Lebanon – Investment in foreign equities plummets

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The diminished appetite for Lebanon’s Eurobonds and treasury bills is evidenced by a 22.2 percent drop in the investment portfolios of Lebanese banks and financial institutions.

According to recent figures released by the Central Bank, the net investment portfolio of Lebanese banks and financial institutions in foreign debt and equity securities totaled $5.4 billion at end-March 2012, dropping by 22.2 percent from $6.94 billion at end-March 2011, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

The Central Bank did not explain the reason behind this drop, although the most likely reason is the lack of interest from Lebanese banks to absorb more Eurobonds and T-bills due to the low yield they offer.

In October the Finance Ministry raised only $1.525 billion in Eurobonds, most of which were snapped up by Lebanese commercial banks.

Banks said they were not too eager to digest more debt bonds at this stage due to the delicate political and economic situation in the country as well as the turmoil in Syria.

But the banks insisted that they would continue to exchange maturing bonds with new ones despite the fact that the interest on these bonds is not as tempting as before.

Investments in long-term debt securities totaled $3.2 billion at end-March 2012, accounting for 58.6 percent of the total, followed by investments in equities with $2.18 billion, or 40.4 percent of the total, while short-term debt securities accounted for $54.4 million or 1 percent of the total. According to the Central Bank, the figures cover the net assets of resident financial institutions in tradable debt and equity instruments of nonresident issuers.

They help provide a clearer picture about the flow of funds from Lebanon and, therefore, about balance of payments data.

The distribution of investments by institutions indicates that commercial banks’ net portfolio in foreign long-term debt securities totaled $2.4 billion, accounting for 75 percent of total investments in such securities at end-March 2012. The figure includes banks’ investment for their own account, on behalf of their clients and on a custodial basis. They were followed by investment banks with $740.6 million (23.4 percent), financial institutions with $46.9 million (1.5 percent) and insurance firms with $2.8m (0.09 percent). Commercial banks also represented 93.4 percent of investments in short-term debt securities, followed distantly by medium and long-term banks with 5.2 percent and financial institutions with 1.3 percent.

In parallel, commercial banks’ net assets in equity securities totaled $852.5 million, 39.1 percent of total investments in such securities. They were followed by financial institutions with $697.1 million (32 percent), medium and long-term banks with $557.7 million (25.6 percent), insurance companies with $71.6 million (3.3 percent) and financial intermediaries with $1.6 million (0.07 percent).

 

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