Capital Intelligence (CI) has affirmed BLOM Bank SAL's (BLOM) Financial Strength Rating (FSR) at 'BBB-', reflecting the bank's strong franchise and liquidity, as well as its cost efficiency and better than sector average profitability.
The FSR is constrained by the rise in the non-performing loan (NPL) ratio, BLOM's exposure to Lebanese sovereign debt, as well as local and regional political risks, and increased concentration to housing loans. The Support Level is affirmed at '3', reflecting the Banque du Liban's (BdL) record of assisting banks and the high likelihood of official support in case of need, given BLOM's systemic importance. The bank's Foreign Currency (FC) Long- and Short-Term Ratings are both affirmed at 'B', as they remain constrained by the Sovereign Ratings of Lebanon. The Outlook on all the Ratings remains 'Stable'.
Over the years, BLOM has consolidated a strong customer deposit franchise, a leading position in a broad cross section of businesses, and a significant footprint within MENA. This has endowed the bank with resilient and diversified sources of gross income. However, in 2013, due to lower income from trading activities and the downward trend in the net interest margin (NIM), gross income growth had weakened despite a sustained increase in core fee income. Given the ongoing economic slowdown and heightened competition in Lebanon, operating profit (before net credit provisions and taxes) could fall in the current year, despite the Bank's very competitive cost structure.
Although non-performing loan (NPL) growth has been contained relative to 2012, and loan loss reserve (LLR) coverage had improved at end 2013, the NPL ratio has risen because of the conservative classification of substandard loans which does not seem to indicate a general deterioration in the portfolio. However, further provisioning could dent net profit and returns, even though BLOM's risk absorption capacity remains the peer group's strongest.
The bank's capital ratios remain strong and provide additional buffers against rising credit risks, although capital remains exposed to translation risk on the Bank's equity investments in foreign subsidiaries.
Liquidity remains comfortable, reflecting the strength of the bank's franchise, a very high share of assets funded by customer deposits and a large component of less expensive CASA accounts. The net interbank asset to customer deposits ratio remains strong, although it weakened slightly. As is the case with other Lebanese banks, liquidity must be viewed in light of the systemic liquidity and interest rate risks which are characteristic of the Lebanese banking system. Lebanon's sovereign debt metrics continued to weaken, but are partly mitigated by the country's external liquidity which remains robust. The security situation in Lebanon has improved since the new Government was appointed in February 2014. However, any political risk event in the region threatening stability within Lebanon could adversely affect banking system deposit growth and the refinancing of public sector debt. Lebanese banks remain the largest holders of sovereign debt.
With end 2013 total assets of $ 26.1 billion, BLOM is the second largest Lebanese bank. BLOM's principal shareholders include prominent businessmen and members of the families that founded the Bank in 1951, which together continue to hold the majority of the shares. BLOM operates a nationwide network of 81 branches in Lebanon and a further 131 in other countries where it operates. The bank's business is modelled along the lines of a regional universal bank. A full service banking model has been exported successfully to a number of MENA countries, while in others the Bank provides specialised banking services such as investment management, commercial banking or trade finance. Business in Europe is closely related to BLOM's asset management and private banking activities, traditionally focused on Lebanese and other Arab nationals, as well as trade finance.