Bank Audi Consolidated Activity Highlights as at End-June 2015

23 Jul 2015

US$ 42.3 billion of assets, of which 47% from entities outside Lebanon and 32% booked in investment grade countries
US$ 36.1 billion of customers’ deposits, of which 45% from entities outside Lebanon
US$ 17 billion of loans to customers, of which 66% from entities outside Lebanon
US$ 3.1 billion of shareholders’ equity, of which 88% of core common shareholders’ equity
US$ 202 million of net profits in the first half of 2015, growing by 7% relative to the first half of 2014, of which 48% from entities outside Lebanon
In the first half of 2015, Lebanon’s economic performance extended the sluggishness that it went through since the beginning of the regional turmoil, with its real sector slowing down even further. On that background, real growth has been revised down to 2% for the current year by the IMF and could have been lower if it wasn’t for lower oil prices, which yet helped narrow Lebanon’s macro imbalances. However, the persisting regional geopolitical tensions are likely to continue to weigh on macro performances. Although we see very little upside in the near term, we are still confident that the economy has means to weather the challenges it faces and to avoid a recessionary trap.

In the MENA region where Bank Audi has an extensive presence, a modest recovery is expected to continue despite a slump in oil prices, raging regional conflicts, and lingering uncertainty of the post-Arab Spring transitions. GCC countries are expecting their growth to slightly decline to 3.4% in 2015, while oil importing countries are expected to benefit from the decline in oil prices to display a 4% growth in 2015. In Egypt, a stabilizing political landscape and growth-supporting reforms, as well as continued support from some Gulf states, are helping Egypt's economic recovery with real GDP growth expected to rise to 4% this year as per the IMF translating favourably on financial and banking aggregates. As to Turkey, the other market of presence of Bank Audi within the broad region, the latter continued to face volatility resulting from international economic and monetary pressures as well as from domestic political conditions without the affecting the ability of the Turkish economy to sustain a real GDP growth at 3.1%, leading into a corollary growth of banking activity.

Within this context, Bank Audi continued in the first half of 2015 to consolidate its presence in countries with promising growth prospects, registering an adequate growth in assets and profits. Consolidated net profits grew by 7% relative to the first half of 2014 reaching US$ 202 million, of which 48% from entities outside Lebanon. In parallel, consolidated assets of Bank Audi increased to US$ 42.3 billion at end-June 2015, of which 47% from entities outside Lebanon and 32% booked in investment grade countries, reinforcing the overall quality of the Bank’s assets. This performance stems in particular from entities operating in Lebanon, Turkey, Egypt and private banking entities despite persisting tough operating conditions across the region, thus highlighting the resilience of the Group’s business model.

In details:

• Consolidated assets of Bank Audi reached US$ 42.3 billion at end-June 2015 and US$ 52.6 billion when accounting for fiduciary deposits, security accounts and assets under management, sustaining the Bank’s leading positioning in main countries of presence, particularly in Lebanon, and among the leading Arab banking groups. Adjusting to the depreciation of the exchange rates of both the Turkish lira and the Egyptian pound relative to the US dollar by respectively 15.9% and 6.7% over the first half of 2015, consolidated assets of Bank Audi would have increased by US$ 1.4 billion over the same period (as compared to a nominal increase of US$ 350 million), representing a good performance on the backdrop of the accumulation of adverse political and economic conditions across the region at large. The increase in assets stems in particular from entities operating in Egypt and in Turkey that achieved an assets growth by respectively 18% and 13%, in addition to entities operating in Lebanon. Accordingly, the contribution of entities outside Lebanon to consolidated assets reached 47%, with 32% of assets booked in investment grade countries.

• In parallel, consolidated customers’ deposits reached US$ 36.1 billion at end-June 2015, of which 45% from entities outside Lebanon, while consolidated loans to customers reached US$ 17 billion, of which 66% from entities abroad.

• Consolidated shareholders’ equity reached US$ 3.1 billion, translating into a Basel III capital adequacy ratio of 12.8% at end-June 2015, as compared to a 12% regulatory minimum requirement, despite the call of the US$ 125 million Series “E” preferred shares at its maturity. When including the additional surplus from the revaluation of fixed assets booked in accordance with BDL Intermediary Circular No. 44 which still awaits regulatory approvals and is accounted for as Tier two capital, Bank Audi’s capital adequacy ratio would reach 13.2% at the same date.

• Within the context of volatile regional conditions, the Bank continued to adopt a stringent risk management policy consisting of maintaining a good asset quality, thereby allocating additional net provisions of US$ 61.6 million in the first half of 2015. Gross doubtful loans represented 3.1% of gross loans at end-June 2015 within the context of a coverage of those loans by specific provisions by 70%, reaching 88% when including real guarantees. Subsequently, the ratio of net doubtful loans to gross loans sustained its December 2014 level of 0.9%. In parallel, collective provisions increased to US$ 144 million at end-June 2015, representing 0.85% of the consolidated net loan portfolio.

• Consolidated primary liquidity placed with central banks and foreign banks continued to increase, reaching US$ 16.4 billion at end-June 2015, the equivalent of 45.5% of customers’ deposits, a high level when compared to regional and global averages.

• Bank Audi’s net earnings reached US$ 202 million in the first half of 2015 as compared to US$ 190 million in the first half of 2014, growing by 7% year-on-year, after the allocation of US$ 61.6 million of net loan loss provision charges. This performance stems mostly from a US$ 55.4 million increase in total revenues, corresponding to a growth of 8.9% (primarily as a result of the exponential growth of Odea Bank’s revenues) within a tight control on general operating expenses which growth reported 3.6%, i.e. an increase of US$ 12.5 million. This translated in an improvement in overall efficiency, with the cost to income ratio decreasing by 2.7%, from 56.1% in the first half of 2014 to 53.4% in the first half of 2015.

• Based on such results, the Bank’s return on average assets ratio improved from 0.9% in 2014 to 1% in the first half of 2015, while the return on average common equity reached 13.8% (as compared to 13.6% in 2014), despite the full impact of the US$ 300 million common equity increase at end-September 2014. In parallel, the Bank’s common book value per share stood at US$ 6.76. Subsequently, based on a common share price of US$ 6 at the closing of 13/7/2015, the Bank’s common shares were trading at 0.89x book value, reflecting a very low multiple when compared to regional peer banks’ multiples.

The results of the first half of 2015 confirm once again the Group’s ability to maintain favorable growth in activity and net earnings and reinforce further its financial standing. The Bank remains committed to levy all resources required to execute this strategy, in the aim of building long lasting productive relationships with customers in all markets of presence while emphasizing cross selling activities throughout those markets that enjoy rising bilateral trade relationships.

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