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Middle EastMarch 6 2006

Activity on the acquisition trail

Lebanon’s top two banks have boosted profits and set their sights on regional and global expansion, despite political turmoil at home. Stephen Timewell reports.
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As Lebanon faces mounting political and economic challenges and the World Bank proposes urgent reforms, the country’s top two banks, Blom Bank and Bank Audi, are on a roll – agreeing strategic bank acquisitions in Egypt, announcing record 2005 results and making successful stock issues.

Despite months of turmoil triggered by the assassination of former prime minister Rafik al-Hariri in February last year, the banks have managed to weather the storm, boost profits significantly, and make expansion abroad and the prospect of becoming regional players a reality.

Blom, Lebanon’s largest bank, has acquired Egypt’s Misr Romanian Bank at a time when a number of Egyptian banks are changing hands and the government’s bank privatisation process is beginning in earnest. Speaking to The Banker, Saad Azhari, vice-chairman and general manager at Blom, explains the benefits of the acquisition: “The Egyptian market is very promising, it has good potential and the deal gives us eight branches in Egypt along with five branches in Romania.”

After complex negotiations late last year, Mr Azhari managed to outbid First Gulf Bank to take 96.8% of Misr Romanian in a deal worth about $100m. He hopes to build on Egypt’s retail potential and expand the bank’s corporate capability both in Egypt and Romania. He also wants to extend the bank’s international network.

Network of expansion

Besides its 44 branches in Lebanon with four under establishment, Blom has branches in Paris, London, Geneva, Dubai, Sharjah, Cyprus, four in Jordan and six in Syria. Mr Azhari firmly believes that, with the Mashreq and the Gulf opening up, there is an opportunity for Blom to become a regional player. The bank also plans to open a new Islamic bank in Lebanon soon and is looking closely at Algeria.

Mr Azhari’s bullish attitude is based on the bank’s strong performance and strong investor support. According to unaudited 2005 figures, net profits rose 50% to $136.8m and assets were up 10% to $11.9bn, with capital funds rising by 21% to $957.4m. That is a healthy effort for an institution in a country that is struggling against sectarian strife and huge debt, estimated to be more than 180% of GDP.

Capital-raising issue

In February, Blom did a global depository receipts (GDR) issue that raised $276m and was more than three times oversubscribed. The demand came mainly from the Gulf, as expected, but also from international funds specialising in emerging markets – a good sign for the bank. The funds will be used to strengthen capital and for expansion.

Blom’s arch-rival, Bank Audi, is also looking towards Egypt. On January 30, it announced that it had bought 89% of a small Egyptian institution called Cairo Far East Bank and planned to launch a tender offer for the remainder on the Cairo and Alexandria Exchange. The total aggregate purchase price by Bank Audi is put at $94m.

Bank Audi, which acquired Lebanese bank Saradar in 2004, making it the country’s second largest banking group, is also looking for external expansion. It already has a presence in Syria and Jordan and says it wants to start operations in Iraq this year, beginning in Kurdistan. The bank says it has requested an investment banking licence in the lucrative Saudi Arabian market and is looking for regional markets with high potential, such as Algeria, Sudan and Yemen.

Move into Egypt

An integral part of Audi’s expansion strategy is its link with Egypt’s biggest investment house, EFG-Hermes. In January this year, the Central Bank of Lebanon approved in principle

EFG-Hermes’ participation in Bank Audi’s $600m increase in shareholders’ equity to $1.5bn. Under the deal, EFG-Hermes is to pay $450m for a 20% stake in the Bank Audi-Audi Saradar Group.

Raymond Audi, chairman of the group, notes: “We welcome EFG-Hermes’ participation in our capital. We are confident that a strong strategic co-operation will develop between the two institutions in the context of their respective regional development strategies. The increase in our shareholders’ equity to $1.5bn will further strengthen our financial standing and will significantly assist and accelerate our regional expansion strategy.”

Like Blom, Bank Audi posted bullish results. According to unaudited 2005 figures, Audi reported a 48.4% rise in net profits to $106.4m with assets up 9.6% to $11.5bn. Similarly, Byblos Bank saw record net profits in 2005, up 28.5% to $69m, and assets up 8.5% to $7.6bn.

For Lebanese banks, the focus is on external growth and much further afield than just Syria and Jordan.

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Read more about:  Middle East , Lebanon