خريطة سيطرة الطبقة الحاكمة على المصارف في لبنان

Transcription

1 Mapping the Control of Lebanese Politicians over the Banking Sector خريطة سيطرة الطبقة الحاكمة على المصارف في لبنان Jad Chaaban Associate Professor of Economics, AUB Seminar at AUB IFI Auditorium 15 September 2015

2 Outline 1. Background and objectives 2. Research Methodology 3. Data Sources 4. Main Findings Note: Work in progress. The project is part of a wider regional initiative entitled The Political Economy Determinants of Private Sector Dynamism in the Middle East, coordinated by the Economic Research Forum (ERF). The contents and recommendations do not necessarily reflect the views of the ERF, or any other institution the author is affiliated with. I would like to thank Antoine Dib for excellent research assistance.

3 Background and objectives Lebanese banking sector one of the biggest in MENA: Assets US$ 199 billion in 2013, 440% of Lebanon s GDP Extraordinary influence on monetary, fiscal, and other government policies Lebanese banks have been quite close to the country s ruling apparatus, often sustaining clientelistic networks (Moore, 1987) and heavily intervening in monetary and exchange rate policy (Hakim & Andary, 1997, Dibeh, 2002) Yet empirical evidence on the extent to which Lebanon s banks are dominated by a crony form of capital is non-existent Two objectives: Map the ultimate shareholders of Lebanese commercial banks and identify their linkages with the ruling class Analyze the impact of elite capture on the efficiency of the banking sector Lower bound estimates of true size of influence!

4 Position held by banks representatives 1. Public services are very bad 2. Because government budget swallowed by wages and EDL Other 11% Electricity 19% Wages 34% Interest on public debt 36% Public expenditures, 2013, MoF 4. Therefore banks step in to help the economy 3. Because politicians are corrupt & inefficient CENTRAL AFRICAN REPUBLIC IRAQ LEBANON CAPE VERDE THAILAND TRINIDAD AND TOBAGO GREECE BAHRAIN CYPRUS GERMANY LUXEMBOURG CANADA FINLAND World Bank Government Effectiveness Index, 2013

5 Lebanese banking sector 54 commercial banks, of which 20 control 99% of sector assets Highly concentrated: Top 15 banks (Alpha Group) control 96% Listed on Beirut Stock Exchange Assets USD billion Dec Share in total assets Year Bank short name established Bankaudi 1930 Y Blombank 1951 Y Byblosbank 1950 Y Fransabank 1921 N BankBeirut 1963 Y Bankmed 1970 N SGBL 1953 N BLF 1967 N Creditlibanais 1961 N BLCbank 1950 Y BBAC 1956 N IBL 1961 N FirstNational 1996 N Creditbank 1981 N AlMawarid 1980 N MEAB 1991 N Fenicia 1959 N LebaneseSwiss 1962 N BEMO 1964 Y ELB 1964 N Concentration ratios Value Cr3 45% Cr5 61% Cr10 87% Cr15 96% Sources: Association of Banks in Lebanon, Bankscope, Bilanbanques 2014

6 Research Methodology Ownership mapping Drawing up a comprehensive list of each bank s ultimate owners (Morck et al., 2011, Caprio et al. 2007) Ultimate owners are state organs or biological persons, and a threshold of 5% is used to identify controlling shareholders (as per Lebanese Law) Once ultimate owners are identified by backward iteration (examining each corporation s owners), a linkage between these owners and political powers is established Five levels of linkages with political elites (scale from highest to lowest): 5. Direct: Person is currently a member of Parliament or the Government 4. Indirect1: Person was MP/minister/public official 3. Indirect2: Person s family member is a current or former politician 2. Indirect3: Person has close ties to local or foreign political elites 1. Nolink: no linkages with politicians The composition of the banks Board of Directors is also explored to construct an additional variable for political influence via the bank s management

