Bank Audi Consolidated Activity Highlights as at End-June 2014.

Beirut, 27 Jul 2014

• US$ 39.3 billion in total assets as at 30/06/2014 
• US$ 34.0 billion of customers’ deposits
• US$ 16.0 billion of net loans to customers
• US$ 2.7 billion of shareholders’ equity
• US$ 190 million of net profits in the first half of 2014


Over the first half of 2014, the Lebanese economy gained relatively some momentum as witnessed by most real sector indicators, though growth remains well below its potential amidst lingering regional uncertainties and their spillover effects on the domestic environment. The IMF revised slightly upward its real GDP growth forecast for 2014 from 1% in its World Economic Outlook to 2% in its recent Article IV Consultation mission report. The improved economic environment has generated a 15.0% rise in financial inflows, offsetting the widening trade deficit and generating a surplus in the balance of payment of US$ 766 million in the first five months of 2014, against consecutive deficits over the past three years. In parallel, banking activity maintained sound growth amidst strong financial soundness indicators, with annual growth rates of 6.8 % in customer deposits and 10.3% in loans to the private sector as of May 2014.

In the Middle East and North Africa region, economic performance is mixed. Last year's tepid growth in the region's oil exporters is improving as oil production and exports respond to the global economic recovery. In the region's oil importers, modest growth is continuing but its drivers begin to change on the back of improved consumption, financed by remittances and large public sector wage spending. At the MENA banking level, while deposit growth over the first 5 months of the year maintained last year's corresponding period level of circa US$ 67.8 billion, loan growth reported a net improvement from US$ 30.7 billion to US$ 43.3 billion between the two periods. In Turkey, the other market of presence of Bank Audi, increased exports and sustained public spending helped Turkey to edge past growth expectations for the first quarter of the year, as the economy expanded by 4.3% compared with the same period of 2013, leading some outside forecasters to revise upward their estimates for 2014 as a whole. This was realized on the back of improved banking activity year-to-date, with deposit growth reporting US$ 18.3 billion over the first five months of 2014, against US$ 7.5 billion during the 2013 corresponding period.

Within this context, consolidated net profits of Bank Audi reached in the first half of 2014 US$ 190 million after provisions and taxes, slightly exceeding the earnings of the corresponding period of 2013, bearing witness to a sustained dynamic growth at the level of all entities alike within the context of Odea Bank reporting in the second quarter its first net profits, representing a rising trend that Management is looking to turn into an exponential increase. In parallel, consolidated assets sustained its last year's growth trend, posting an increase by US$ 3.1 billion sourced principally from Turkey, Lebanon and Egypt. This growth was met by a further reinforcement of the Bank's asset quality after the allocation in the first half of 2014 of US$ 34.9 million of net loan loss provision charges, most of which in collective provisions, in abidance with precautionary management policies.

In details:

• The Bank's consolidated assets rose from US$ 36.3 billion at end-December 2013 to US$ 39.3 billion at end-June 2014, and reaching US$ 49.5 billion when accounting for fiduciary deposits, security accounts and assets under management. The consolidated asset growth stems in particular from Lebanon, Egypt and Turkey, where Odea Bank reported at end-June 2014 assets of US$ 9.6 billion, within a limited assets growth at the level of all other entities. This achievement translates in an increase of the contribution of entities abroad to consolidated assets from 42.6% at end-December 2013 to 45.4% at end-June 2014, of which 31% is booked in investment grade countries. This performance is in line with Management's objective to reach a more balanced distribution of assets and profits over the different entities in Lebanon and abroad reinforcing the overall asset quality.


• Assets growth was primarily driven by consolidated customers' deposits reaching US$ 34 billion at end-June 2014, and increasing by US$ 2.9 billion, equivalent to a growth by 9.2% over the first six months of 2014, mainly driven by the Turkish subsidiary and by Bank Audi Lebanon, Bank Audi Egypt and the Jordan network.


• Consolidated shareholders' equity reached US$ 2.7 billion at end-June 2014 while the gross regulatory capital amounted to US$ 3.2 billion, translating into a Basle III capital adequacy ratio of close to 12.3% at end-June 2014, as compared to an 11.5% regulatory minimum requirement including the capital conservation buffer.


• In parallel, the growth of the loan portfolio sustained the same pace, reporting an increase by 9% in the first six months of 2014, as consolidated net loans reached US$ 16 billion at end-June 2014. This loan growth was met with a reinforcement of the loan quality through the allocation by the Bank of US$ 34.9 million of additional loan loss provision charges in the first half of 2014, most of which in collective provisions. At end-June 2014, collective provisions amounted to US$ 170 million, equivalent to 1.1% of net consolidated loans while specific loan loss reserves on doubtful accounts reached US$ 171 million, translating in coverage of doubtful loans of 106%. Meanwhile, the ratio of gross doubtful loans over gross loans improved from 2.79% at end-December 2013 to 2.53% at end-June 2014, a low level when compared to the averages in Lebanon (3.3%), the MENA region (4.5%) and the World (6.6%).


• Consolidated primary liquidity placed with Central Banks and foreign banks was further reinforced, reaching US$ 14.1 billion, representing 41.6% of customers' deposits.


• The evolution of the balance sheet in the first half of 2014 turned net earnings of US$ 189.8 million. This performance stems from a sustainment of profitability levels in all entities within the context of Odea Bank reporting, in the second quarter, its first net profits after provisions and taxes, representing a rising trend that Management is looking to turn into an exponential increase over the coming period.


• Based on such results, the Bank's profitability ratios were reinforced with the return on average assets achieving 1% and the return on average common equity 15.9%. In parallel, the Bank's earnings per common share amounted to US$ 1 on an annualised basis, while the common book value per share stood at US$ 6.25. Subsequently, and based on a common share price of US$ 6.36 at the closing of 21/07/2014, the Bank's common shares were trading at 6.4x the HI-14 common earnings and 1.02x June-14 book value, reflecting a very low multiple relative to regional peer banks multiples that reported 11.9x common earnings and 1.7x book value according to the Deutsche Bank's MENA report published on 2/7/2014.

The results of the first half of 2014 confirm the Group's ability to achieve the growth targets for the balance sheet and earnings while further reinforcing its financial standing. In the medium term, the development channels will be centered around three main pillar markets, which are naturally Lebanon, Egypt and Turkey over and above the fourth development pillar being the private banking business line while management remains committed to levy all required resources to execute this strategy. Once the expected market shares in Egypt and Turkey achieved, the Group intents to expand to Sub-Saharan Africa and Latin America, where, without having a physical presence, the Group already manages out of desks domiciled in Lebanon, France and Switzerland a turnover of US$ 3.8 billion.

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