1. Banking Control Commission 1 TURKISH-ARAB BANKING PROSPECTS Walid R. Alameddine Chairman Lebanon’s Banking Control Commission The Third Turkish-Arab Economic Forum June 12-13/2008 Istanbul

2. Banking Control Commission 2 Contents: 1. Regional Banking: Very Fast Growth 2. Lebanese Banking System: Characteristics 3. The Regional Lebanese Banking System: 4. Turkey’s Banking System Prospects. 5. Some Reasons for Establishing Banks across countries.

3. Banking Control Commission 3 REGIONAL BANKING: VERY FAST GROWTH - Growth Management is the Main Opportunity (and Challenge) in the region Mid-East Banks fastest growth in the world (2007) Mid-East Banks fastest growth in the world (2007) Islamic sector, fastest growth in the region (2007) Islamic sector, fastest growth in the region (2007) e.g. Qatar (47%growth in 2007). e.g. Qatar (47%growth in 2007). e.g. Lebanon’s Outside expansion (67% growth in 2007) e.g. Lebanon’s Outside expansion (67% growth in 2007)-

4. Banking Control Commission 4 VERY FAST GROWTH: Geographical Expansion Requirements: - Cross country management skills different from local. - Improvement in Management Systems. - Supervisory Challenges: Skills, Systems, & Home-Host Cooperation. Taking advantage of fast growth opportunities Beyond sustainable growth model: Requirements Beyond sustainable growth model: Requirements 1. Management 2. Marketing (Profit margins?) 3. Financial (capital?) 4. Operational

5. Banking Control Commission 5 LEBANESE BANKING SYSTEM Characteristics: A.Size: 4 times GDP. B.Privately owned (no Public Sector), hence highly competitive… C.Liquid: More than $10 billion in N.Y. accounts. D.Dollarized. E.Capital: Adequate for Basel II (and increasing…). F.Supervision: Independent of political process. G.Resilient (3 crises in 3 years…). H.Rapid Growth. I.Regional Banking System: Ownership, Rapid Expansion. J. Concentration: Largest Bank (16%), Top 5 (56%), Top 10 (78%)

6. Banking Control Commission 6 THE “REGIONAL” LEBANESE BANKING SYSTEM: 1) Ownership: Regional ownership in virtually every bank in Lebanon. Capital Increases in Banks mostly coming from the region (Gulf, Egypt, Lebanese residing abroad). 2) Presence in most countries in the Region. 3) Management “exchanges” significant with banks in the region. Top management compensation now at levels of most competitive in the region. 4) Incremental increases in deposits coming mostly from the Gulf. 5) M & A" proposals” for Lebanese banks coming mostly from the region.

7. Banking Control Commission 7 LEBANESE BANKING SYSTEM: Expansion: Domestic/International Size: Dollars Millions (Gross) Assets12/31/200612/31/2007GROWTH 12/31/2012 Domestic 78,855 88,854 12.7% 110,000 Share of Total 86.5 81.1% - 50% International 12,355 20,689 67.5% 110,000 Share of Total 13.5% 18.9% - 50% Total 91,210 109,543 20% 220,000

8. Banking Control Commission 8 RAPID REGIONAL EXPANSION: LEBANESE BANKS Raison D'etre A. Revenues: a. Increase, & b. Diversification B. Risk: Diversification C. Business Synergies: Common Ownership & Markets Preparation/Comparative Advantages: A.Increase in Capital Base B. Human Resources (Skills and Numbers) C. Competitiveness/Aggressive Sales Culture

9. Banking Control Commission 9 Presence Abroad: Lebanese Banking Sector: Country 4 Years Ago 12/2007 Jordan13 Syria**-8 Saudi Arabia -3 U.A.E.13 Iraq-3 Qatar-2 Bahrain-1 Oman-1 Egypt13 Sudan-4 Algeria-1 Ivory Coast -1

10. Banking Control Commission 10 Total Countries 921 Total Branches*** 2057 * Including granted License ** Managed Affiliates*** Number of Banks having branches12/2007 4 Years Ago Country98Cyprus 22Switzerland 54France 33U.K. 11Belgium -1U.S.A. 1-Romania 1-Turkey 1-Armenia 1-Belarus

11. Banking Control Commission 11

12. Banking Control Commission 12 TURKEY’S BANKING SYSTEM PROSPECTS - Growth: Very significant Growth Prospects Assets / GDP 1:1 Can go up to 1.5:1 - Size TRY 634 Billion/USD 520 Billion (5/31/2008) - Lebanese Banks in Turkey: One Bank One Bank At least one more At least one more - Turkish Banks are welcome in Lebanon/ The Arab World

13. Banking Control Commission 13 SOME REASONS FOR ESTABLISHING BANKS ACROSS COUNTRIES A. Virtuous Trade/Investment cycle: A. Virtuous Trade/Investment cycle: Common business (trade, Investments, Tourism) need banks familiar with the “home” investors to facilitate business with “host” country. Common business (trade, Investments, Tourism) need banks familiar with the “home” investors to facilitate business with “host” country. Common Business brings in banks, and banks help bring in and grow common business, which allows the banks and the common business to grow. Common Business brings in banks, and banks help bring in and grow common business, which allows the banks and the common business to grow. B. Capital Investment diversification: Investment Returns: Better utilization of Incremental Capital in the “medium term…” Investment Returns: Better utilization of Incremental Capital in the “medium term…”

14. Banking Control Commission 14 Opening Banks/Cross-Investments: Turkey-Arab Countries  There is clearly enough potential business to justify more (joint) banks / branches, and these can be profitable.  Very Fast growth requires Bolder investment decisions.  Potential Business: Cross-border and domestic.  Capital Investment diversification: Portfolio Management. The low correlation between Turkish and Arab economies argues for more Cross-Investments.  Banks can either be Islamic, or “ Conventional ” banks. The trend is towards Islamic Banks (although their share is still relatively small).

15. Banking Control Commission 15 OPENING BANKS: REALITY CHECKS:  Growth Pressures As Causes of Bank Problems: - “Problems at banks are all too often caused by the failure to adhere to basic risk management principles, especially when new products and markets come into play. In many cases, this is due to the pressures that firms face to increase market share, combined with unrealistic expectations about growth and performance prospects”. - Nout Wellink: GARP Conference, NEW YORK, 27 February 2008.  Keep expectations reasonable (expect to be profitable, but not “opportunistic” profits…).  Focus on the medium, and long terms.  The Opportunities remain larger than the potential downsides.

16. Banking Control Commission 16 TURKEY-ARAB INVESTMENTS There is another important reason for investments between the Arab World and Turkey for me: ARAP DUNYASI VE TURKIYE ARASINDAKI YATIRIMLAR ICIN MUTLU OLMAMIN BASKA BIR ONEMLI SEBEBI DAHA VAR : ARAP DUNYASI VE TURKIYE ARASINDAKI YATIRIMLAR ICIN MUTLU OLMAMIN BASKA BIR ONEMLI SEBEBI DAHA VAR :

17. Banking Control Commission 17 ARAP DUNYASI VE TURKIYE ARASINDAKI YATIRIMLAR ICIN MUTLU OLMAMIN BASKA BIR ONEMLI SEBEBI DAHA VAR :  BIR TURKLE EVLIYIM VE VE  COCUKLARIM TURK YASASIN TURKIYE, YASASIN LUBNAN ! YASASIN TURKIYE, YASASIN LUBNAN !