7 Research Methodology Bank-level financial efficiency and performance indicators Ultimately impacted by the ownership structure Non-performing loans (a measure of favoritism towards unqualified borrowers) and share of treasury bills held (a measure of exposure to sovereign risk) Other profitability and operational indicators: Neti: Net interest Margin. ROOA: Returns on assets. ROAE: Returns on equity. Cost_br: Cost per average branch in Bil LBP (Total Non-Interest Expenses/ Number of Branches). Staff_av: Staff expenses per average staff in US$. (Personnel Expenses/Number of employees). Staff_exp: Staff expenses to general operating expenses ratio (Personnel Expenses/ Total Non-Interest Expenses). Cost: Cost to income ratio (Total Non-Interest Expenses/ (Other Operating Income + Net Interest Revenue)). Cost_a: Cost to average assets ratio (Total Non-Interest Expense/ Average assets). Dividends: Total amount paid as dividends in Bil LBP. Equity: Total equity in Bil LBP.

8 Data Sources Ownership data: Bankscope database, ORBIS database, Lebanese Official Commercial Register, Banks websites Political affiliation: Government websites, local media Financial data: Bankscope, Bilanbanques 2014 Variables include: Assets: Latest total assets in mil LBP. Branches: Number of branches. Emp: Number of employees. Sover: Sovereign exposure, ratio of (LB treasury bills LL + Eurobonds + BDL certificates deposits in LL and FC) / deposits. All of them are converted into LBP before calculating. Loan_dep: Loans to deposits ratio. Loan_bad: Ratio (substandard loans + doubtful loans) / gross loan.

9 Ownership mapping Example of Bank Audi Shareholder name Share Type Deutsche Bank Trust Company Americas 29% Foreign bank FRH Investment Holding SAL 10% Holding LB Audi Family 7% Persons Sheikha Suad Hamad Al Saleh Al Homaizi 6% Persons (GCC) Sheikh Dhiab Bin Zayed Al-Nehayan 5% Persons (GCC) Levant Finance 2 Limited 5% Holding UK Al Sabbah Family 5% Persons (GCC) Executives and Employees 4% Investment and Business Holding S.A.L. 3% Al Hobayeb Family 3% International Finance Corporation I.F.C 3% Ali Ghassan El Merhebi Family 2% Said El-Khoury Family 2% Others 17% Sources: Bank Audi and Bankscope Mr. Fahd Hariri 100% Source: Lebanese Official Commercial Register Example of BankMed Shareholder name Share Groupmed Holding SAL 100% Holding LB Source: Bankscope Shareholder name Share Mr. Saadeddine Hariri 42% Mr. Ayman Hariri 42% Mrs. Nazek Hariri 16% Source: Lebanese Official Commercial Register

10 Main Findings

11 Individuals closely linked to political elites control 43% of assets in Lebanon s commercial banking sector 18 out of 20 banks have major shareholders linked to political elites 4 out of the top 10 banks have more than 70% of their shares attributed to crony capital Substantial control over the banks Board of Directors, including its chairperson (15 out of 20 banks have the chair of the Board linked to politicians)

12 Families of current or former politicians control 32% of the sector s assets. 8 families control 29%, with total equity more than 7 billion $ Equity in mill. US$, Family (+link) 2013 Hariri (former PM, current MP) 2,517 Kassar (former minister) 2,382 Sehnaoui (former ministers) 1,380 Raphael (former minister) 724 Assaf (former minister) 211 Habib (former MP) 58 Kheireddine (former minister) 24 Hrawi (son of President) 17 Total 7,313 Source: Author estimates based on BankData and ultimate shareholders identification. Equity refers to consolidated equity in the controlled banks as of Dec

13 Some examples Saad Hariri, Former PM, current MP, head of Future Movement Parliament block : 800 million US$ equity, direct shareholder of BankMed Adnan Kassar, Former Minister of Economy, Former head of Chamber of Commerce 1.2 billion US$ equity, direct shareholder Fransabank Maurice Sehnaoui, Former Minister of Economy and Trade, father of Nicolas Sehnaoui (FPM member, former Telecom Minister) 1.4 billion US$ equity (family), direct control in Societe Generale de Banque au Liban (SGBL) Farid Raphael, Former Minister of Finance, Telecommunications, Justice, Former head of Association of Banks Deceased 2014, family equity 700 million US$, direct control Banque Libano-Francaise BLF

