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In 2015, Bank Audi continued to have an undisputed leadership position among Lebanese banking groups in terms of most business criteria, and to reinforce its position among the top 20 Arab banks, while maintaining a strong financial standing and moving forward on its main strategic orientations in its various markets of presence.

The Bank actually maintained in 2015 a sound activity growth in a tough operating environment, coupled with a growing contribution of foreign entities. Its consolidated assets recorded a nominal increase of USD 310 million in 2015, reaching a total of USD 42.3 billion at end-December 2015 and USD 52.1 billion when accounting for fiduciary deposits, security accounts and assets under management. When adjusting to the devaluation of the exchange rates of both the Turkish Lira and the Egyptian Pound relative to the US Dollar of respectively 25.6% and 9.5% in 2015, consolidated assets of Bank Audi would have increased by USD 2.1 billion over the same period, due to the nominal growth in assets of the Bank’s entities in Turkey and Egypt by USD 1.3 billion and USD 0.8 billion respectively, with assets of Lebanese entities increasing slightly by USD 242 million. Based on the above, the contribution of entities outside Lebanon to consolidated assets increased from 48.1% as at end-December 2014 to 48.6% as at end-December 2015, while the share of assets booked in investment grade countries reached 33.3%, an unprecedented level among Lebanese banking groups.

In parallel, consolidated customers’ deposits sustained the same level during 2015, reaching USD 35.6 billion at end-December 2015, of which 45.1% from entities outside Lebanon. When adjusting on the basis of constant exchange rates for both Turkish Lira and Egyptian Pound as at end-December 2014, consolidated deposits would have increased by USD 1.1 billion, corresponding to a growth of 3%, deemed a good performance given the weak 1.5% deposits’ growth in the region following the sharp deterioration of oil prices. Likewise, Bank Audi’s consolidated loan portfolio sustained its growth over the period registering a nominal growth of 4.4% (equivalent to a nominal increase of USD 758 million), reaching 10.4% in real terms when adjusting on the basis of constant exchange rates for Turkish Lira and Egyptian Pound as at end-December 2014, corresponding to a real increase of USD 1.8 billion, mainly stemmed from the entities in Lebanon, Turkey and Egypt.

The Bank’s growth was not realised at the detriment of its financial standing which continued to bear witness to a strong financial soundness at the level of liquidity, asset quality, capitalisation or profitability. In fact, the Bank maintained its highly liquid status, with consolidated primary liquidity placed with central banks and foreign banks continuing to increase, reaching USD 16.4 billion at end-December 2015, the equivalent of 46.1% of customers’ deposits, a high level when compared to regional and global averages.

At the asset quality level, a reinforcement of the Bank’s loan quality was realised through the allocation of USD 133 million of consolidated net loan loss provision charges during 2015. Subsequently, loan loss reserves on doubtful loans reached USD 371 million, translating into a coverage ratio of 68.4% at end-December 2015. In parallel, collective provisions reached USD 162 million, representing 0.9% of net loans, while the ratio of net doubtful loans to gross loans improved from 3.05% at end-December 2014 to 2.94% at end December 2015. The ratio of gross doubtful loans to gross loans of Bank Audi remains low when compared to the sector averages in Lebanon (3.6%), the MENA region (3.9%), the emerging markets (6.9%), and the world (7.5%).

At the capitalisation level, consolidated shareholders’ equity reached USD 3.29 billion at end-December 2015, accounting for 18% of the total shareholders’ equity in the Lebanese banking sector. In parallel, Bank Audi’s regulatory capital reached USD 3.35 billion, reinforcing the Bank’s capital adequacy ratio as per Basel III, to 13.4%.

At the profitability level, Bank Audi’s net earnings after provisions and taxes amounted to USD 403 million in 2015, as compared to USD 350 million in 2014, growing by 15.1% year-on-year. Entities outside Lebanon contributed up to 50.5% of the consolidated net earnings’ growth, driving an increase in the share of these entities in consolidated net earnings from 41.6% in 2014 to 42.8% in 2015. The increase in net profits primarily stems from a USD 87.3 million increase in total revenues, corresponding to a growth of 6.6% exceeding the 5.3% growth in consolidated general operating expenses, equivalent to USD 38.8 million, translating into an improvement in overall efficiency. Based on such results, the Bank’s return on average assets ratio improved from 0.9% in 2014 to 0.96% in 2015, while the return on average common equity maintained the same level as in 2014 of 13.63%, as a result of the full impact of the USD 300 million common equity increase at end-September 2014.

Since the outset of the Arab Spring early 2011, Bank Audi has refocused its strategy around three main growth pillar markets: Lebanon, Egypt and Turkey, as well as the Private Banking business line. Supported by solid performances, those pillars drive the significant developments across the Group.

