Financial Results of the Three Largest Lebanese in BLOMINVEST 2011

January 28, 2012

Contact Information

Research Department [email protected]

Head of Research: Marwan Mikhael [email protected]

Comparative Profitability and Performance Highlights

ROE (%) ROA (%) Cost-to-Income (%)

BLOM 19.2 1.46 36.4 Audi 16.4 1.27 46.6 Byblos 13.6 1.13 42.8

(in thousands of USD) Tier 1 Capital Total Shareholder Equity 2011 2010 Growth 2011 2010 Growth

BLOM 1,974,912 1,817,336 8.7% 1,984,047 1,890,933 4.9% Audi 2,284,344 2,263,756 0.9% 2,356,021 2,420,388 -2.7%

Byblos 1,657,830 1,589,951 4.3% 1,647,552 1,629,463 1.1%

Total Assets Net Income

2011 2010 Growth 2011 2010 Growth

BLOM 23,165,390 22,344,180 3.7% 331,522 330,601 0.3% Audi 28,737,997 28,688,010 0.2% 365,208 352,248 3.7% Byblos 16,601,032 15,288,486 8.6% 179,727 177,658 1.2%

Customer Deposits Loans

2011 2010 Growth 2011 2010 Growth

BLOM 20,300,781 19,605,900 3.5% 5,591,559 5,178,464 8.0% Audi 24,797,651 24,847,822 -0.2% 8,594,312 8,547,543 0.5% Byblos 12,820,187 11,890,088 7.8% 4,009,050 3,771,303 6.3%

Source: BLOM, Audi, Byblos

Financial Results of the Three Largest

Lebanese Banks in 2011 S A L

During 2011, the three largest Lebanese banks (BLOM, Audi, and Byblos) proved highly resilient growing their earnings amidst a year filled with uncertainty and dramatic changes in the region despite reporting a combined $94 million in net collective provisions. The events in neighboring Syria and the political disputes in along with falling interest rates have set a challenging environment for Lebanese Banks. Nevertheless, these banks have been accustomed to operating in a turbulent environment taking more precautions on average than banks in the region. This is reflected through their high Tier 1 capital which has grown by 8.7% at BLOM, 4.3% at Byblos, and 0.9% at Audi.

On an individual basis, reported the highest absolute level of net profits at $365 million, growing by 3.7% over 2010. BLOM Bank came second, growing by 0.3% to reach net profits of $332 million while Byblos profits grew by 1.2% to reach $180 million. When looking at profitability ratios, which represent the bank’s ability to generate earnings from its equity and assets, BLOM Bank registered the highest rate of return on equity (ROE) at 19.2% with a return on assets (ROA) of 1.46%. Bank Audi comes second with an ROE of 16.4% and an ROA of 1.27%, followed by with an ROE of 13.6% and an ROA of 1.13%. What drives BLOM Bank’s high profitability ratios is its managerial efficiency in generating revenues and controlling costs. This is demonstrated in BLOM Bank’s cost-to-income ratio, estimated at 36.4%, the lowest of all three, followed by 42.82% for Byblos Bank and 46.57% for Bank Audi.

While growth in assets has been registered by the three banks, growth in equity was only reported at BLOM and Byblos. BLOM’s equity grew by 4.9% over 2010 to reach $1.98 billion while Byblos reported 1.1% growth in equity reaching $1.65 billion. Audi’s equity slightly retreated by 2.7% to reach $2.35 billion. As for assets, the highest asset growth was registered by Byblos with its total assets growing 8.6% to reach $16.6 billion with its customer deposits increasing 7.8% to reach $12.8 billion. BLOM’s total assets grew by 3.7% to reach $23.2 billion with its customer deposits increasing by 3.5% to reach $20.3 billion. Audi Bank follows, growing its assets by 0.2% to reach $28.7 billion, however its customer deposits mildly shrank by 0.2% to reach $24.8 billion.

When comparing loans-to-deposits ratio, BLOM Bank is clearly the most conservative in giving out loans, with a loans-to-deposits ratio of 27.5%, compared with 31.3% for Byblos and 34.7% for Audi Bank. Even with such a conservative policy, BLOM succeeded in registering the highest growth in loans reaching $5.6 billion, 8% higher than during 2010. Byblos came second with its loans growing by 6.3% to reach $4 billion followed by Audi with its loans growing by 0.5% to reach $8.6 billion. As for Non-Performing Loans, the three banks have taken precautions and reported a coverage ratio of at least 70% without accounting for the fair value of the collateral attached to these loans.

From a valuation standpoint, both BLOM and Byblos Banks are currently trading below their book value with BLOM’s stock trading at a Price-to-Book Value (P/BV) of 0.92 while Byblos is trading at an even higher discount with a P/BV of 0.78. As for Audi, its stock is trading near its book value with a P/BV of 1.05. Compared to regional peers, Lebanese banking stocks are currently trading at a considerable discount due to the geopolitical risks in the region. However, Lebanese banks have acquired a rich experience in operating under unstable economic and political environments, whereby they adopt safe and precautionary measures that aim at sound risk management, ample liquidity, and high quality of assets and investments in all their units of operation.

2

Financial Results of the Three Largest

Lebanese Banks in 2011 S A L

For your Queries:

BLOMINVEST BANK s.a.l. Research Department Verdun, Rashid Karameh Str. POBOX 11-1540 Riad El Soloh 1107 2080 Lebanon

Tel: +961 1 743 300 Ext: 1283 [email protected]

Marwan Mikhael, Head of Research [email protected] +961 1 743 300 Ext: 1234

Disclaimer This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

3