Stability, apparently

A curious piece in The New York Times commends Lebanon's financial sector. Curious because of the great secrecy at a the heart of our banks means we don't actually know what they have in vaults. Of course it could just be that they are awash with billions of dollars looted from Iraq.

For those with time have a look at A Political Economy of Lebanon.

Here's the NYT piece:

This small country, chronically battered by war, turns out to have a banking sector that has so far been a beacon of stability and growth, The New York Times’s Robert F. Worth writes. Its banks are posting record profits, aided by conservative central bank policies, skillful management and money from Lebanese expatriates.

Lebanon’s very instability — its 15-year civil war and frequent political crises — appears to have bred the banking sector’s fiscal prudence, analysts say.

Three years ago the central bank here barred investments in derivatives and other structured financial products, giving banks virtual immunity to the widening financial contagion. The banks here have done little borrowing on international markets. Deposits account for about 83 percent of their assets, making them among the most liquid in the world.

“The banks here are used to turmoil,” Nassib Ghobril, the head of economic research and analysis for Byblos Bank, the country’s third largest, told The Times. “Since the end of the civil war in 1990, there has been no loss of deposits, and there’s great confidence in the sector.”

As of August, the money flowing into deposits grew 16 percent over 2007 — itself a record year. Lebanon had no working government for most of that period, and at times seemed to be on the verge of civil war.

Those inflows appear to be rising further. The central bank released statistics showing that it increased its foreign assets by $572 million in the first two weeks of October, possibly a sign that foreign deposits are growing.

Lebanon has also attracted the hedge fund industry, which has until now focused more on Persian Gulf markets. “We consider the well-capitalized Lebanese banks as safe as the safer banks in the gulf,” Florence Eid, the regional managing director for Passport Capital, a hedge fund based in San Francisco, told The Times.

An added asset is Lebanon’s often wealthy expatriates. About 4 million Lebanese live in the country, but an estimated 12 million live abroad, and many send money home and invest in real estate. The total of such remittances is expected to top last year’s, $5.5 billion, one of the world’s highest per capita rates.

Partly for that reason, banks here have grown so large that they dwarf the national economy. Lebanese bank assets are about $100 billion, in a country with a $25 billion gross domestic product, said Marwan Barakat, in charge of research at Bank Audi, the country’s largest lender.

This growth has allowed the banks to expand internationally. Bank Audi, for example, now has branches in Egypt, Saudi Arabia, Jordan, Syria, Qatar and Sudan.

The continued growth here is probably also related to some modest good news in politics. In May, after 18 months of deadlock, Lebanon’s warring factions agreed to a compromise. So far, the deal seems to be holding. But the banks are also doing their part, holding much of Lebanon’s $45.4 billion public debt.

“In this crisis, governments in the US, Europe and elsewhere have been stepping in to rescue their banking sectors,” Mr. Ghobril told The Times. “Whereas in Lebanon the sector is so large it has been supporting the state for years.”