In Lebanon, Bank Audi has a strong leadership in the Lebanese banking sector, as witnessed by the largest retail accounts portfolio with an 18% market share supported by innovative technologies, products and services, and its dominant share in Corporate and Commercial Banking activities, banking with the top 100 corporates. Going forward, the Bank aims at leveraging on existing corporate relationship, expertise and regional presence to grow the regional business with a focus on trade. With the support of the IFC, It is upgrading the SME financing proposition which is on track to become a high value driver for the Bank, capturing growth opportunities. On the retail front, the Bank is focusing on a customer-centric model supported by innovative delivery channels, state-of-the-art technologies and tailor-made products and services.
As to Turkey, established from scratch in 2012, our subsidiary Odea Bank which was the first financial institution in the last 12 years to be granted deposit-taking and operational licenses from the Banking Regulatory and Supervisory Authority, is now recognised as a leading challenger bank with a universal banking model and market leading productivity levels, as well as strong brand recognition and customer awareness. As of 31 December 2015, Odea Bank had USD 11 billion of assets, USD 8.6 billion of deposits and USD 7.5 billion of loans, ranking 9th, 8th and 9th respectively, amongst non-state owned Turkish banks. Odea Bank achieved breakeven by the second quarter of 2014, 19 months after launch, posting USD 23.2 million of net earnings in 2015, highlighting a strong performance that Management is looking to turn into an exponential growth. This robust growth is even more important when considering that it was achieved by a green field operation, without incurring any goodwill expense.

This performance is attributed to the fact that Turkey is a sizeable emerging country with a track record of sustained economic growth, reaching on average 4.2% per annum over the last 5 years, but also to the best-in breed talent pool of Odea Bank and its pioneering role in terms of innovation, granting it significant market competitive advantages. Building on the above, our plan in Turkey is to develop 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.

Likewise, Bank Audi sae, the Bank’s subsidiary in Egypt, has been resilient to successive political transitions since 2011, sustaining solid growth trajectory outpacing peers with 19% CAGR in assets and 29% in net profits over the 2010-2015 period. It has sound credit policies focusing on defensive businesses translating into a NPL ratio of 1.4%, well below the sector average. Bank Audi sae represents an efficient and profitable growing bank with an average ROAA and ROACE of 1.4% and 17.4% over the 2010-2015 period. Its new development plan encompasses the expansion of the network and extension of the scope of products and services to cover new business segments such as Islamic Banking, mass influent, mortgages and others, building on a visible and highly regarded brand.

At the level of Private Banking, the recent restructuring of the business line is likely to improve intergroup synergies and efficiencies. The partnership with Crossbridge Capital based in London would create a centralised and specialised wealth management platform. The plan to establish a footprint in the United Kingdom would support the Private Banking development strategy and future expansion to Sub-Saharan Africa and Latin America where Audi Private Bank sal already holds AuMs of USD 588 million and USD 745 million respectively through dedicated desks and RMs.

The results of the past year and the strategic directions of our Group are being supported by significant developments in support functions, such as HR and IT. At the HR level, the year 2015 was concluded with various successful accomplishments around areas of Recruitment and Selection, Training and Development, Relationship Management and Organisational Development. Bank Audi continued to own up to its position as the largest employer in the Lebanese private sector at large and the most significant contributor to job creation in Lebanon. It has the most advanced recruitment processes fully recognised in Lebanon and the region for being a benchmark in the selection strategy with a comprehensive talent attraction strategy (87% of staff being university graduates). The Recruitment and Selection efforts for 2015 resulted in the engagement of circa 500 new employees from diverse backgrounds for different positions within the Group that now counts around 6,900 employees in total. In parallel, the Bank continued to be supported by wide full fledged training activities which were intensively focusing on academy courses and managerial and behavioural trainings over the past year.

At the IT level, Bank Audi’s IT continued the implementation of multiple transformational business projects across many of its affiliates. Analysis, selection and high-level design have been completed – and the implementation work initiated – on several strategic projects: Core Banking replacement, a new Omni-channel banking platform, a new automated Business Process Management system, and a new Customer Relationship Management system. When operational, these systems together will redefine the way the Bank produces and delivers state-of-the-art services to its customers. In all entities, new systems are being deployed while leveraging Bank Audi’s IT strategy of service-based architecture, with the Enterprise Service Bus being at the core of the environment, orchestrating and integrating the different components together. Bank Audi’s IT has dedicated sizable efforts and resources throughout the past year to research and develop the latest trends of technology, the future of banking, and the means to implement those findings in existing and potential new entities.

The development initiatives of the Group aim at establishing the preferred financial partner in the MENAT region, connecting customers to available opportunities at large. Beyond the financial and business aspect, Bank Audi is also keen on developing and strengthening its engagement in Corporate Social Responsibility. The Group’s Corporate and Social Responsibility activities extend to five core pillars: Corporate Governance which is at the heart of our decision-making process, Economic Development through job creation and financing of small businesses, Human Development, Community Development and Environmental Protection.

In closing, we would like to express our gratitude to all our staff who helped move Bank Audi forward to the point where we stand today, and to all our customers who continuously bless us with their confidence and trust.
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01Corporate Governance
discussion & analysis
03Financial Statements