Bank Audi Consolidated Activity Highlights at End-June 2013

Beirut, 18 Jul 2013
Sustained activity growth at Odea Bank A.S., the Turkish banking subsidiary
with US$ 4.3 billion of customers’ deposits and US$ 5.8 billion of total assets as at 30/06/2013

  • • US$ 33.7 billion of consolidated assets
  • • US$ 29.2 billion of customers’ deposits
  • • US$ 2.7 billion of shareholders’ equity
  • • US$ 188 million of net earnings in the first half of 2013

The Lebanese economy slowed further in the second quarter of 2013, as witnessed by most real sector indicators that showed growing sluggishness amidst regional uncertainties and domestic spillover effects. Imports, at the mirror image of aggregate demand with a 50% share in GDP, stagnated in the first five months of 2013 at its last year’s corresponding period level, implying stagnating consumption and investment. Yet, similarly to previous years, the monetary economy remained disconnected from the real economy, as capital inflows in the first five months of 2013 registered US$ 7.0 billion, an increase of 11% relative to inflows registered in the corresponding period of 2012. In parallel, banking sector’s deposits grew by US$ 5.0 billion between December 2012 and May 2013, driven in particular by foreign currency deposits, while loans to the private sector achieved 38% only of their growth over last year’s corresponding period.

Regionally, two years after the onset of the “Arab Spring”, many countries in the Middle East and North Africa continue to undergo complex political, social, and economic transitions. Economic performance across the broad region was actually mixed. Although most oil-exporting countries grew at healthy rates, economic growth remained sluggish in the oil importers, where Bank Audi has wide presence, facing the immediate challenge of re-establishing or maintaining macroeconomic stability amid political uncertainties and social unrest. Turkey, the new market of presence of Bank Audi, is yet reporting a sound economic performance, despite a relative slowdown from its fast growth trajectory, while banking performance continues to flourish unscathed by domestic political tensions.

Within this context, net earnings of Bank Audi sal - Audi Saradar Group reached US$ 188 million in the first half of 2013, equivalent to the earnings of the corresponding period of 2012 before the exceptional profits related to the sale of 81% of LIA Insurance. This performance was realized despite the launch of the fully-owned subsidiary in Turkey following an organic growth with the subsequent normal time lag between immediate operating expenses and expected revenues. In parallel, consolidated assets of Bank Audi grew by 7.6% in the first half of 2013, i.e. the equivalent of US$ 2.4 billion, further strengthening the Group’s competitive position in domestic and regional markets.

In details:
  • Consolidated assets rose by US$ 2.4 billion during the first half of 2013 to reach US$ 33.7 billion at end-June 2013 and US$ 42.4 billion when accounting for fiduciary deposits, security accounts and assets under management. The consolidated asset growth stems in particular from the Turkish banking subsidiary which recorded remarkable growth over the same period, reaching US$ 3.7 billion, totally offsetting negative contributions from the Lebanese, Syrian and Egyptian entities as a result of accumulated unfavorable political and economic conditions with a further deterioration of the exchange rate in Syria and Egypt. Accordingly, Odea Bank has built in 8 months of activity US$ 5.8 billion of assets, US$ 4.3 billion of customers’ deposits and US$ 3.3 billion of loans. This achievement translates in an increase of the contribution of entities abroad to consolidated assets from 32.4% at end-December 2012 to 38.6% at end-June 2013, in line with Management’s objective to reach a more balanced distribution of assets and profits over the different entities in Lebanon and abroad.
  • Consolidated customers’ deposits grew in the first half of 2013 by US$ 2.4 billion, i.e. the equivalent of 8.8%, driven mainly by the Turkish banking subsidiary, within a further contraction in the deposit base of Bank Audi Syria, and a limited growth in the Egyptian subsidiary when excluding the impact of exchange rate depreciation.
  • Consolidated shareholders’ equity reached US$ 2.7 billion, accounting for 8% of the Bank’s consolidated assets.
  • The rise in customers’ deposits was matched by a growth at the level of consolidated net loans which moved from US$ 10.4 billion at end-December 2012 to US$ 12.7 billion at end-June 2013, i.e. an increase by US$ 2.3 billion or 21.9%.
  • 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$ 46.4 million in the first half of 2013. Gross doubtful loans accounted for only 2.3% of gross loans, with the coverage of those loans by specific loan loss provisions reaching 78.2% at end-June 2013, notwithstanding collective provisions which account for 0.9% of net loans. As a result, the net doubtful loans to gross loans ratio improved from 0.64% at end-December 2012 to 0.49% at end-June 2013.
  • Primary liquidity placed with central banks and foreign banks reached US$ 13 billion, representing 44.6% of customer deposits, an elevated level when compared to regional and global averages.
  • During the first half of 2013, Bank Audi sal - Audi Saradar Group’s net earnings reached US$ 188 million, equivalent to those of the corresponding period of 2012 before the exceptional profits related to the sale of 81% of LIA Insurance. This performance was realized despite the launch of the fully-owned subsidiary in Turkey that is following an organic growth with the subsequent normal time lag between immediate operating expenses and expected revenues, reflecting the Group’s mastery of its operating conditions and earnings’ flexibility.
  • Based on such results, the Bank’s return on average assets reported 1.2% and the return on average common equity reached 16.2%. In parallel, earnings per common share amounted to US$ 0.98 while the book value per share stood at US$ 6.13. Subsequently, and based on a common share price of US$ 6 at the closing of 12/07/2013, the Bank’s common shares were trading at 6.2x H1 2013 earnings and 1x Jun-13 book value, reflecting very low multiples relative to its profitability metrics and to regional peer banks multiples.

The results of the first half of 2013 confirm once again the Group’s ability to maintain favorable growth in activity and net earnings and reinforce further its financial standing. Nonetheless, the outbreak of the “Arab Spring” imposed a re-adjustment of the Group’s current expansion strategy focusing on a quick deleveraging in Syria, consolidating its position in Egypt and strengthening its leadership in Lebanon with a particular focus on operating conditions and efficiency enhancement, while rebalancing overall growth to the larger, higher rated Turkish market. Accordingly, Lebanon, Turkey and Egypt will constitute the main geographic development pillars of the Group. The development of the Private Banking business line would represent the fourth development pillar. The Bank remains committed to levy all required resources to execute this strategy, in the aim of building long lasting productive relationships with customers in all markets of presence.

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