WEEKLY MONITOR

NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

CONTACTS ______Economy Treasury & Capital Markets p.2 A 14% DECLINE IN TOTAL FISCAL DEFICIT OVER THE FIRST EIGHT MONTHS, WHILE PRIMARY BALANCE SHIFTS FROM SURPLUS TO DEFICIT Bechara Serhal The public finance figures for the first eight months of 2020 suggest that both public revenues and public (961-1) 977421 [email protected] expenditures were down by double-digit contractions, generating a net decline in fiscal deficit, though the primary balance shifts from surplus to deficit. Private Banking Also in this issue Toufic Aouad p.3 Merchandise at the Port of down by 36% in first ten months of 2020 (961-1) 954922 [email protected] p.4 Gross public debt at US$ 94.8 billion at end-September 2020 p.4 Value of cleared checks almost stagnating in first ten months of 2020 Corporate Banking Bassima Jamaleddine Harb Surveys (961-1) 964764 [email protected] p.5 LEBANON RANKS 105TH GLOBALLY IN THE LEGATUM PROSPERITY INDEX 2020 The Legatum Institute released it 2020 Prosperity Index in which Lebanon ranked 105th globally down from its 104th position in 2019. The country took over the tenth position in the Arab MENA region.

Also in this issue p.6 Household spending in Lebanon to begin a muted recovery in 2021, as per Fitch Solutions

______Corporate News p.7 BANK AUDI’S TOTAL ASSETS AT US$ 35.2 BILLION AT END-SEPTEMBER 2020 Bank Audi announced null net profits in both the first three quarters of 2019 and 2020, as the management resolved to allocate all profits to expected loss allowances until the dissipation of RESEARCH uncertainties, according to its latest release.

Marwan Barakat Also in this issue (961-1) 977409 p.8 BLC Bank’s net profits at US$ 16.7 million in first three quarters of 2020 [email protected] p.8 Newly registered cars at a mere 5,467 in first ten months of 2020, down by a yearly 73.7%

Jamil Naayem (961-1) 977406 Markets In Brief [email protected] ______p.9 MARKETS IN BRIEF: US DOLLAR SURPASSES LP 8,000 FOR THE FIRST TIME SINCE PM- Salma Saad Baba DESIGNATION (961-1) 977346 With the Cabinet formation process becoming stalled and on talks about possible new US sanctions coming [email protected] underway and while subsidy reductions loom, Lebanon’s capital markets saw this week a further drop in the Lebanese pound against the US dollar on the black FX market, and price declines on the equity and bond Fadi Kanso markets. In details, the US dollar crossed the LP 8,000 threshold for the first time in over a month, reaching LP/US$ (961-1) 977470 8,200-LP/US$ 8,250 on Friday amid a stubborn cabinet gridlock. In parallel, the Eurobond market saw across-the- [email protected] board price contractions of up to 0.25 pt week-on-week in the absence of a cabinet breakthrough. Accordingly, bond prices ranged between 13.50 cents per US dollar and 16.25 cents per US dollar at the end of this week. Farah Nahlawi On the equity market, the BSE total turnover rose from US$ 2.9 million last week to US$ 3.6 million this week, up (961-1) 959747 by 25%, while the price index declined by 1.7%. [email protected]

LEBANON MARKETS: WEEK OF NOVEMBER 16 - NOVEMBER 22, 2020

Money Market BSE Equity Market LP Tbs Market Eurobond Market ⬇ LP Exchange Market CDS Market - ⬌⬇ ⬇ ⬇ Week 47 November 16 - November 22, 2020 1 Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected] NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

ECONOMY ______A 14% DECLINE IN TOTAL FISCAL DEFICIT OVER THE FIRST EIGHT MONTHS, WHILE PRIMARY BALANCE SHIFTS FROM SURPLUS TO DEFICIT

The public finance figures for the first eight months of 2020 suggest that both public revenues and public expenditures were down by double-digit contractions, generating a net decline in fiscal deficit, though the primary balance shifts from surplus to deficit. As a matter of fact, total public expenditures were down by 18.5% over the first eight months of the year, while total public revenues were down by 20.2% over the period, generating a 14.1% contraction in total fiscal deficit. Public expenditures were actually down by LP 2,979 billion, moving from LP 16,062 billion in the first eight months of 2019 to LP 13,083 billion in the first eight months of 2020. The retreat in public spending is mainly tied to the decline in interest payments primarily due to the State’s default in March of this year. In fact, debt service was down by a yearly 59.0% in the first eight months of 2020, moving from LP 4,917 billion to LP 1,973 billion, with interest payment on foreign currency debt down by 88.3% and interest payment on domestic debt down by 28.2% year-on- year. Treasury Transfers to EDL were also down by 37.0% year-on-year in the first eight-month period amid the significant decline in oil prices.

