Bank Audi Activity Highlights at End-September 2011

Beirut, 20 Oct 2011
Lebanon’s economy reported this year a slowdown in activity, as mirrored by its various real sector indicators. Within this environment, the deceleration of capital inflows to the domestic economy somewhat weighed down on growth of banking sector activity as reflected by its main driver, total customer deposits, which posted an increase of US$ 5.7 billion during the first eight months of this year, versus US$ 7 billion during the same period of 2010. The growth in foreign currency deposits was yet more significant than the one realized over the past year’s similar period, bearing in mind that foreign currencies still represent the main lending currency to the economy. As such, the banking sector liquidity was more than sufficient to meet the financing needs of both the public and private sectors, as revealed by lending to the economy which grew by US$ 4 billion since the beginning of the year.

On the other hand, the MENA region showed uneven performances amid atypical political and security developments. While Gulf countries recorded an improvement in real GDP growth on the background of rising oil prices and domestic stimulus packages, other regional economies showed a slowdown in real activity within the context of growing uncertainties weighing down on investment and consumption. Banking activity was at the mirror image of this divergence in economic performances. Gulf countries witnessed a growth in customer deposits by double that of last year, while near east countries, where Bank Audi has a presence as well, posted an 8-month deposit growth 65% lower than the one observed during the corresponding period of 2010. As such, these developments had different effects on Lebanese banks, i.e. favorable with regards to the conditions in the Arab gulf through the labor market and capital inflows and unfavorable with regards to the situation in the Near-East where a number of Lebanese banks actually operate.

Within this context, Bank Audi achieved an increase in consolidated net earnings by 7.1% in the first nine months of 2011 relative to the corresponding period of 2010. This occurred within the context of a conservative strategy adopted by the Bank throughout the year and pertaining to very scarce lending policies coupled with collective provision allocations. The latter amounted to US$ 60.2 million to face deteriorated regional conditions and to reinforce asset quality, within the context of a strategy favouring improvement in operating conditions over balance sheet growth.
  • Consolidated assets reached US$ 28.7 billion at end-September 2011 and US$ 39.7 billion when accounting for fiduciary deposits, security accounts and assets under management. This assets size sustains Bank Audi’s position at the forefront of the Lebanese banking sector and among the top 20 Arab banking groups.
  • Consolidated deposits reached US$ 24.9 billion at end-September 2011. This is a positive performance especially when accounting for the contracting deposit base in Syria, which was offset by a relative growth in other subsidiaries within the context of unfavourable regional economic conditions.
  • Shareholders’ equity amounted to US$ 2.3 billion, representing 22% of the consolidated equity of the Lebanese banking sector, and accounting for 8.1% of the Bank’s assets, translating into a Basel II capital adequacy ratio of around 11%, as compared to the 8% minimum regulatory requirement.
  • Within the context of the uncertainty prevailing in some countries of presence, the Bank adopted rigorous risk management policies anchored over sustaining a good credit quality along with strengthening liquidity and overall efficiency.
  • Bank Audi allocated additional provisions of US$ 60.2 million over the first nine months of 2011, of which a big share of collective provisions mainly in the Syrian and Egyptian subsidiaries as a precautionary measure in light of the spillovers of recent developments in these two countries.
  • The Bank’s credit quality continued to be resilient, as gross doubtful loans represented 2.7% of gross loans, with the coverage of those loans by specific loan loss provisions increasing from 72.6% at end-December 2010 to 81.2% at end-September 2011 and reaching 110% when accounting for real guarantees. Net doubtful loans to gross loans fell from 0.61% to 0.51% over the same period.
  • Primary liquidity placed with central banks and banks reached US$ 12.7 billion, representing 51% of customers’ deposits, one of the most elevated liquidity levels in the region.
  • Overall efficiency strengthened as a result of sustained levels of revenue streams across entities, notwithstanding difficult conditions. Consequently, the cost to income ratio improved, moving from 47% in the first nine months of 2010 to 46.5% in the first nine months of 2011.
  • Profits before provisions and taxes rose by 12.6%, moving from US$ 346 million in the first nine months of 2010 to US$ 389 million in the first nine months of 2011. In spite of an increase in net loan loss provision charges by 73.4% over the same period, net earnings after provisions and taxes increased by 7.1%, from US$ 253 million in the first nine months of 2010 to US$ 271 million in the first nine months of 2011. Subsequently, earnings per common share grew by 5.7% over the same period, from US$ 0.69 to US$ 0.73 respectively.
  • Profitability ratios were sustained, with the return on average assets standing at 1.3% and the return on average common equity reporting 16.4%.

The Bank’s performances in the first nine months of 2011 clearly reveal its strong financial flexibility due to the diversification of activities and revenue streams and their geographic distribution, thus reinforcing the Bank’s financial standing and immunity in the face of adverse political and economic developments in the region, and consolidating its positioning in the various countries of presence. Despite the tough conditions that the Middle East and North Africa region is passing through and their adverse short-term spillover effects, the medium term outlook for those countries looks much brighter, namely at the level of political governance and economic efficiency. As such, the Group’s medium term strategy rests on pursuing cross-border expansion through its implementation in new, promising and complementary markets.

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