US$ 37.8 billion in total assets as at 31/03/2014
US$ 32.3 billion of customers’ deposits
US$ 15.3 billion of loans to customers
US$ 9.9 billion of assets under management
US$ 2.8 billion of shareholders’ equity
US$ 85.8 million of net profits in the first quarter of 2014
The Lebanese economy has witnessed a slight improvement in the first quarter of 2014, but growth remains relatively low when compared to the potential growth of the domestic economy. The main real sector indicators still reported a relative amelioration in the first quarter of 2014 relative to the 2013 corresponding period, as a reflection of a slight improvement in macro conditions in the aftermath of the cabinet formation in Lebanon. At the banking level, although banking sector growth was weak in the first couple of months of this year as a result of technical factors that followed the significant increase in banks balance sheets in the last month of 2013, the annual growth in deposits and loans has maintained sound rates of 7.4% and 7.8% respectively at the end of February 2014. This was realised within the context of a surplus in the balance of payments of US$ 162 million in the first two months of 2014, resulting from a growth in financial inflows of 11.2% relative to the same period of last year.
As to the Middle East and North Africa region, where Bank Audi has a wide presence, it is still witnessing a divergence in performance between oil importing countries and oil exporting countries. Oil importers are suffering from a lengthy political transition while lagging to register sound growth in their respective economies with what it could entail in terms of improved real sector performance, increase in investment and decrease in unemployment rates. On the other hand, oil exporters continue to benefit from expansionary monetary and fiscal policies aimed at supporting real economic conditions, notwithstanding the rise in private sector contribution in the overall economies. It is worth mentioning that the regional growth in deposits and loans over the first couple of months was close to the one witnessed in the same period of last year, registering 7% and 6% on an annual basis. As to Turkey, the other market of presence of Bank Audi, it witnessed a considerable improvement in the period that followed the municipal elections at end-March 2014, after a period of domestic political tensions. Such an improvement was accompanied with an appreciation in the Turkish Lira relative to the US$ by 7% and a corollary relief in financial markets at large.
Within this context, consolidated assets of Bank Audi sustained its growth trend, rising from US$ 36.2 billion at end-December 2013 to US$ 37.8 billion at end-March 2014, corresponding to an increase by US$ 1.6 billion sourced principally from Turkey, Egypt and Lebanon. The evolution of the Group’s balance sheet reflects primarily the strong fundamentals of the transformation strategy adopted by Management, as well as the existing business opportunities allowing the Group to weather the persisting prevailing challenging environment in a number of countries of presence. In parallel, Bank Audi achieved in the first quarter of 2014 net consolidated profits of US$ 85.8 million, a level almost equivalent to the net profits of the corresponding period of 2013, driven by a 12.2% growth in total income and after the allocation of US$ 20.1 million of net loan loss provisions to sustain a good loan quality level.
The Bank’s consolidated assets reached US$ 37.8 billion at end-March 2014, registering an increase by US$ 1.6 billion relative to end-December 2013. In parallel, assets of entities abroad reached US$ 16.9 billion, corresponding to a share of 45% in consolidated assets. Adjusting to assets under management (fiduciary deposits, security accounts and assets under management), the total of assets and assets under management reaches US$ 47.7 billion at end-March 2014, of which 35% is booked in investment grade countries, a level unparalleled among the Lebanese banking groups at large.
Consolidated customers’ deposits rose from US$ 31.1 billion at end-December 2013 to US$ 32.3 billion at end-March 2014, increasing by US$ 1.2 billion, mainly driven by the Turkish subsidiary which registered a deposits growth of US$ 1178 million, and by a deposits increase of US$ 262 million in Bank Audi Egypt. In parallel, consolidated net loans reported a similar growth to reach US$ 15.3 billion at end-March 2014.
Consolidated shareholders’ equity reached US$ 2.8 billion at end-March 2014. When adding to the equity the US$ 500 million of subordinated debt issued in September 2013 and March 2014 and accounted as Tier 2 capital as per Basel III, the Bank’s gross regulatory capital would reach US$ 3.3 billion. Accordingly, the Bank’s Basel III capital adequacy ratio would reach 12.4% at end-March 2014, as compared to a 9.5% regulatory requirement excluding the capital conservation buffer.
At the loan quality level, gross doubtful loans accounted for only 2.9% of gross loans, with the coverage of those loans by specific and collective loan loss provisions reaching 94% at end-March 2014, within the context of an allocation by Management of US$ 20.1 million of additional loan loss provision charges in the first quarter of 2014. Adjusting to real guarantees, the doubtful loan coverage ratio would exceed the 100% threshold reaching 107%.
The growth in assets was not realised at the detriment of the Group’s financial standing, as 68.2% of the total growth in assets during the first quarter of 2014 was used to increase primary liquidity, which reached US$ 13.7 billion and represented 42.3% of customers’ deposits, an elevated level when compared to regional and global averages.
In the first quarter of 2014, Bank Audi’s net earnings reached US$ 85.8 million, a level almost equivalent to the net profits of the corresponding period of 2013, within the context of almost balanced net profits from operations at Odeabank before the allocation of provisions. This performance was mainly driven by a 12.2% growth in total income stemming from all entities, reflecting the Group’s mastery of its operating conditions in the various countries of presence.
Based on such results, the Bank’s return on average assets reported 1% and the return on average common equity reached 14.3%. In parallel, the Bank’s earnings per common share amounted to US$ 0.9 on an annualised basis, while the common book value per share stood at US$ 6.6. Subsequently, and based on a common share price of US$ 6.1 at the closing of 22/04/2014, the Bank’s common shares were trading at 6.8x the QI-14 common earnings and 0.9x Mar-14 book value, reflecting a very low multiple relative to regional peer banks multiples that reported 12.1x common earnings and 1.8x book value according to the Deutsche Bank’s MENA report published on 2/4/2014.
In conclusion, the results of the first quarter of 2014 confirm once again the Group’s ability to maintain favourable growth in activity and net earnings and to further reinforce its financial standing despite the persisting challenging regional environment. Those results ensured sufficient financial flexibility to the Group allowing to cover all costs related to activity growth and the development of the Bank’s infrastructure and IT systems in a way to support expected forthcoming growth. Such performances also allowed to further reinforce the Group’s leading position in the domestic market and to strengthen its positioning among large regional banking groups. As such, the competitive advantage of Bank Audi lies in its diversified business model and in its distinctive regional footprint enabling it to take advantage of growth opportunities arising on the one hand from the increasing cross border trade flows in the Middle East, North Africa and Turkey, and on the other hand from the growing wealth, particularly in the Middle East region.