Public revenues were down by LP 2,351 billion, moving from LP 11,613 billion to LP 9,262 billion between the two periods. The retreat in total revenues is mainly tied to the decline in budget revenues by LP 2,975 billion, while Treasury revenues increased by LP 623 billion over the period. In turn, the significant decline in budget revenues is related to the prevailing macro sluggishness as a result of the prevailing economic crisis, the spillover effects of the Corona Pandemic and the drastic drop in imports amid weakened domestic consumption and investment demand. It is worth mentioning that custom revenues were down by 34.5%, VAT revenues were down by 49.7% and Telecom revenues were down by 56.5%. Paradoxically, property taxes were up by 85..6% year-on-year as a result of significant property transactions within the context of investors fleeing to real estate to escape any haircut on their financial investments.

The more significant absolute drop in public spending relative to public revenues lead to small savings in the overall public finance deficit. As a matter of fact, the 2020 first eight-month deficit amounted to LP 3,821 billion, against LP 4,449 billion over the same period in 2019. However, as a percentage of public spending, fiscal deficit rose from 27.7% to 29.2%, with an even more significant rise relative to GDP that is believed to have significantly contracted this year. When looking at the primary balance, the primary surplus of LP 556 billion over the first eight months of 2019 (the equivalent of 3.5% of expenditures) turned into a primary deficit of LP 1,713 billion over the first eight months of 2020 (the equivalent of 13.1% of expenditures), highlighting the unsustainable nature of public finances that require a significant deal of fiscal adjustment to avoid further monetary drift looking forward.

SUMMARY OF FISCAL PERFORMANCE

(US$ million) 8M-19 8M-20 Var 8M/8M 1. Budget Transactions 1.1 Revenues 7,362 5,389 -26.8% 1.1.1 Tax Revenues 6,103 4,590 -24.8% 1.1.2 Non Tax Revenues 1,259 798 -36.6% 1.2 Expenditures 9,862 7,648 -22.4% 1.2.1 General Expenditures 6,542 6,250 -4.5% 1.2.2 Interest payments 3,195 1,309 -59.0% 2. Treasury Transactions 3. Total public revenues 7,704 6,144 -20.2% 4. Total public expenditures 10,655 8,679 -18.5% 5. Total Cash Deficit / Surplus -2,951 -2,535 -14.1% 6. Total Primary Deficit / Surplus 369 -1,136 -

Sources: Ministry of Finance, Bank Audi's Group Research Department

Week 47 November 16 - November 22, 2020 2 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

______MERCHANDISE AT THE PORT OF BEIRUT DOWN BY 36% IN FIRST TEN MONTHS OF 2020

As per the latest statistics released by the Port of Beirut, the number of containers recorded an annual drop of 42.2% to attain a total of 373,737 in the first ten months of 2020, while the number of ships posted a decline of 23.2% year-on-year to reach a total of 1,153 vessels over the same period.

In parallel, the quantity of goods fell by a yearly 35.9% to 3,684 thousand tons in the first ten months of 2020, while transshipments contracted by 34.3% year-on-year to attain 275,837 containers, following a rise of 14.9% in the corresponding period of 2019. As such, the Port’s revenues reached US$ 92.4 million in the first ten months of 2020, which reveals a net decline of a yearly 44.5% compared to the same period of the previous year.

It is worth mentioning that the enormous explosion in the Port on the 4th of August, which inflicted huge damages with its silos and containers, worsened further the sharp slowdown in the activity of the Port of Beirut since the beginning of the year.

