VZCZCXRO1899
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0581/01 1211136
ZNR UUUUU ZZH
R 301136Z APR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1674
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BEIRUT 000581 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
TREASURY FOR MNUGENT AND SBLEIWEISS 
OPIC FOR RMOSBACHER/JSIMON/RDRUMHELLER/CHOSTETLER 
EEB FOR EDIBBLE/RDEMARCELLUS 
NSC FOR ABRAMS/SINGH/YERGER/DEMOPOLOUS 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN ENIV PGOV SY SA LE
SUBJECT: LEBANON:  BANKERS VALUE U.S. ASSISTANCE TO LEBANON 
 
SUMMARY: 
------- 
 
¶1. (SBU) Senior officials from a cross-section of Lebanese banks 
told Charge that USG financial assistance, especially where it shows 
confidence in the banking system, is critical.  OPIC loans, managed 
by Citibank, of $108 in early 2007 and $153 in 2008, are popular 
with the banks and the borrowers.  In the same way the $1 billion 
deposit promised by Saudi Arabia is necessary to boost confidence in 
the Lebanese financial situation and reduce the cost to the GOL of 
new borrowing.  Bankers also pointed out that USAID micro financing 
offers a cheaper alternative to Hizballah-backed loans, and should 
be continued.  Lebanese banks, undervalued and with limited 
opportunities in Lebanon, are rapidly expanding outside of Lebanon, 
and Syria is proving to be an attractive and profitable market.  End 
summary. 
 
LEBANESE BANKS STEADILY 
INCREASE IN VALUE 
----------------- 
 
¶2. (SBU) Charge, Econoff, and Econstaff met on April 29 with senior 
officials from the Lebanese Banking Control Commission (BCC), and a 
cross-section of important Lebanese banks.  Bank Audi, Byblos Bank, 
BLOM Bank, Fransabank, Lebanese Canadian Bank, and Intercontinental 
Bank were all represented.  Lebanese banks are proud of being the 
only banks in the region left unscathed by the global sub-prime 
crisis, due to an early Central Bank of Lebanon (CBL) circular 
banning investments in sub-prime instruments.  These banks have high 
liquidity and a low cost of deposits.  This allows them to offer 
interest rates now above LIBOR, and that, plus the continuing 
confidence by investors, means that deposits are growing steadily. 
With only small dips following the Hariri assassination in early 
2005 and the July 2006 war, deposits have grown from $43 billion in 
early 2003 to $69 million by the end of April 2008.  Since the 
beginning of what Bank Audi refers to as "domestic political 
bickering" in early 2007, deposits have increased by $9 billion. 
 
OPIC LOANS POPULAR, AND 
CHEAPER THAN "HIZBO-BANK" 
-------------------- 
 
¶3. (SBU) According to the luncheon participants, Lebanese banking is 
successful due to investor confidence, and outside enhancements, 
such as U.S. OPIC funds and the deposits of Saudi Arabia and Kuwait 
in the CBL during the July 2006 war, boost that confidence.  The 
OPIC loans, $108 in 2007 and $153 in 2008, are not large or even 
critical; Lebanese banks are experiencing very high liquidity. 
However, they are a concrete measure of investor confidence, as well 
as being a popular instrument with banks and borrowers alike.  Like 
the USAID-funded micro credit, these loans to small and medium-size 
enterprises (SME) can offer a cheaper alternative to what the 
bankers referred to as "Hizbo-bank," or Hizballah. 
 
SAUDI DEPOSIT CRITICAL 
FOR CONFIDENCE 
-------------- 
 
¶4. (SBU) In 2008 the GOL will need $3 billion in foreign currency 
financing.  Lebanese banks will provide about 90 percent of that 
through Euro-bond issues, but the quality of the credit package they 
can provide will be superior if the elusive $1 billion deposit 
promised by the Saudis earlier this year is implemented.  None of 
the bankers know why the Saudis have not acted on their promise to 
PM Siniora, nor are there even rumors of the cause.  However, all 
believe that the deposit, which will be an interest-bearing deposit 
in the CBL, will both cut borrowing costs and enhance investor 
confidence significantly.  BCC Chairman Walid Alameddine bluntly 
asked Charge to do what she could to convince the Saudis to make 
good on their promise, and quickly. 
 
SYRIA IS AN ATTRACTIVE 
MARKET FOR BANKS 
---------------- 
 
¶5. (SBU) Lebanese banks, which "suffer" from too much liquidity and 
few investment opportunities within Lebanon, are expanding rapidly 
outside of the country.  One fertile territory is Syria, open now to 
private banking.  They pointed out that the Syrian diaspora is twice 
as wealthy as the Lebanese diaspora, and the latter provides most of 
the foreign investment in Lebanon and 25 percent of the GDP.  It is 
 
BEIRUT 00000581  002 OF 002 
 
 
the bankers' opinion that the Syrians, anxious to replace dwindling 
income from oil and agriculture, are looking for and finding foreign 
direct investments (FDI.)  This is an opportunity cost to Lebanon, 
and in 2007 that loss amounted to $3-4 billion FDI.  Bankers point 
out that the GOS follows the "Chinese model" whereby the government 
does not interfere in banking. 
 
BANKS UNDERVALUED, 
COULD EXPLODE IN VALUE 
------------------ 
 
¶6. (SBU) Bankers point out that Lebanese banks, valued at only 1.5 
times book, are undervalued, and handicapped by the political 
situation.  Stability would allow for an explosion, to more than 
twice the $7.5 billion in book value.  Even a slight improvement in 
outlook, such as this week's announcement of a visit by Arab League 
SYG Amr Moussa, can cause an increase in the value of bank GDRs.  In 
fact, according to the bankers, Moussa has a bigger impact on bank 
share value than on solving the political crisis. 
 
COMMENT 
------- 
 
¶7. (SBU) It is generally understood that the Lebanese banks carry 
the Lebanese economy; if bankers at this level believe that the 
promised Saudi deposit is critical, no effort should be spared in 
making it a reality.  End comment. 
 
SISON