The bank's profits stood out from a flat set of first-quarter figures posted by Lebanon's quoted banks. 'The results are the translation of the effort of a huge restructuring, which has included improving the quality and range of our product services. That has been our strategy for the past five years and now we are pushing to go further. We are reaching now for geographic growth in the Levant,' says a Banque Audi spokesman.

Banque du Liban et d'Outre Mer (BLOM)recorded the next best year-on-year performance, with net profits for the first three months of 2003 of £Leb 33,500 million ($22.3 million), an increase of 5 per cent on the £Leb 31,900 million ($21.3 million) profit recorded for the same period in 2002. Byblos Bankand Banque Europeene pour le Moyen-Orient (Bemo)both recorded no meaningful change in first-quarter net profits, with Byblos reporting profits of £Leb 17,800 million ($11.8 million) and Bemo announcing net profits of £Leb 1,100 million ($0.7 million). Bank of Beirut saw a 1.5 per cent fall in profits to £Leb 6,400 million ($4.3 million) from £Leb 6,500 million ($4.3 million) for the same period last year.

Bankers say the lack of year-on-year profit growth was due to falling interest rates triggered by the Paris II donors meeting last November, where Prime Minister Rafiq Hariri secured Eur 4,420 million ($4,376 million) in pledges from foreign governments and international institutions in return for a commitment to reduce the budget deficit. The average interest rate for Lebanese pound deposits fell from 10.65 per cent in October to 8.68 per cent in March following the meeting.

More significantly the rate on treasury bills also fell. 'Lebanese banks invest heavily in t-bills so have suppressed profits since the fall in interest rates,' says one local banker.

However, others said the results were good and showed solid growth in the banking sector. 'They have maintained the level of profits despite the subscription to Eurobonds, which has a negative effect,' says another senior banker. In October 2002 the banks and the government embarked on a scheme to reduce Beirut's interest payments over the next two years. Under the scheme the banks, which hold about 60 per cent of the government's debt, agreed to purchase zero-coupon, two-year Eurobonds equal to 10 per cent of their deposit base.

Despite the falling interest rate, all the banks recorded significant rises of 16-41 per cent in customer deposits in the first quarter of 2003, compared with the first quarter of 2002. 'There are still important premiums in deposits that apply in foreign currency. So it is still very enticing to buy bank deposits and repatriate funds from abroad,' explains one banker.