Overview

Introduction
Introduction
Founded in 1830, the Bank was incorporated in its present form in 1962 as a private joint stock company with limited liability (société anonyme libanaise) with a duration of 99 years. The Bank is registered on the Beirut Commercial Registry under number 11347 and on the Lebanese List of Banks under number 56. In January 2014, the name of the Bank was changed from Bank Audi S.A.L. – Audi Saradar Group to Bank Audi S.A.L.

The initial shareholders of the Bank were members of the Audi family, together with certain Kuwaiti investors. Since 1983, the shareholder base has expanded and currently is comprised of more than 1,500 holders of Common Shares and Global Depositary Receipts (representing Common Shares). The Global Depositary Receipts evidencing the Common Shares are listed on both the Beirut Stock Exchange and the London Stock Exchange and the Bank’s Common Shares are listed on the Beirut Stock Exchange.

The Bank’s head office and registered address is Bank Audi Plaza, Omar Daouk Street, Bab Idriss, Beirut 2021 8102, P.O. Box: 11-2560, Beirut, Lebanon.

The Bank is a regional Bank. It operates principally in Lebanon, the MENA region and, since November 1, 2012, Turkey, offering a full range of products and services that principally cover commercial and corporate banking, retail and individual banking and private banking, as well as ancillary activities such as investment banking and factoring. As at end September 2016, the Bank ranked first among Lebanese banks in terms of total assets (LL 68,252 billion), shareholders’ equity (LL 5,533 billion), customers’ deposits (LL 55,721 billion), loans and advances (LL 28,363 billion) and net profits (LL 528 billion). In addition to its historic presence in Lebanon, Switzerland and France, the Group currently operates in Jordan, Egypt, Saudi Arabia, Qatar, Abu Dhabi (through a representative office), Monaco, Turkey and Iraq.

As at end-September 2016, the Bank had one of the largest branch networks in Lebanon, with 83 branches (79 operating) covering the Greater Beirut area and other strategic regions in Lebanon, as well as, through its foreign subsidiaries, a network of 113 branches in the MENAT region (outside of Lebanon), including 13 branches in Jordan, 43 in Egypt and 50 branches in Turkey. The Bank has two subsidiaries in Lebanon, two subsidiaries in Europe, as well as an asset management company in Monaco, four subsidiaries in the MENA region outside Lebanon and a subsidiary in Turkey.

Since 2005, the Bank has undertaken significant regional expansion and has the fourth largest coverage among the top 15 Arab banking institutions in the MENA region with operations in 10 countries, excluding Lebanon, through a network of branches and subsidiaries developed mainly through green-field operations. As a result of this regional expansion, an increasing percentage of the Bank’s assets are contributed by its operations outside Lebanon. Management intends to continue to seek growth opportunities both in Lebanon and abroad over the medium term.

As at end-September 2016, the Bank and its consolidated subsidiaries had 6,865 employees, including 3,290 persons employed in Lebanon, 1,622 persons employed at Odea Bank in Turkey and 1,417 persons employed at Bank Audi Egypt.
Principal Business Activities
Principal Business Activities

Corporate & Commercial Banking

The Bank has a strong commercial and corporate banking franchise with a diversified loan portfolio covering corporate clients in Lebanon, Turkey, the MENA region, Africa and Europe. Credit facilities are booked/managed at the levels of its headquarters in Lebanon and its subsidiaries in Turkey, Egypt, Jordan, Saudi Arabia, Qatar, France, Switzerland and Iraq. The Bank offers a wide range of traditional banking products and services to SMEs, as well as to larger corporate clients. These products and services generate both interest and fee-based income, with a focus on granting working capital and other loan products, providing services in areas such as collection, trade finance, performance bonds, guarantees, letters of credit and cash management, advising on international trade, providing correspondent banking and financial consulting services and preparing feasibility studies across a broad spectrum of industry sectors. As at September 2016, the Bank had a consolidated corporate loan portfolio of LPB 20,895 billion (US$ 13,860 billion), and the largest corporate loan portfolio among Lebanese banks.


Retail Banking

The Bank offers a full range of retail products and services, including conventional checking and savings accounts, fixed-term deposits, loans and residential mortgages, credit cards, bancassurance products and internet banking, as well as a host of innovative retail products and services developed in association with leading partners.
As at December 31, 2015, the Bank offered more than 150 retail products and services to more than 1.2 million retail clients inside and outside of Lebanon. Retail banking activity is supported by the Group’s more than 400 advanced ATMs and more than 180 branches.
The Bank’s dynamic customer-focus approach, which aims at enhancing the customer penetration rate with existing products in addition to enlarging the core product offering with the launch of new products, translated into the Bank’s cross-selling activities to a total of 4.4 products per customer as at June 2016.
Consolidated loans in the retail banking segment have witnessed an increase by 13.8% in the year ended December 31, 2015 and an annualized 10.5% growth as at end of the third quarter of 2016. Growth figures in 2016 have been slightly affected by currency devaluations in entities operating in both Turkey and Egypt.

