Bank Audi Consolidated Activity Highlights at End-December 2012

Beirut, 20 Jan 2013
Launch of activities of Odea Bank A.Ş., the Turkish banking subsidiary, on 01/11/2012
US$ 1.4 billion of customers' deposits and US$ 2 billion of assets as at 31/12/2012
  • US$ 31.3 billion of assets
    Growing by 8.9% relative to end-2011
  • US$ 26.8 billion of customers' deposits
    Growing by 8.1% relative to end-2011
  • US$ 2.7 billion of shareholders' equity
    Growing by 13.6% relative to end-2011
  • US$ 384 million of net profits for 2012
    Growing by 5% relative to 2011
The past year was characterized by the further deterioration in the regional situation and the domestic political bickering, with spillover effects on the Lebanese economy, namely in the realms of investment, trade and tourism, the IMF having estimated growth at 2% for full-year 2012. While the wait-and-see attitude governing investors amidst uncertainties continues to delay major investment decisions, private consumption manages to report a relative resilience, partly supported by the favorable incoming of Lebanese expatriates and the spending of Syrian refugees. At the banking sector level, activity growth was moderate on the overall. The growth in customers' deposits of US$ 7.4 billion over the first 11 months of 2012 was quite close to the one reported in 2011, while the growth in lending of US$ 3.6 billion was 24% less than that of the previous year's corresponding period. Within this context, banks operating conditions continued to be tough, characterized by pressures on spreads and margins, slow fee income growth generation and growing provision requirements.

At the regional level, economic conditions of the Middle East and North Africa region were mixed during the year 2012, with most of the region's oil exporting countries growing at healthy rates and oil importers facing subdued economic performances. For the regional economies facing political transitions and where Lebanese banks have presence, political uncertainties are still weighing on growth. They have witnessed a marked decline in exports in 2012, tourism arrivals are recovering only slowly, and foreign direct investment inflows remain subdued, all leading to a modest growth in Egypt and a significant contraction in the Syrian economy.

Despite the tough domestic and regional economic conditions, Bank Audi sal - Audi Saradar Group registered a relatively good performance in 2012, with consolidated assets growing by 8.9% and net earnings increasing by 5%. Such a performance stems from the Bank's consolidating its leading position in the domestic market within the context of asset growth in Egypt and the launch of banking activities in Turkey on November 1, which fully offset the contraction in activity in Syria and allowed the Bank to register a net growth in assets and profits. In parallel, the Bank pursued its conservative strategy aimed at strengthening asset quality and resilience in the face of adverse regional developments, with the allocation of net provisions worth US$ 121 million.

In details

  • Consolidated assets rose by US$ 2.6 billion during the year 2012 to reach US$ 31.3 billion at end-December 2012 and US$ 39.8 billion when accounting for fiduciary deposits, security accounts and assets under management. Despite the contraction of assets of Bank Audi Syria by an additional half a billion US Dollars in 2012 (to reach by end-December 32% of the end-2010 level), the rise in consolidated assets stems in particular from the banking subsidiary in Turkey which launched its activities on November 1, 2012 and achieved in a mere two months important preliminary results through a network of 6 branches and 398 employees raising US$ 2 billion in assets, US$ 1.4 billion in deposits and US$ 966 million in loans. This achievement adds to a noticeable activity growth at the level of Bank Audi Lebanon and Bank Audi Egypt amidst varying performances at the level of other entities. As a result, the share of abroad in consolidated assets rose from 28.0% at end-December 2011 to 32.3% at end-December 2012. The Bank's objective continues to revolve around reaching a balanced distribution of assets and profits over the different entities in Lebanon and abroad.
  • The growth in assets was in particular owed to customers' deposits which grew by 8.1% in 2012, i.e. the equivalent of US$ 2 billion, moving from US$ 24.8 billion at end-December 2011 to US$ 26.8 billion at end-December 2012. This increase mostly stems from Lebanese and Turkish operations within the context of a contracting deposit base for Bank Audi Syria.
  • Consolidated shareholders' equity reached US$ 2.7 billion, accounting for 8.6% of the Bank's consolidated assets, and translating into a Basel III capital adequacy ratio of around 11.6%, versus a 10% minimum regulatory requirement.
  • The rise in consolidated assets was translated into a growth at the level of the consolidated lending portfolio of 22% (the equivalent of US$ 1.9 billion) for the latter to reach US$ 10.5 billion at end-December 2012, which contributed to a steady increase in the loan-to-deposit ratio from 34.7% to 39.1% over the period.
  • Lending growth was coupled with a strengthening of the lending portfolio quality through the allocation of additional net provisions worth US$ 121 million during 2012, most of which in the form of collective provisions. Total collective provisions reached US$ 111 million at end-December 2012, the equivalent of 1.1% of the consolidated net loans portfolio, while loan loss provisions stood at US$ 221 million, translating in a coverage of doubtful loans by specific provisions of 76.3%. In parallel, the gross doubtful loans to gross loans ratio improved, reaching 2.68% at end-December 2012, while net doubtful loans accounted for 0.63% of gross loans, a relatively low level, especially given the uncertain regional conditions, particularly in Syria.
  • The growth in assets was not realized at the detriment of the Group's financial standing, as 23.1% of the total growth in assets during 2012 was used to increase primary liquidity, reaching US$ 13.1 billion and representing 49% of customers' deposits.
  • Bank Audi sal - Audi Saradar Group's net earnings grew by 5% in 2012, moving from US$ 365 million in 2011 to US$ 384 million in 2012. As to operating profits before provisions and taxes, they rose by 7.9% over the year 2012, and by 10.8% when including profits from discontinued operations, thus reflecting the Group's strong earnings generation capacity. The Bank's net earnings growth is the result of a 13.2% increase in total income and a 16% rise in total operating expenses (mainly attributed to the launch of the Turkish banking subsidiary), which resulted in an increase at the level of the cost-to-income ratio. The latter moved from 44.7% in 2011 to 45.8% in 2012 and 44.1% when excluding operating expenses in Turkey and which mainly consisted of non-recurring expenses attributed to the launch of activities.
  • Based on such results, the Bank's profitability ratios improved, with the return on average assets reporting 1.28% and the return on average common equity amounting to 16.6%. In parallel, earnings per common share increased to US$ 1.01 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 17/1/2013, the Bank's common shares were trading at 6.1 times 2012 earnings per common share and 1 time book value per common share.
Finally, the 2012 results confirm once again the Group's ability to maintain favorable activity and earnings growth and pursue its expansionary strategy aiming to strengthen its leading positioning in the Near East and Turkey, with Lebanon, Egypt and Turkey becoming the pillars of growth in coming years. The Group's development strategy in Turkey will revolve around the establishment of a network of close to 100 branches and build an asset and a profit base that would allow the Turkish subsidiary to rank second to Lebanon within the Group. Such orientations rest on the Group's solid financial standing and flexibility, making it a distinguished partner in catering to customers' needs in this region through ensuring a wide and diversified array of products and services covering Retail, Commercial, Corporate and Private Banking.

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