balance sheet and revenue sources. As with its domestic peers, Byblos Bank’s liabilities are short-term in nature and finance long-term assets, which leads to maturity mismatches. Borrowings from developmental institutions are less confidence sensitive and therefore a more stable source of funding than market funds.

According to Scannapieco’s statement, the credit line will be used to lend to mid-cap companies and small and midsize enterprises (SMEs) in a range of industries such as tourism, healthcare, energy, telecommunications, information technology, higher education and various knowledge-based industries. The banks’ funding to local companies will have maturities of at least two years and can be used to finance capital expenditures and working capital needs. SME and mid-cap loan growth driven by the gradual increase in EIB funding will support the banks’ business generation and improve asset and income diversification. As of year-end 2016, around 50 per cent of Byblos Bank’s assets were invested in Lebanese sovereign-related investments (i.e., government securities, Banque du Liban certificates of deposits and placements) that generated more than 60 per cent of the bank’s interest income and resulted in a high concentration level.

Byblos Bank’s Interest Income as of Year-End 2016 Byblos Bank’s profitability relies on central bank placements and securities, most of which are sovereign-related. Source: Byblos Bank annual report Credit growth for both the Lebanese banking system and Byblos Bank has been stagnant at less than 1 per cent during the first three months of 2017. Despite the election of a new president and a cabinet in place, the political and economic outlook in Lebanon is clouded by parliamentary elections, and consensus on economic and fiscal reforms remains elusive. We forecast Lebanon’s real GDP growth at 2.8 per cent in 2017, higher than 2016, but well below the nine per cent average for 2007 to 10. Although the amount of the credit facility is small, it will encourage the bank to lend to the real economy, which in turn will help it diversify its asset base and reduce its exposure to the sovereign. Additionally, lending to SMEs will support job creation and the country’s economic development.

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