Bank Audi Consolidated Activity Highlights as at End-June 2012

Beirut, 19 Jun 2012
The Lebanese economy has slowed down in the second quarter of 2012, as witnessed by most real sector indicators, while relatively sustaining monetary and financial stability indicators. Bank deposits grew by US$ 3.2 billion over the first five months of 2012, or 13% less than the average growth of the past five years’ corresponding period. Bank credit yet maintained its vigor, with US$ 2.5 billion of new waves of loans to the private sector, equivalent to last year’s growth and 19% more than the growth of the previous five years’ corresponding period. Still, operating conditions continue to be tough, as domestic net profits reported a net contraction of 3.9% over the first five months of 2012 relative to the same period last year.

Amid a relative downward contraction in oil prices slightly impacting GCC countries and amid continuing uncertainties in the Near East, the MENA region has continued to lose steam. Average real GDP growth was forecast by the IMF for the region as a whole at 5.5% for full-year 2012, particularly driven by GCC countries as Near Eastern countries reported either low or negative growth. In parallel, bank deposits in the region grew by US$ 43.8 billion year-to-May, or 33% less than the deposit growth reported during last year’s corresponding period. Notwithstanding the persistently difficult bank operating conditions, especially in the Near East where pressures on interest margins and fee income add to the growing provisioning requirements in the face of lingering uncertainties.

Within this environment, Bank Audi sal - Audi Saradar Group’s net earnings reached US$ 230.1 million in the first half of 2012, of which US$ 44.5 million stemming from the sale of an 81% stake in LIA insurance sal on June 27, 2012. As such, Bank Audi achieved a 27.7% growth in net earnings when compared to the first half of 2011 (+5.6% before the profit from the sale operation), after allocating provisions of US$ 67.9 million in abidance with the most rigorous precautionary risk management and corporate governance policies.

The sole objective of Bank Audi from the aforementioned sale operation is to disinvest from the underwriting insurance business following the regulatory constraints which have become more and more restrictive on insurance companies held by banking groups, especially when it comes to computing capital adequacy ratios. Nonetheless, Bank Audi will continue to offer to its customers the range of LIA’s bancassurance products. To that end, Bank Audi and the new owning company, Saham Finances sa – the holding company of the Moroccan group leader of the African insurance market (excluding South Africa), have agreed to maintain and develop the existing cooperation between Bank Audi sal - Audi Saradar Group and LIA insurance sal.

Within this context, the Bank adopted throughout the first half of 2012 a conservative strategy at Group level in the face of spillover effects of regional developments, and consisting of strengthening the Bank’s resilience and asset quality amidst the finalization of the establishment of the Turkish subsidiary that provides promising growth prospects to the Group at large.

  • Consolidated assets reached US$ 28.8 billion at end-June 2012 and US$ 40 billion when accounting for fiduciary deposits, security accounts and assets under management. Such an activity size maintains Bank Audi’s position at the forefront of the Lebanese banking sector and among the top Arab banking groups, despite the contraction of assets of Bank Audi Syria by 59% between December 2010 and June 2012 (the equivalent of US$ 1.2 billion).
  • Consolidated deposits amounted to US$ 24.7 billion at end-June 2012. While the Bank’s deposit aggregates in Syria contracted further, the resilience of the consolidated deposit base stems from the relative growth in various subsidiaries despite unfavourable domestic and regional economic conditions.
  • Shareholders’ equity reached US$ 2.6 billion, accounting for 9% of the Bank’s consolidated assets, and translating into a Basle III capital adequacy ratio of around 12.2%, versus a 10% minimum regulatory requirement.
  • Within the context of volatile regional conditions, the Bank continued to adopt a stringent risk management policy consisting in maintaining a good asset quality, thereby allocating additional net provisions of US$ 67.9 million in the first half of 2012.
  • Gross doubtful loans accounted for only 2.9% of gross loans, with the coverage of those loans by specific loan loss provisions reaching 77.3% at end-June 2012, notwithstanding collective provisions which account for about 1% of net loans. As a result, the net doubtful loans to gross loans ratio maintained its year-end 2011 level, reaching 0.67%.
  • Primary liquidity placed with central banks and foreign banks reached US$ 12.2 billion, representing 49.3% of customers’ deposits, one of the most elevated liquidity levels in the region.
  • The Bank’s overall efficiency strengthened further during the first half of this year, with total income increasing by 14.7% and outpacing the growth in total operating expenses of 7.2%. This resulted in a further improvement at the level of the cost-to-income ratio by 3%, with the latter declining from 45.8% in the first half of 2011 to 42.8% in the first half of 2012.
  • Net earnings reached US$ 230.1 million in the first half of 2012 against US$ 180.2 million in the same period of 2011, thus increasing by 27.7% and including US$ 44.5 million stemming from the sale of an 81% stake in LIA insurance sal. When excluding the profit from the aforementioned sale operation, net operating earnings would rise from US$ 175.8 million in the first half of 2011 to US$ 185.6 million in this year’s similar period, i.e. a 5.6% growth, after the allocation of US$ 67.9 million in net provisions. In fact, operating profits before provisions and net earnings from the sale operation rose by 19.2%, from US$ 213 million in the first half of 2011 to US$ 253 million in the first half of 2012, thus reflecting the Group’s mastery of its operating conditions despite the adverse developments in the Middle East region.
  • Based on such results, the Bank’s profitability ratios improved, with the return on average assets reporting 1.30% and the return on average common equity amounting to 16.6%, and respectively reaching 1.61% and 20.7% when including the profit from the sale operation.

Finally, the results of the Bank in the first half of 2012 highlight its high quality franchise and its ability to maintain a sound financial standing amidst adverse regional developments, safeguarding and consolidating depositors’ and shareholders’ interests.

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