Bank Audi Consolidated Activity Highlights as at end-March 2012

Beirut, 12 Apr 2012
The Lebanese economy reported a relative improvement in the first quarter of 2012, yet without resuming the buoyant performance that was prevailing prior to the regional turmoil and the domestic political tensions of the past year. Real sector indicators reported indeed an improvement relative to the low base of the first quarter of 2011, suggesting an overall performance relatively in line with the IMF real growth forecast for full-year 2012 and which stands at 3.5%. The banking sector started the year with a somehow satisfactory performance, as suggested by its main activity growth indicators, with bank deposits growing by US$ 1.7 billion and bank loans rising by US$ 1.1 billion over the first two months of 2012. But banks’ operating conditions continue to be tough amidst an atypical domestic and external operating environment characterised by pressures on spreads and margins, slow fee income growth generation and growing provision requirements as a precautionary measure facing regional developments’ spillovers.

The regional economy continues to display uneven performances in the first quarter of 2012. On the background of rising oil prices and domestic stimulus packages, GCC countries are managing to report a relative improvement in real economic activity, driven mainly by domestic growth drivers much more than external growth drivers which continue to suffer from global sluggishness. Within this context, inflows towards Lebanon continued though at a relatively slower pace. On the other hand, Near-eastern economies remain directly impacted by the Arab turmoil and its adverse economic repercussions, imposing a relatively challenging environment for Lebanese banks with regional operations. Notwithstanding the adverse spillover effects of the economic lethargy in advanced economies amidst a heightened fiscal driven sovereign distress, which warranted extended ultra-low interest rate levels, sustaining the negative carry on the primary liquidity of Lebanese banks at large.

Within this environment, Bank Audi sal - Audi Saradar Group achieved a good performance in the first quarter of 2012, with consolidated unaudited net earnings of US$ 94.5 million, rising by 4.5% relative to the first quarter of 2011, despite the allocation of collective provisions of US$ 31.2 million, thereby abiding by precautionary management policies. Within the context of such a conservative strategy that translated into a further strengthening of the Bank’s resilience to adverse domestic and regional developments, the Bank continued to adopt a prudential policy in the countries under trouble, while continuing to foster the Bank’s leadership in the domestic market and to finalise the establishment of a subsidiary in Turkey that provides promising growth prospects to the Group at large.

  • Consolidated assets reached US$ 28.7 billion at end-March 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 52% between March 2011 and March 2012.
  • Consolidated deposits amounted to US$ 24.4 billion at end-March 2012. While the Bank’s deposit and lending aggregates in Syria contracted further, the resilience of the consolidated deposit base stems from the relative growth in various subsidiaries, despite unfavourable domestic and external economic conditions.
  • Shareholders’ equity reached US$ 2.5 billion, representing 23% of the consolidated equity of the Lebanese banking sector and accounting for 8.6% of the Bank’s assets, translating into a Basel III capital adequacy ratio of around 10.7%, versus a 10% minimum regulatory requirement.
  • Gross doubtful loans accounted for only 2.7% of gross loans, with the coverage of those loans by specific loan loss provisions increasing from 77.3% at end-December 2011 to 81.9% at end-March 2012 and reaching 111% when accounting for real collaterals. The net doubtful loans to gross loans ratio improved from 0.66% to 0.49% over the same period.
  • The improvement in the Bank’s asset quality indicators resulted from the allocation of additional provisions of US$ 31.2 million during the first quarter of 2012, most of which in the form of collective provisions as a precautionary measure facing spillover effects of recent developments in the region. As such, total collective provisions reached US$ 117 million at end-March 2012, i.e. the equivalent of 1.32% of the consolidated net loans portfolio, against 1.17% at end-December 2011.
  • Primary liquidity placed with central banks and banks reached US$ 12.4 billion, representing 50.9% of customers’ deposits, one of the most elevated liquidity levels in the region.
  • The Bank’s overall efficiency strengthened further during the first quarter of this year, with total income increasing by 13.3% and outpacing total operating expenses growth of 4.9%. This resulted in a further improvement at the level of the cost-to-income ratio by 3.4%, with the latter declining from 46.3% in the first quarter of 2011 to 42.9% in the first quarter of 2012.
  • Net earnings reached US$ 94.5 million in the first quarter of 2012, growing by 4.5% from US$ 90.4 million in the first quarter of 2011, after deducting provisions of US$ 31.2 million mostly in the form of collective provisions, against similar provisions of US$ 15.3 million in the first quarter of 2011. Pre-provision earnings thus rose by 18.8% over the period, from US$ 106 million in the first quarter of 2011 to US$ 126 million in the first quarter of 2012.
  • Based on such results, the Bank’s profitability ratios stood still, with the return on average assets reporting 1.32% and the return on average common equity amounting to 16.8%.
  • Bank Audi’s earnings per common share increased by 6.6% over the covered period, from US$ 0.24 to US$ 0.26. The book value per share stood at US$ 6.16. Subsequently and based on a common share price of US$ 6.3 at the closing of April 4, 2012, the Bank’s common shares were trading at 6.05x the first quarter 2012 earnings per common share and 1.02x book value per common share.

Finally, the results of the Bank in the first quarter of 2012 highlight the Bank’s ability to maintain its earning power amidst tough operating conditions, which enables it to cover all costs related to its development and growth, allocate the provisions required to face adverse regional developments, accumulate the reserves needed to reinforce the Group’s shareholders’ equity, and enhance the Group’s financial standing, capital adequacy and resilience. Such performances translated into further reinforcing the Group’s leading position in the local market and strengthening its positioning among large regional banking groups.



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