ACTIVITY OF THE PORT OF BEIRUT

(000s) Nmber o mere oe 1,964 1,936 2,000 1,857 1,688 ,000 , ,10 1,5186,21 6,0 6,6 1,500,000 - 78.4% 6,000 , ,000 1,000 924 ,000 ,6 ,000 500 2,000 1,6 1, 1,12 1,0 1,0 1,02 2001,1 1,000 0 0 2015 2016 2017 2018 2019 H1-19 H1-20 10M-14 10M-15 10M-16 10M-17 10M-18 10M-19 10M-20

Number of ships Merchandise tonnage (000s of tons)

Sources: Port of Beirut, Bank Audi's Group Research Department

ACTIVITY OF THE PORT OF BEIRUT

Nmber o oer o revee

00 0 2 00 60 66 66 600 00 00 00 1 1 11 16 10 200 166 2 100 0 10M-14 10M-15 10M-16 10M-17 10M-18 10M-19 10M-20

Number of containers (000s) Total revenues (US$ million)

Sources: Port of Beirut, Bank Audi's Group Research Department

Week 47 November 16 - November 22, 2020 3 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

______GROSS PUBLIC DEBT AT US$ 94.8 BILLION AT END-SEPTEMBER 2020

Lebanon’s gross debt reached US$ 94.8 billion at end-September 2020, up by 9.3% from the level seen at end-September 2019 and up by 3.5% from end-2019, as per the data published by the Ministry of Finance.

Domestic debt was higher by 9.4% from end-September 2019 to reach a total of US$ 59.4 billion at end- September 2020. Lebanon’s foreign debt went up by 9.0% from end-September 2019 and up by 4.9% from end-2019 to stand at around US$ 35.4 billion at end-September 2020, representing 37.4% of total public debt. In this context, net public debt, which excludes the public sector deposits at the Central Bank and commercial banks from overall debt figures, increased by 8.0% from end-September 2019 and up by 4.7% from end-2019 to reach a total of US$ 85.1 billion at end-September 2020.

Within this context, public indebtedness yet remain among most significant macro vulnerabilities with unsustainable debt ratio relative to the size of the economy, as public debt to GDP is set to approach the 170% threshold in 2020 as per the IMF.

GROSS PUBLIC DEBT

(US$ billion ) 100 16 1 0 0 666 0 0 6 60 11 26 6 0 0 0 20 0 0 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sep-20

Sources: Ministry of Finance, Bank Audi's Group Research Department

______VALUE OF CLEARED CHECKS ALMOST STAGNATING IN FIRST TEN MONTHS OF 2020

The total value of cleared checks registered a slight decline of 1.2% year-on-year in the first ten months of 2020. The value of cleared checks reached US$ 44,938 million over the period, against US$ 45,493 million in the same period of 2019, as per the latest figures released by the Central Bank.

A breakdown by currency shows that the banks’ clearings in Lebanese pounds amounted to LP 24,273 billion (-8.0%) in the first ten months of 2020, while those in FC amounted to US$ 28,837 million, up by 3.1% year-on-year.

In parallel, the number of cleared checks registered 4,955,345 in the first ten months of 2020, down by 40.5%, from 8,325,168 in the same period of 2019. The average value per check rose by 66.0% year-on- year to stand at US$ 9,069 in the previously mentioned period of 2020.

Week 47 November 16 - November 22, 2020 4 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

SURVEYS ______LEBANON RANKS 105TH GLOBALLY IN THE LEGATUM PROSPERITY INDEX 2020

The Legatum Institute released it 2020 Prosperity Index in which Lebanon ranked 105th globally down from its 104th position in 2019. The country took over the tenth position in the Arab MENA region.

The index measures prosperity in 167 countries across the globe, which together contain 99.4% of the world’s population. Almost 300 country-level indicators, grouped into 66 policy-focused elements, are used to comprehensively and holistically measure the current state of prosperity, and how it has changed since 2010 around the world. As well as tracking the performance of nations to date, the Prosperity Index also provides an invaluable framework for nations to assess their strengths and weaknesses as they chart their way through and out of the COVID-19 pandemic. This will help them determine the strategic choices that need to be made to further build inclusive societies, open economies, and empowered people to drive greater levels of prosperity for all their citizens.

The Middle East and North Africa (MENA) is the sixth most prosperous region, followed by sub-Saharan Africa. These two regions are both improving, and though sub-Saharan Africa is gradually closing its prosperity deficit with MENA, neither region is exhibiting rates of improvement comparable to those of Asia-Pacific or Eastern Europe, resulting in both regions continuing to fall further below the global average. In the region, Lebanon was preceded by Tunisia which ranked 99th globally and was followed by Algeria which ranked 108th globally.

