FRANSABANK: Building on the French connection

23 June 1995

Beirut has designs on the Middle East financial community. Its status as a regional financial centre was shot to pieces by the civil war, but Beirut now wants to reclaim its former role. And Beirut-based Fransabank is a keen supporter of the campaign. 'We are in the process of redefining our role in the world economy,' chairman of the Fransabank board Adnan Kassar told a conference in London in late May. 'The challenge goes beyond our vision of the old Lebanon...We are revising our assumptions.'

That revision will affect all the local banks, including Fransabank. But the main issue the bank has had to address is an increase in capital and putting to good use the burgeoning deposits which have boosted the balance sheet.

History and structure: Fransabank began life in 1921 as the Beirut branch of Credit Foncier d'Algerie et de Tunisie. This operation was then acquired in 1971 by Banque Francaise pour le Moyen-Orient, a bank that was predominantly owned by Banque Indosuez. In 1978, Indosuez merged the activities of Banque Francaise with Banque Sabbag, another local bank it owned, to create Banque Sabbag et Francaise pour le Moyen-Orient, better known as Fransabank.

The current ownership structure was completed in the 1980s. In 1980, the bank was acquired by a financial group headed by Adnan and Adel Kassar. In 1985, 33 per cent of the bank was sold to Credit Agricole which had previously had a co-operation agreement with Fransabank.

Adnan Kassar is the long-standing head of the Beirut Chamber of Commerce, and one of Lebanon's best known business figures. His family has been in banking since the end of the nineteenth century. But the presence of Credit Agricole in the shareholding structure and on the board gives the bank an advantage in a market still dominated by family-run institutions. This particular characteristic of Lebanon's banks could finally start to change with the introduction of laws enabling banks to issue bearer shares so that part of the capital can be traded.

Fransabank has a network of more than 30 branches in Lebanon. It has representative offices in Hungary and Hong Kong and affiliates in France and Zaire. It has launched a leasing firm, the Lebanese Leasing Company, in partnership with the IFC. The bank offers a wide range of products, including the Fransabank EuroCard-MasterCard, launched in 1993.

Strategy: 'We and other banks have been too focused on transactional management and development, we are now aware of the need to develop a modern banking culture,' says Joe Sarrouh, executive advisor to the chairman, and a former New York banker.

Building a modern banking culture will require a longer-term approach to financing, a perennial problem in Lebanon where banks have access to mainly short-term funds. The creation of a leasing company is part of Fransabank's strategy for tackling this problem. Lebanese Leasing will provide long-term credit facilities up to $25 million to local contractors and industrialists.

The bank has already taken the opportunity to lend long term and participated in two credit facilities worth $45 million provided to Lebanon by the IFC in 1993. The facilities allow customers to borrow for seven years, with two years grace, at six-month Libor plus 75 basis points.

Sarrouh says that, along with other Lebanese banks, Fransabank's margins are being squeezed. The bank will compensate for this with a shift to greater volume, he says. Fransabank claims a six per cent market share and an 11 per cent share of the trade finance market. Sarrouh says the bank is moving aggressively into Arab markets, including Saudi Arabia.

Capital rise

Fransabank addressed the capital question during its 18 April annual general meeting, when shareholders approved plans to raise the capital to £Leb 40,000 million ($24 million). This followed an increase to £Leb 20,000 million ($12 million) in 1994, from £Leb 8,800 million ($5 million) in 1993.

Sarrouh says the bank effectively has shareholders funds of $110 million, which includes war provisions of $25 million and a revaluation of its fixed assets. Using that figure, the bank's equity/asset ratio is now about 13 per cent.

Performance: The bank reported a threefold rise in profits in 1994 to reach £Leb 27,024 million ($16 million). The bank's assets rose to £Leb 1,400,000 million ($842 million) last year, compared with £Leb 890,960 million ($521 million) in 1993. The main feature of the balance sheet was a 57 per cent increase in customer deposits, in dollar terms, which reached £Leb 1,200,00 million ($726 million) at the end of 1994.

Outlook: Sarrouh says the bank is expecting improved earnings for 1995, which could see profits of about £Leb 38,000 million ($23 million), based on strong first quarter results. And he says the bank is now looking at deposit-led growth, which is likely to be the way forward for most of Lebanon's local banks as depositors seem content to continue keeping their money in local currency accounts. Along with the rest of Beirut's banks the challenge for Fransabank is to use that resource efficiently.


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