Bank Audi Consolidated Activity Highlights as at End-March 2015

20 Apr 2015

US$ 41.5 billion of assets, of which 46% from entities outside Lebanon and 31% booked in investment grade countries
US$ 35.1 billion of customers’ deposits, of which 44% from entities outside Lebanon
US$ 16.4 billion of loans to customers, of which 65% from entities outside Lebanon
US$ 3.4 billion of shareholders’ equity, of which 85% of core common shareholders’ equity
US$ 100 million of net profits in the first quarter of 2015, growing by 17% relative to the first quarter of 2014, of which 52% from entities outside Lebanon
In Lebanon, the domestic economy displayed improving though modest performance amidst persisting domestic political uncertainties, a further delay of constitutional milestones and widening regional security drifts. According to the just released IMF World Economic Outlook, real GDP growth is forecasted at 2.5% for 2015, which though slightly better than that of last year, is way below potential. The evolution of most real sector indicators over the first quarter of 2015 relative to the corresponding period of 2014 is in line with such a growth perspective. At the banking level, activity growth was relatively modest this year, though at a slightly better pace than that of the 2014 similar period.

On the other hand, the regional economic performance continues to be mixed. In Egypt, the economy has begun to recover after four years of slow activity, with the IMF projecting real GDP growth at 4% in FY 2014/2015, i.e. almost double its pace registered since the outbreak of the revolution in 2011. Other Arab countries in transition are yet witnessing significant political and security uncertainties, weighing considerably on economic conditions and prospects. As to Turkey, the other market of presence of Bank Audi within the broad region, growth is set to maintain an acceptable 3.1% real GDP growth projection in 2015 as per recent IMF forecasts, within the context of net economic benefits generated by the decrease in oil prices leading to lower external deficits and improved economic efficiency, on the backdrop of sustained volatility in the exchange rate and the reference rates resulting from the impact of the policies of the US Federal Reserve Bank on the emerging markets at large.

Within this context, Bank Audi continued to register a good performance in the first quarter of 2015, with consolidated net profits growing by 17% relative to the first quarter of 2014 to reach US$ 100 million, of which 52% from entities outside Lebanon. This performance stems in particular from the consolidation of the leading positioning of the Group in main countries of presence since it is the largest bank in Lebanon, the seventh bank in Egypt among private commercial banks, and the thirteenth bank in Turkey out of 34 deposits banks, after only 29 months since launch. Accordingly, the consolidated assets of Bank Audi reached US$ 41.5 billion as at end-March 2015, of which 46% from entities outside Lebanon and 31% booked in investment grade countries, reinforcing the overall quality of the Bank’s assets.

In details:

• Consolidated assets of Bank Audi reached US$ 41.5 billion at end-March 2015 and US$ 51.1 billion when accounting for fiduciary deposits, security accounts and assets under management, sustaining the Bank’s positioning at the forefront of the Lebanese banking sector and among the leading Arab banking groups. The contribution of entities outside Lebanon to consolidated assets reached 46%, while 31% of assets were booked in investment grade countries, a level unprecedented in the Lebanese banking sector. The slight contraction in the volume of assets at end-March 2015 relative to end-December 2014 (-1.2%) is attributed mainly to the adverse impact of the deterioration of the exchange rate of both the Turkish lira and the Egyptian pound relative to the US dollar by respectively 13% and 6.7% over the same period, which negatively affected the translation of the consolidated aggregates to Lebanese Pounds and subsequently to US dollars (based on a fixed exchange rate).

• In parallel, consolidated customers’ deposits reached US$ 35.1 billion at end-March 2015, of which 44% from entities outside Lebanon while consolidated loans to customers reached US$ 16.4 billion, of which 65% from entities abroad.

• Consolidated shareholders’ equity reached US$ 3.4 billion, translating into a Basel III capital adequacy ratio of 13.7% at end-March 2015, as compared to 13% at end-December 2014 and a 12% regulatory minimum requirement. 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 14.1% at the same date.

• Gross doubtful loans represented 3.2% of gross loans while the coverage of those loans by specific provisions increased from 71.6% at end-December 2014 to 72.3% at end-March 2015, reaching 89% when including real guarantees. In parallel, collective provisions increased to US$ 142 million at end-March 2015, representing 0.86% of the consolidated net loan portfolio. The improvement in coverage ratios stems from the allocation of US$ 33 million of net loan loss provision charges in the first quarter of 2015, facing spillover effects of domestic and regional developments. Subsequently, the ratio of net doubtful loans to gross loans sustained its December 2014 level standing at 0.9%.

• Consolidated primary liquidity placed with central banks and foreign banks amounted to US$ 16.1 billion at end-March 2015, the equivalent of 46% of customers’ deposits, a high level when compared to regional and global averages.

• Bank Audi’s net earnings reached US$ 100 million in the first quarter of 2015 as compared to US$ 85.7 million in the first quarter of 2014, growing by 17% year-on-year, after the allocation of US$ 33 million of net loan loss provision charges. This performance stems mostly from a US$ 53.9 million increase in total revenues (i.e. a growth of 18.9%) (primarily as a result of the exponential growth of Odea Bank’s revenues) exceeding the increase in general operating expenses by US$ 20.1 million (i.e. a growth of 12.7%). This translates in an improvement in the overall efficiency, with the cost to income ratio decreasing by 2.9%, from 55.3% in the first quarter of 2014 to 52.4% in the first quarter of 2015.

• Based on such results, the Bank’s return on average assets ratio improved from 0.9% at end-December 2014 to 1% at end-March 2015, while the return on average common equity was sustained at its level of 13.4%, 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$ 7.1. Subsequently, and based on a common share price of US$ 6.5 at the closing of 16/4/2014, the Bank’s common shares were trading at 0.9x book value, reflecting a very low multiple when compared to regional peer banks’ multiples.

Finally, Bank Audi’s results in the first quarter of 2015 highlight the Bank’s ability to maintain its standing amidst tough operating conditions, which enables it to cover all costs related to its development, allocate the provisions required to face adverse regional developments, and enhance the Group’s capital adequacy and resilience. Such performances also bear witness to Management success in reaching its set target of balanced breakdown of assets and earnings between Lebanon and abroad, underlining the diversification of the sources of growth and its overall quality.

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