In details, the rank of Lebanon varied over the different pillars of the Index. In safety and security and personal freedom Lebanon came in the 136th and 112th positions respectively. In governance, the country ranked in the 119th position. As for social capital Lebanon ranked in the 152nd position and 98th in investment environment. Furthermore, in enterprise conditions and market access and infrastructure Lebanon ranked in the 88th and 92nd positions globally respectively. In economic quality, Lebanon ranked in the 147th position as it ranked 57th in living conditions. In health it ranked 92nd and in education Lebanon ranked 62nd. Finally, the country ranked 120th in natural environment.

ARAB MENA REGION'S LEGATUM PROSPERITY INDEX RANKINGS

Global Rank United Arab Emirates 42 45 Bahrain 56 Kuwait 58 Oman 66 Saudi Arabia 71 Jordan 86 Morocco 96 Tunisia 99 Lebanon 105 Algeria 108 Egypt 121 Iraq 137 Libya 149 Syria 158 Yemen 165

Sources: Legatum Institute, Bank Audi's Group Research Department

Week 47 November 16 - November 22, 2020 5 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

______HOUSEHOLD SPENDING IN LEBANON TO BEGIN A MUTED RECOVERY IN 2021, AS PER FITCH SOLUTIONS

Fitch Solutions forecast household spending in Lebanon to begin a muted recovery in 2021, following a historic contraction due to COVID-19, soaring inflation and the explosion in the Port of Beirut in August 2020, which destroyed the port and large parts of the capital city. While the agency forecasts real household spending to grow by 2.0% year-on-year in 2021, an improvement on the -16.9% year-on-year in 2020, it highlights that economic hardship has sent many households below the poverty line, meaning that growth in consumer spending will be driven by spending on essential categories, such as food and non-alcoholic drinks. Fitch Solutions highlights risks of further deterioration in 2021, particularly in the event that social unrest escalates.

The agency’s forecast for household spending in Lebanon over 2021 factors in the impact of the COVID-19 pandemic, subsequent lockdown measures, the 2020 Beirut explosion and government stimulus measures. It forecast real growth in household spending to start a marginal recovery in 2021, expanding by 2.0% year-on-year. This is an improvement on the -16.9% year-on-year contraction Fitch Solutions estimates for household spending in 2020, Lebanon's sharpest decline on record. Fitch Solutions forecast a protracted and highly uncertain recovery of the Lebanese consumer, with real household spending not forecast to return to pre-pandemic (2019) levels over the medium-term (2020-2024) forecast period.

Fitch Solutions highlights that in nominal terms all consumer spending segments posted double-digit growth in 2020, driven by soaring consumer price inflation (CPI), which it estimates to average 96.0% in 2020, up from 2.9% in 2019. Hyperinflation in Lebanon has been fueled by the rapid depreciation of the Lebanese pound against the US dollar on the black market, where a majority of transactions now take place, and the potential of a removal/reduction of subsidies on essential consumer items, including fuel, wheat and medication, in the fourth quarter of 2020. As such, many consumer goods, including staples, have become unaffordable for low and middle- income households over 2020.

Fitch Solutions notes that double-digit nominal growth across major spending categories, including food and drink, clothing and footwear, and restaurant and hotel spending, is purely driven by inflationary pressures in 2020. Growth in all of these categories is below the average CPI rate in 2020, indicating that consumers have purchased significantly lower quantities of products during 2020.

Fitch Solutions’ Country Risk team projects the CPI to decelerate over 2021, averaging 65.0%. As such, the agency projects that nominal consumer spending growth will also slow, compared to the year before. While the agency projects the start of a muted recovery in real household spending in 2021, the agency highlights that nominal year-on-year growth in non-priority consumer spending categories (including clothing and footwear, alcoholic drinks and tobacco, recreation and culture, and hospitality) will remain below the average CPI, indicating that consumers will continue to purchase lower volumes of non-essential products and services over the year. Food and non-alcoholic drink spending, which was prioritized in household budgets in 2020, will see the strongest growth over 2021, as many Lebanese consumers will be forced financially to focus on essentials.

While the agency forecasts the start of a muted recovery for real household spending in Lebanon in 2021, the overall economy is projected to remain in negative territory over the year. The Country Risk team forecasts that the Lebanese economy will continue to contract by a real rate of -1.0% year-on-year over 2021. Fitch Solutions notes, however, that this contraction will be less severe than in 2020, when real GDP nosedived by -19.2% year-on-year, and in 2019, when the economy contracted by -5.7% year-on-year.

