Lebanons banking sector started the year with a somehow satisfactory performance, as suggested by its main activity growth indicators, with bank deposits rising by US$ 1.7 billion and bank loans increasing by US$ 1.1 billion during the first two months of 2012.
But banks operating conditions continue to be tough amidst an atypical domestic and external operating environment characterized by pressures on spreads and margins, slow fee income growth generation and growing provision requirements as a precautionary measure facing regional developments spillovers.
As a matter of fact, bank deposits rose from US$ 115.7 billion at end-December 2011 to US$ 117.4 billion at end-February 2012, a growth of 1.5%, against a net contraction in the same period of last year and a 1.0% growth in the corresponding period average of the past 5 years. The rise in deposits in the first 2 months of 2012 is mainly driven by the rise in resident deposits which grew by US$ 1.1 billion, while non-resident deposits rose by US$ 0.6 billion. The breakdown by currencies suggests a rise by US$ 924 million in LP deposits and a rise by US$ 778 million in FC deposits, thus slightly contracting the deposits dollarization ratio from 65.9% in December 2011 to 65.6% in December 2012.
On the back of continued significant financial flexibility with loans to deposits ratio not exceeding 34.4%, banks extended new waves of credit to the private sector by 2.7% over the first to months of 2012 (2.2% in the 2011 corresponding period). Lending was mainly in foreign currency which accounted for 81% of the new bank lending. It was also mainly tied to non-resident loans (US$ 715 million) and which accounted for 67% of the new bank lending. Such new private sector loans are providing a support to the economy on one hand but also alleviate somehow the adverse effects of the negative carry on primary liquidity of Lebanese banks on banks interest margins at large.
The improvement in banking growth comes within the context of a relative amelioration in aggregate demand growth. The Lebanese economy reported a relative improvement in the first quarter of 2012, yet without resuming the buoyant performance that was prevailing prior to the regional turmoil and the domestic political tensions of the past year. Real sector indicators reported indeed an improvement relative to the low base of the first quarter of 2011, suggesting an overall performance relatively in line with the IMF full-year real growth forecast and which stands at 3.5% for 2012.