Private Banking

Bank Audi Private Bank is the wealth management arm of Audi Group. It operates through three main booking centers based in Switzerland, Lebanon and Saudi Arabia, with offices in Monaco, Qatar, Jordan and the United Arab Emirates. Deep-rooted in the Middle East and North Africa (MENA) region, Bank Audi Private Bank’s leading position sets its apart from its peers and is of significant value for clients seeking investment knowledge and expertise in the region.
The Private Bank has a committed and long-standing history of serving its ever-growing client base since 1976, the year Banque Audi (Suisse) sa was established in Switzerland.
The Bank adopted the Group’s corporate governance and values which have been and will remain a cornerstone of its expansion and modernization. It recognizes the importance of sound Corporate Governance for business success and has therefore established a set of guidelines to increase its long-term value.
Bank Audi Private Bank offers a full and diversified range of services to high net worth clients, with full access to major markets worldwide and global investment products, including discretionary portfolio management, investment advisory, trade execution in all asset classes, Lombard credit, and other private banking services such as estate planning, fiduciary deposits, safe custody and credit cards.
As at September 30th, 2016, on a consolidated basis, the Bank had assets under management, custody accounts and fiduciary deposits of LL 15,756 billion (USD 10,452 million).


Investment Banking & Capital Markets

The Bank offers capital markets and investment banking products and services, including securities trading activities. The Bank is leveraging its regional presence to further develop its securities services and brokerage platform, consolidating the business towards increased intra-group synergies.
Since 1996, the Bank has developed a substantial capital markets franchise. In Lebanon, the Bank is a market maker on the Beirut Stock Exchange and, as at December 31, 2015, had a 17.75% market share of Beirut Stock Exchange equities trading volumes by value. The Bank also has a significant share of the Government Eurobond and treasury notes markets, with an annual trading volume exceeding U.S.$11.5 billion in 2015. The Bank is also active in the equities markets, with a particular focus on Saudi Arabia and Egypt, as well as in fixed income markets. In Lebanon and the MENA region, the Bank’s activities are supported by the Bank’s sovereign, fixed income and corporate research coverage businesses.
Through the Bank’s institutional fixed income desk, which was established in 2012, the Bank continues to develop and maintain new and existing coverage of Lebanese securities for international non-bank financial institutions in order to cater to international appetite for higher yielding instruments.
In September 2016, on a consolidated basis, the Bank’s investment banking and capital markets activities generated total income of LL 1,793 billion (U.S.$ 1 189 million) as compared to LL 364 billion (U.S.$241 million) in September 2015.


Competitive Strengths

As a result of the Bank’s restructuring and expansion program, which has been on-going since 2005, the Bank has significantly reinforced its presence in Lebanon, throughout the MENA region and in Turkey, as well as diversified the range of its products and services to cover all the activities traditionally carried out by a universal bank. In particular, the Bank believes that it benefits from:
  • a strong franchise in commercial banking activities, with a diversified loan portfolio, including borrowers comprising leading enterprises in Lebanon, as well as a number of leading corporates from the MENA region and Turkey;
  • a strong franchise in retail banking, with a full range of retail products and services offered in the countries in which the Bank has retail banking operations;
  • a leading position in private banking, servicing the needs of high net-worth individuals through its subsidiaries in Switzerland, Monaco, Lebanon, Qatar and Saudi Arabia and its representative office in the United Arab Emirates; and
  • a leading position in domestic and regional capital markets activities, with strong trading operations in Lebanon, Egypt and Turkey..
Strategy
Strategy


Over the last decade, Bank Audi has successfully expanded in the MENA region, achieving a sound and steady growth, and delivering a solid financial performance. Consolidated assets reported a CAGR of 16.0%, moving from USD 7.1 billion at end-December 2003 to USD 42.3 billion at end-December 2015, with net profits reporting a CAGR of 18.2%. This performance bears witness to the Group’s strong resilience against adverse developments including, most importantly, the 2008 financial crisis and the 2011 Arab uprisings. A key turning point was, in November 2012, the launching of the Group’s activity in the Turkish market after having obtained the first banking license granted by the Turkish authorities in more than 14 years. Since then, in just 3 years of activity, the Group succeeded in building USD 11.0 billion of assets in Turkey (driven by USD 8.6 billion of customers’ deposits), ranking the subsidiary 9th among 31 operating private commercial banks.

In parallel with this business performance, and over the same period, the Group’s governance practices have also evolved, in line with the evolution of international best practice, to accompany the expansion plan with effective independent controls and risk-based oversight by the Board and its committees.