As a result of continued economic hardship in the country, it forecasts a further increase in unemployment in 2021. The average unemployment rate as a percentage of the total labor force is estimated to reach 22.5% in 2020, up from 6.2% in 2019, and is forecast to rise to 24.1% in 2021. Higher unemployment will mean that consumers will not see a recovery in real wages over the year. This bolsters the view that the Lebanese consumer will have to prioritize spending on essential categories, such as food and non- alcoholic drinks and consumer health products over 2021.

Week 47 November 16 - November 22, 2020 6 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

CORPORATE NEWS ______BANK AUDI’S TOTAL ASSETS AT US$ 35.2 BILLION AT END-SEPTEMBER 2020

Bank Audi announced null net profits in both the first three quarters of 2019 and 2020, as the management resolved to allocate all profits to expected loss allowances until the dissipation of uncertainties, according to its latest release.

The bank’s net interest income reached US$ 794.6 million in the first three quarters of 2020, down from US$ 844.3 million in the same period of the previous year, as per a statement by the bank.

Net fee and commission income reported a loss of US$ 283.2 million in the aforementioned period of this year, against a gain of US$ 144.1 million in the first nine months of 2019.

Total operating income retreated from US$ 1.0 billion in the first nine months of 2019 to US$ 634.5 million in the same period of 2020. Net impairment loss on financial assets fell from US$ 484.2 million to US$ 123.6 million over the same period.

Net operating income registered US$ 511.0 million in the first three quarters of 2020, down from US$ 543.4 million in the corresponding period of 2019.

Total expenses reached US$ 442.9 million in the first nine months of 2020, down by a yearly 7.0%. In details, personnel expenses stood at US$ 244.4 million in the first three quarters of 2020, down by an annual 9.5%. Other operating expenses dropped from US$ 151.8 million to US$ 143.4 million over the covered period. Total assets of the bank reached US$ 35.2 billion at end-September 2020, down by 10.9% from end-2019. Loans to customers declined from US$ 10.3 billion at end-2019 to US$ 8.5 billion at end-September 2020.

Customers’ deposits amounted to US$ 26.5 billion at end-September 2020, down from US$ 29.6 billion at end-2019. Shareholders’ equity stood at US$ 3.0 billion at end-September 2020, up by 2.5% from end-2019.

BANK AUDI'S MAJOR BALANCE SHEET AGGREGATES (US$ BILLION)

2 0

0 2 20 26 0 26 2

20 1 1 10 10

0

End-18 End-19 Sep-20

Assets Deposits Loans

Source: Bank Audi

Week 47 November 16 - November 22, 2020 7 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

______BLC BANK’S NET PROFITS AT US$ 16.7 MILLION IN FIRST THREE QUARTERS OF 2020

BLC Bank announced net profits of US$ 16.7 million in the first three quarters of 2020, according to its latest release.

Net interest income reached US$ 64.1 million in the first three quarters of 2020, as per a statement by the bank. Net fee and commission income stood at US$ 13.1 million in the aforementioned period of this year. Net financial revenues registered US$ 59.0 million in the first three quarters of 2020.

Total expenses reached US$ 47.9 million in the first nine months of 2020. Total assets of the bank reached US$ 4.1 billion at end-September 2020, down by 8.6% from end-2019.

Loans to customers declined from US$ 1.4 billion at end-2019 to US$ 1.0 billion at end-September 2020. Customers’ deposits amounted to US$ 3.2 billion at end-September 2020, down from US$ 3.5 billion at end-2019.

Shareholders’ equity stood at US$ 506.5 million at end-September 2020, up from US$ 490.1 million at end-2019.

______NEWLY REGISTERED CARS AT A MERE 5,467 IN FIRST TEN MONTHS OF 2020, DOWN BY A YEARLY 73.7%

According to data compiled by the Association of Car Importers in Lebanon, the number of newly registered passenger cars stood at 5,467 in the first ten months of 2020, falling by 73.7% from a total of 20,825 in the same period of 2019.

In October 2020, the number of cars registered stood at 321, down by 66.6% from 960 cars registered in the same month of 2019. The taxes paid by car importer companies to the State Treasury declined from US$ 265 million in 2018 to US$ 178 million in 2019. These are estimated by the Association of Car Importers in Lebanon to stand at less than US$ 33 million in 2020.