14 Control by politically affiliated shareholders Bankaudi Blombank Byblosbank Fransabank BankBeirut Bankmed SGBL BLF Creditlibanais BLCbank BBAC IBL FirstNational Creditbank AlMawarid MEAB Fenicia LebaneseSwiss BEMO ELB 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 5. Direct: Person is currently a member of Parliament or the Government 4. Indirect1: Person was MP/minister/public official 3. Indirect2: Person s family member is a current or former politician 2. Indirect3: Person has close ties to local or foreign political elites 1. Nolink: no linkages with politicians

15 Crony control within the Board of Directors Bankaudi Blombank Byblosbank Fransabank BankBeirut Bankmed SGBL BLF Creditlibanais BLCbank BBAC IBL FirstNational Creditbank AlMawarid MEAB Fenicia LebaneseSwiss BEMO ELB 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 5. Direct: Person is currently a member of Parliament or the Government 4. Indirect1: Person was MP/minister/public official 3. Indirect2: Person s family member is a current or former politician 2. Indirect3: Person has close ties to local or foreign political elites 1. Nolink: no linkages with politicians

16 Affiliation of the Chairman of the Board of Directors (by bank assets million US$) Bankaudi Blombank Byblosbank Fransabank BankBeirut Bankmed SGBL BLF Creditlibanais BLCbank BBAC IBL FirstNational Creditbank AlMawarid MEAB Fenicia LebaneseSwiss BEMO ELB - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45, Direct: Person is currently a member of Parliament or the Government 4. Indirect1: Person was MP/minister/public official 3. Indirect2: Person s family member is a current or former politician 2. Indirect3: Person has close ties to local or foreign political elites 1. Nolink: no linkages with politicians

17 Main Findings II Political control of shares and political control of Boards strongly correlated (expected) No evidence of size effects: larger banks not necessarily correlated with more political control Political control not correlated with higher sovereign exposure Political control not correlated with profitability and banking costs variables Strong and significant positive correlation between political control and non-performing loans» Ratio: (substandard loans + doubtful loans) / gross loan. Similar to Morck (2011): A more widely held banking system is significantly correlated with fewer nonperforming loans, while more predominantly state-or family-controlled banking systems both correlate with more nonperforming loans.

18 Nonperforming loans increase with the higher prevalence of politicallyaffiliated shareholders control_w loans_bad Fitted values Control: normalized to a scale between 1-5

19 Banks (& politicians) earn a lot from public debt service Estimates of dividend earnings attributable to interest on public debt Banks Political Family Political Party Years in office Percentage held of public debt, 2013 Earnings made from public debt while in office m$ BankMed Hariri Future (Hariri) today 27% 108 SGBL (+ BLC) Sehnaoui Al Mawarid Kheireddine Fransabank Kassar Free Patriotic Movement (Aoun) Democratic Party (Arslan) None , % % , % 24

20 Issues going forward Legal and judicial: Law of illicit enrichment Conflict of interest and abuse of public office Accountability Because of Holdings law, politicians saved 25 million $ in taxes in 2013, 5 times the budget of the Ministry of Environment Efficiency of economic and financial model in Lebanon More mapping needed of other sectors

21 So in reality: 1. Public services are very bad 2. Because government budget swallowed by wages and EDL AND interest on public debt Wages 34% Other 11% Electricity 19% Interest on public debt 36% Public expenditures, 2013, MoF In 2013 total banks dividends were 830 million$, of which 280 million$ can be linked to interest earned on public debt 4. So that they keep on profiting from our pockets, while keeping public services bad 3. Because politicians who own 45% of banks are not interested in reducing spending, and keep interest rates on public debt high Denmark Moldova Jordan Cyprus Honduras Lebanon Average interest on new external debt commitments, WDI, 2015

22 Thank you