Today, the Group continues to shape itself as a large regional bank in the MENAT region with Corporate and Commercial, Retail and Private Banking being its main business lines. The Group’s main strategic orientations evolve around the following main development pillars:

STRONG LEADERSHIP IN LEBANON
Bank Audi’s roots in its home market go back to 1830 when it started as a financial company, underscoring a long history of tradition and experience. Today, the Bank has the most universal banking profile among peers with leading domestic market shares. Going forward, Lebanon will remain a pivotal part of the Group’s overall activity in spite of the prevailing challenging environment. In particular, the Bank will leverage on existing corporate relationship, expertise and regional presence to grow the regional business with a focus on trade. It will continue to build on its strengths in the SME sector where it is currently in the process of upgrading its value proposition to become a high value driver for the Bank. It is also reinforcing its internal capabilities in order to improve the service it gives to entrepreneurs and small businesses. On the Retail Banking front, the Bank recently introduced a customer-centric model supported by innovative delivery channels, state-of-the-art technologies, and a wide range of tailored products and services to improve customers’ experience, retention and profitability.

EXPANSION OF NETWORK AND OF PRODUCT RANGE IN EGYPT
Over the last 5 years, from end-December 2010 to end-December 2015, and despite the many turnarounds and setbacks of the Egyptian environment, Bank Audi Egypt has reported a total assets’ CAGR of 19% and a net profits’ CAGR of 29%, with assets reaching USD 4.8 billion at end-December 2015 and net profits reporting USD 57.6 million in 2014 and USD 69.5 million in 2015. The Bank has also adopted sound credit policies focusing solely on defensive businesses translating into an NPLs ratio of 1.4%, well below the sector’s average.

On the backdrop of these achievements, the Group decided to launch a new development plan in Egypt for the 2014-2019 period, focusing on doubling the size of the franchise with a corollary improvement in net profits. This would allow Bank Audi Egypt to rank 6th among the 33 private banks at the horizon. This would be achieved through the expansion of the network, rolling up 26 new branches over the coming 4 years, and extending the scope of products and services to cover new business segments such as Islamic, mass affluent, mortgages and others.

FRANCHISE BUILDING IN TURKEY
The expansion strategy in Turkey was initially determined by the exponential growth of trade, financial, and human flows between Turkey and the Arab world where the Group is present in 6 countries. In fact, trade flows between the 2 regions increased from USD 3 billion in 2002 to USD 39 billion in 2015, still representing less than 2% of the combined trade turnover of Turkey and the Arab world, bearing witness to the significant additional growth prospects. Accordingly, acquiring a captive market share in this business would ensure yearly growing recurrent revenues for the Group.

Nonetheless, the opportunity that Bank Audi had to obtain a license for a greenfield operation, rather than pay a premium to acquire a Turkish bank, provided it with an increased flexibility to hire top talents in the Turkish banking industry, allowing it also to cover the domestic market. Odea Bank has subsequently established a leading challenger bank franchise with a universal banking model and market leading productivity levels as well as a strong brand recognition and customer awareness during this three-year period. As of 31 December 2015, Odea Bank had a 1.4% market share in assets, 2% in customers’ deposits and 1.5% in net loans, respectively, ranking 9th, 8th and 9th amongst non-state owned commercial Turkish banks. Odea Bank’s operations achieved breakeven by the second quarter of 2014, highlighting the Bank’s strong performance and underlying profitability, notwithstanding the required start-up and marketing costs. Based on this remarkable growth performance, the Group is looking to replicate and develop, over the coming 4 years, a market leading banking footprint allowing a successful listing before May 2019, as mentioned in the Offering Circular related to the USD 300 million capital increase closed by Bank Audi in September 2014. The development plan will focus on a value-added SME and consumer lending segment while leveraging on the wide footprint in the MENA region to benefit from the expected growth of trade, financial and human flows between Turkey and Arab countries to further develop Corporate and Commercial Banking.


CONSOLIDATING PRIVATE BANKING AND WEALTH MANAGEMENT ACTIVITIES
With over 37 years of presence in Switzerland where the Group holds the second largest Arab private bank in terms of AuMs, the Private Banking business line is one of the strategic key development pillars of the Group, alongside its three key geographies (Lebanon, Turkey, and Egypt). In addition to Banque Audi (Suisse), it operates through 3 main subsidiaries in Lebanon, Saudi Arabia and Qatar, with additional offices in Monaco, Jordan and Abu Dhabi.

Following the successful implementation of a revised business model aiming at improving intergroup synergies and efficiencies, the Private Banking net profits reached USD 46.9 million in 2015. Consolidated AuMs and custody accounts reached USD 9.8 billion at end-December 2015, a level which compares competitively with portfolios managed by regional banks. The Private Banking strategy over the coming 4 years consists of increasing significantly AuMs and custody accounts, generating on average 10 to 12% of the Group’s total revenues and net profits at the horizon. The plan is also to establish a footprint in the United Kingdom (through a light structure) to support the Private Banking development strategy and future expansion to Sub-Saharan Africa and Latin America.
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