Bank Audi Consolidated Activity Highlights as at End-September 2012

Beirut, 19 Oct 2012
The Lebanese economy has reported a sluggish performance in the first nine months of 2012 though it continued to avoid net contraction. According to the new IMF forecasts for 2012, real GDP growth would stand at 2% this year. All real sector indicators actually confirm the slowdown within the context of a wait and see attitude characterizing both domestic and external growth drivers of the economy. Subsequently, banking activity witnessed a relative slowdown as well, with bank deposits growing by US$ 5.4 billion in the first 8 months of 2012, 5% less than the growth of the past year’s similar period and 24% less than the average growth of the similar 8-month period of the previous 5 years. Bank loans have likewise seen a slowdown in their year-to-date growth reaching US$ 2.3 billion, or 42% less than growth in the corresponding period of 2011.

Activity in the MENA region, where Bank Audi has an extensive presence, was uneven across countries. Growth in the Middle East and North Africa region is estimated at 5.3% in 2012 on account of oil exporters whose growth is expected to accelerate to 6.6%. In contrast, growth in oil importers has been about 1.3% during 2011–12, reflecting the effects of social unrest and political uncertainty weakening aggregate demand which had adverse effects on external growth drivers, evidenced in steep declines in tourism and FDI. The divergence in economic activity has reflected on banking activity, with deposit and lending activity in GCC reporting a relatively good year-to-date growth in line with that of last year, while deposit growth and lending in the other MENA countries have been on average 56% and 78% less than the previous year’s corresponding period.

Within this environment, Bank Audi sal – Audi Saradar Group registered an adequate performance over the first nine months of 2012, with net earnings growing by 14.1% relative to last year’s corresponding period. Net earnings amounted to US$ 309.4 million in the first nine months of 2012, (of which US$ 32.8 million in net earnings after taxes and expenses stemming from discontinued operations) broken down to the extend of 73% over Lebanese entities and 27% over entities abroad. Such performances come within the context of a conservative strategy maintained at the Group level and aimed at strengthening the Bank’s asset quality and resilience facing spillover effects of regional developments, with the Bank allocating net provisions worth US$ 93.9 million in abidance with the most rigorous precautionary management policies.

In the meantime, Odea Bank, Bank Audi sal – Audi Saradar Group’s fully owned subsidiary, obtained on September 28, 2012 a license to operate from the Turkish Banking Regulation and Supervision Agency, after completing all necessary establishment procedures. This comes after the Bank was granted on October 27, 2011 the first permission to establish a banking subsidiary in Turkey in more than 12 years. Banking activities in Turkey are expected to constitute one of the main pillars of growth for the Group in the coming years. Odea Bank will be opening the first 5 branches in Istanbul and 1 branch in Ankara and 1 branch in Izmir before year-end.

Despite the unfavorable domestic and regional economic conditions, the Bank’s major activity indicators bear witness to its enhanced financial standing as follows hereunder:

  • Consolidated assets reached US$ 29.2 billion at end-September 2012 and US$ 40.6 billion when accounting for fiduciary deposits, security accounts and assets under management, despite the contraction of assets of Bank Audi Syria at end-September 2012 to a third of their December 2010 levels (the equivalent of US$ 1.3 billion). Such an activity size maintains Bank Audi’s position at the forefront of the Lebanese banking sector and among the top Arab banking groups.
  • Consolidated deposits amounted to US$ 24.9 billion at end-September 2012, despite the additional contraction of the Bank’s deposit base in Syria, with the stability of the consolidated deposit base tied to the relative growth reported at various subsidiaries.
  • Consolidated shareholders’ equity reached US$ 2.6 billion, accounting for 9% of the Bank’s consolidated assets, and translating into a Basel III capital adequacy ratio of around 12%, versus a 10% minimum regulatory requirement.
  • Despite the volatile conditions, particularly in Syria, the Bank’s asset quality indicators continued to demonstrate resilience, with gross doubtful loans accounting for 3.1% of gross loans and the coverage of those loans by specific loan loss provisions reaching 77% at end-September 2012. As a result, net doubtful loans accounted for only 0.72% of gross loans, without taking into account collective provisions and real guarantees.
  • This resulted from the allocation of additional provisions worth US$ 93.9 million during the first nine months of 2012, most of which in the form of collective provisions. Total collective provisions reached US$ 105.2 million at end-September 2012, the equivalent of 1.1% of the consolidated net loans portfolio, while total provisions stood at US$ 188.9 million or 2% of gross loans.
  • 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 nine months of this year, with total income increasing by 14.5% and outpacing the growth in total operating expenses of 10.1%. This resulted in a steady improvement at the level of the cost-to-income ratio by 1.7%, with the latter declining from 45.9% in the first nine months of 2011 to 44.1% in the first nine months of 2012.
  • Bank Audi sal – Audi Saradar Group recorded adequate results over the first nine months of 2012 with net profits before provisions and taxes rising by 25.8%, and moving from US$ 388 million in the first nine months of 2011 to US$ 489 million in the first nine months of 2012 which, within the context of stagnating asset growth, reflects the Group’s high earnings generation capacity. Net earnings after provisions and taxes rose from US$ 271 million in the first nine months of 2011 to US$ 309 million in the first nine months of 2012, thus depicting a 14.1% increase, out of which US$ 32.8 million from discontinued operations. When excluding the latter, the Group’s net operating profits increased from US$ 268 million to US$ 277 million over the same period, the equivalent of a 3% growth.
  • Based on such results, the Bank’s operating profitability ratios improved, with the return on average assets reporting 1.43% and the return on average common equity amounting to 17.6% .

Finally, the first nine months of 2012 results confirm that the Bank maintained its sound financial standing amidst adverse regional developments, in a way that ensures a reinforcement of depositors and customers interests at large.


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