Bank Audi Consolidated Activity Highlights as at End-December 2013

Beirut, 30 Jan 2014
- US$ 36.1 billion of consolidated assets as at 31/12/2013

- US$ 31.1 billion of customers’ deposits
- US$ 14.7 billion of loans to customers
- US$ 9.3 billion of assets under management
- US$ 2.7 billion of shareholders’ equity
- US$ 305 million of net earnings in 2013

The year 2013 has extended Lebanon’s economic sluggishness witnessed since the beginning of the regional turmoil. Real GDP has displayed a low, though positive growth, of close to 2.5% as per the Central Bank of Lebanon amidst the adverse spillover effects of the Syrian conflict on investment, tourism and foreign trade at large. In parallel, the Lebanese banking system continues to witness resilience favored by a positive growth in inflows towards the home economy. In 2013, customers’ deposits grew by more than US$ 10 billion, against US$ 9.3 billion in 2012, and loans to the private sector maintained their previous year’s growth of circa US$ 4 billion over the same period.

In the Middle East and North Africa region, the near-term economic performance has weakened during the year 2013. In oil-importing countries, regional conflict, heightened political tensions, and delays in reforms continue to weigh on growth. In parallel, most oil-exporting countries continue to enjoy steady growth in the non-oil sector, supported in part by high levels of public spending, but headline growth has declined because of decreasing oil production amidst lower global demand. At the banking sector level, the MENA region has been reporting an acceptable 8.4% annualized growth in both deposits and loans over the first 10 months of 2013. Turkey, the other market of presence of Bank Audi, is witnessing a sound banking performance despite the arising domestic political tensions, with bank deposits displaying an annualized growth rate of 19.6% in Turkish Lira terms and of 13% at constant exchange rate by end-November 2013.

Within this context, consolidated assets of Bank Audi sal - Audi Saradar Group reached at end-December 2013 US$ 36.1 billion, registering a growth of 15.4% relative to the corresponding period of 2012, i.e. an increase by US$ 4.8 billion, sourced principally from Odea Bank, the fully-owned subsidiary in Turkey. This performance highlights once again the Bank’s capacity to adapt to the rapid changes in the regional operating environment. It also falls within the transformation strategy adopted by Management which revolves around securing over the medium term an entrenched positioning in the Turkish market, which still enjoys a large size and high levels of growth in spite of short term volatility. In parallel, Bank Audi achieved in 2013 net consolidated earnings of US$ 305 million, posting a decline relative to the net operating profits of 2012, attributed to the first year of operations of Odea Bank whose network encompasses 31 branches and which succeeded in 14 months to rank 14th among the 33 operating commercial banks in Turkey with an assets’ market share of close to 1%. The Group’s strategy continues to revolve around enhancing the efficiency of its Lebanese entities while developing its subsidiaries abroad in a way to ensure a significant contribution of foreign entities abroad in the growth of consolidated assets and net earnings starting 2015.

In details:

• The Bank’s consolidated assets rose by US$ 4.8 billion in 2013 to reach US$ 36.1 billion at end-December 2013. In parallel, assets under management (fiduciary deposits, security accounts and assets under management) increased by US$ 841 million in 2013, translating in a total of assets and assets under management of US$ 45.4 billion at end-December 2013, of which more than 33% is booked in investment grade countries, a level unparalleled among the Lebanese banking groups at large.

• In parallel, consolidated customers’ deposits reached US$ 31.1 billion at end-December 2013, increasing by US$ 4.3 billion relative to the corresponding period of 2012, driven mainly by the Turkish banking subsidiary which registered a deposits growth of US$ 4.4 billion. Consolidated net loans also increased by US$ 4.3 billion, i.e. a growth of 41%, to reach US$ 14.7 billion at end-December 2013.

• Consolidated shareholders’ equity reached US$ 2.7 billion at end-December 2013. Adding to equity the US$ 350 million of subordinated debt accounted as Tier 2 capital as per Basel III, the Bank’s gross regulatory capital would reach US$ 3 billion. Accordingly, the Bank’s Basel III capital adequacy ratio would reach 11% at end-December 2013, as compared to a 10.5% regulatory requirement.

• At the loan quality level, gross doubtful loans accounted for only 2.7% of gross loans, with the coverage of those loans by specific and collective loan loss provisions reaching 98% at end-December 2013, within the context of an allocation by Management of US$ 90.3 million of additional loan loss provision charges in 2013. Adjusting to real guarantees, the doubtful loan coverage ratio would exceed the 100% threshold reaching 113%.

• Primary liquidity placed with central banks and foreign banks reached US$ 12.5 billion, representing 40.1% of customers’ deposits, an elevated level when compared to regional and global averages.

• In 2013, Bank Audi’s net earnings reached US$ 305 million, against US$ 361 million in 2012 before the exceptional profits related to discontinued operations, decreasing by 15.6% mainly due to the initial launching stages of the Turkish banking subsidiary, whose network encompasses 31 branches with the subsequent normal time lag between immediate operating expenses and expected revenues.

• Based on such results, the Bank’s earnings per common share amounted to US$ 0.8 while the book value per share stood at US$ 6.3. Subsequently, and based on a common share price of US$ 6.4 at the closing of 27/01/2014, the Bank’s common shares were trading at 1x 2013 book value, reflecting a very low multiple relative to regional peer banks multiples.

The 2013 results reflect fairly the strategic orientations set by Management so that the Group remains ready to seize opportunities for the development of activities and expansion in better rated new countries ensuring added value to all stakeholders within its customers’ and shareholders’ base at large. Within this context, Bank Audi was granted a license by the Central Bank of Iraq to open 7 branches and launch banking operations in Baghdad and each of Irbil, Basra, Najaf, Suleymanieh, Salaheddine and Mosul. A team from the Group is currently laying the organizational and operational grounds of this network in the aim of launching operations in Iraq during the course of 2014.

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