Bank Audi Consolidated Activity Highlights at End-September 2013

Beirut, 20 Oct 2013
Sustained activity growth at Odea Bank A.Ş., the Turkish banking subsidiary
  with US$ 4.9 billion of customers’ deposits and US$ 6.6 billion of total assets as at 30/09/2013

• US$ 34.5 billion of consolidated assets
• US$ 29.5 billion of customers' deposits
• US$ 2.7 billion of shareholders' equity
• US$ 261 million of net earnings in the first nine months of 2013

Over the first nine months of this year, the Lebanese economy has been prolonging its slowdown phase initiated since the beginning of the Arab turmoil. Major investment decisions are continuing to be delayed within the context of a wait and see attitude adopted by investors. Such a situation comes within the context of regional spillovers on the domestic economy and accentuated political bickering within Lebanon. Still, the economy is not falling into a recessionary trap, as it is not contracting in real terms. According to the IMF newly issued real GDP growth forecast for this year, growth is not in the red posting a positive though relatively low figure of 1.5%. More importantly, the financial sector is reporting a strong resilience with a US$ 6.4 billion deposit growth over the first eight months of this year, against US$ 5.4 billion for the corresponding period of 2012.


In the Middle East and North Africa region, modest economic growth is reported across countries. Last year’s subdued growth in oil importers is extending its mild pattern in 2013 which is deemed insufficient to meet large economic and social needs. The region’s oil exporters’ healthy growth rates are set to moderate this year, as oil producers are scaling back increases in production amid modest global oil demand though continued strong public spending is supporting non-oil growth at comfortable levels in many of these countries. At the banking sector level, the MENA region is reporting an acceptable 10.4% annual deposit growth and a moderate 8.9% annual loan growth by July 2013. In parallel, Turkey, the other market of presence of Bank Audi, is witnessing a relative resilience to domestic tensions, with its real economy continuing to grow at 3.4% this year and its bank deposits displaying an annual growth rate of 21.6% in Turkish Lira terms by August 2013.


Within this context, Bank Audi sal - Audi Saradar Group posted in the first nine months of 2013 a good overall performance, achieving a growth of 10.1% in its consolidated assets, i.e. the equivalent of US$ 3.2 billion, further strengthening the Group’s competitive position in domestic and regional markets. Net earnings reached US$ 261 million in the first nine months of 2013, registering a 5.5% decline relative to the net operating profits of the corresponding period of 2012. This performance was realized despite the launch of the fully-owned subsidiary in Turkey encompassing a network of 20 branches in 11 months, with the subsequent normal time lag between immediate operating expenses and expected revenues.


In details:

• Consolidated assets rose by US$ 3.2 billion during the first nine months of 2013 to reach US$ 34.5 billion at end-September 2013 and US$ 43.9 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 of US$ 4.6 billion over the same period. As a matter of fact, Odea Bank has built in less than a year of activity US$ 6.6 billion of assets, US$ 4.9 billion of customers’ deposits and US$ 4.2 billion of loans, a first time achievement when compared to the subsidiaries of all other Lebanese banking groups. This achievement translates in an increase of the contribution of entities abroad to consolidated assets from 32.4% at end-December 2012 to 40.6% at end-September 2013.

• In parallel, consolidated customers’ deposits reached US$ 29.5 billion at end-September 2013, increasing by US$ 2.7 billion, i.e. the equivalent of 9.9%, driven mainly by the Turkish banking subsidiary which registered a deposits growth of US$ 3.5 billion, a significant achievement since it represents 55% of the increase of the deposits base of the Lebanese banking sector at large.

• Consolidated net loans moved from US$ 10.4 billion at end-December 2012 to US$ 13.6 billion at end-September 2013, i.e. an increase of US$ 3.1 billion, translating into a further improvement in the loans-to-deposits ratio to 46%, in line with Management’s goal to have this ratio exceed the 50% threshold in the medium term.

• In spite of the negative impact of the currency depreciation registered in several countries of presence of the Group, consolidated shareholders’ equity reached US$ 2.7 billion, representing 8% of the Bank’s consolidated assets. Adding to equity the US$ 350 million of subordinated debt issued by Bank Audi in September 2013 and accounted as Tier 2 capital as per Basel III, the Bank’s Basel III capital adequacy ratio would reach 11.8% at end-September 2013, as compared to a 10.5% minimum regulatory requirement set for end-2013, highlighting the Group’s financial flexibility.

• Within the context of persisting volatile domestic and regional conditions, the Bank continued to adopt a stringent risk management policy aiming at maintaining good asset quality, thereby allocating additional net provisions of US$ 61 million in the first nine months of 2013. Gross doubtful loans accounted for only 2.2% of gross loans, with the coverage of those loans by specific loan loss provisions reaching 79.7% at end-September 2013, notwithstanding collective provisions representing 0.88% of net loans and real guarantees. As a result, the net doubtful loans to gross loans ratio improved from 0.64% at end-December 2012 to 0.45% at end-September 2013.

• Primary liquidity placed with central banks and foreign banks reached US$ 12 billion, representing 40.5% of customers’ deposits, an elevated level when compared to regional and global averages.

• During the first nine months of 2013, Bank Audi’s net earnings reached US$ 261 million, against US$ 277 million in the corresponding period of 2013 before the exceptional profits related to discontinued operations, decreasing by 5.5% mainly due to the initial launching stages of the Turkish banking subsidiary, as the latter is following an organic growth strategy with the subsequent normal time lag between immediate operating expenses and expected revenues. When adjusting the Group’s net earnings to Odea Bank’s results, Bank Audi would have recorded a net earnings growth of 5.9% amidst challenging domestic and regional operating conditions, reflecting the Group’s large earnings’ flexibility.

• Based on such results, the Bank’s earnings per common share amounted to US$ 0.9 while the book value per share stood at US$ 6.3. Subsequently, and based on a common share price of US$ 6.15 at the closing of 18/10/2013, the Bank’s common shares were trading at 6.8x 9M 2013 earnings and 1x Sep-13 book value, reflecting very low multiples relative to performance metrics and to regional peer banks multiples.


The results of the first nine months of 2013 confirm once again the large financial flexibility of the Group on the back of a diversification of its activity and earnings sources. It also bears witness to the Group’s readiness to face adverse developments in several markets of presence and seize opportunities tied to the improvement of operating conditions. On the basis of a potentially improved stability in the political and economic environment over the medium term in Lebanon and the MENA region, Bank Audi remains committed to its regional expansion strategy by extending its presence to new countries ensuring added value to all stakeholders within its customers’ and shareholders’ base at large.

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