According to a recent statement, as a result of the dramatic Beirut Port Explosion, the damages that the importers of new cars incurred in their properties are estimated at tens of millions of dollars.

NUMBER OF NEWLY REGISTERED CARS

,000 1,11 1,2 2,0 0,000

2,000 20,2 20,000

1,000

10,000 ,6 ,000

0 10M-16 10M-17 10M-18 10M-19 10M-20

Sources: Association of Car Importers in Lebanon, Bank Audi's Group Research Department

Week 47 November 16 - November 22, 2020 8 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

CAPITAL MARKETS ______MONEY MARKET: SIGNIFICANT WEEKLY GROWTH IN CURRENCY IN CIRCULATION

Abundant local currency liquidity remained the main feature characterizing the money market over this week. This kept the overnight stable at 3%, noting that its official level is quoted at 1.90%.

In parallel, the latest monetary aggregates released by the Central Bank of Lebanon for the week ending 5th of November 2020 showed that total resident banking deposits contracted by LP 747 billion. This is mainly attributed to a LP 436 billion fall in foreign currency resident deposits, while total LP resident deposits decreased by LP 311 billion amid a LP 261 billion drop in LP demand deposits and a LP 50 billion contraction in LP saving deposits. However, the money supply in its largest sense (M4) expanded further by LP 398 billion over the covered week amid a significant growth in the currency in circulation of LP 1,052 billion and a LP 92 billion rise in the non-banking sector Treasury bills portfolio. Within this context, it is worth mentioning that the currency in circulation crossed the LP 25,000 billion threshold, registering a year-to-date growth of 173%.

INTEREST RATES 20/11/20 13/11/20 27/12/19 Overnight rate (official) 1.90% 1.90% 3.90% 7 days rate 2.00% 2.00% 4.00% 1 month rate 2.75% 2.75% 4.75% ⬌ 45-day CDs 2.90% 2.90% 4.90% ⬌ 60-day CDs 3.08% 3.08% 5.08% ⬌ ⬌ ⬌

Source: Bloomberg

______TREASURY BILLS MARKET: NOMINAL WEEKLY DEFICIT OF LP 49 BILLION

The latest Treasury bills auction results for value date 19th of November 2020 showed that the Central Bank of Lebanon allowed banks to subscribe in full to the six-month category (offering a yield of 4.0%), the two-year category (offering a coupon of 5.0%) and the ten-year category (offering a coupon of 7.0%).

In parallel, the Treasury bills auction results for value date 12th of November 2020 showed that total subscriptions amounted to LP 73 billion, distributed as follows: LP 9 billion in the three-month category (offering a yield of 3.50%), LP 9 billion in the one-year category (offering a yield of 4.50%) and LP 55 billion in the five-year category (offering a coupon of 6.0%). These compare to maturities of LP 122 billion, resulting into a nominal weekly deficit of LP 49 billion.

Week 47 November 16 - November 22, 2020 9 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

TREASURY BILLS

20/11/20 13/11/20 27/12/19 3-month 3.50% 3.50% 5.30% 6-month 4.00% 4.00% 5.85% 1-year 4.50% 4.50% 6.50% ⬌ 2-year 5.00% 5.00% 7.00% ⬌ 3-year 5.50% 5.50% 7.50% ⬌ 5-year 6.00% 6.00% 8.00% ⬌ 10-year 7.00% - 10.00% ⬌ Nom. Subs. (LP billion) 73 120 ⬌ Short-term (3&6 mths) 9 - Medium-term (1&2 yrs) 9 20 Long-term (3 yrs) - - Long-term (5 yrs) 55 100 Maturities 122 61 Nom. Surplus/Deficit -49 59

Sources: Central Bank of Lebanon, Bloomberg ______FOREIGN EXCHANGE MARKET: DETERIORATION IN LP/US$ RATE IN ABSENCE OF CABINET BREAKTHROUGH

After failing to overcome obstacles hindering the formation of a “rescue” government that would deliver swift reforms urgently needed to unlock much-needed international financial assistance, the Lebanese pound remained in a steady fall against the US dollar over this week, crossing the LP/US$ 8,000 threshold for the first time on the black market since the start of the PM consultation process last month. The LP/ US$ exchange rate touched the LP/US$ 8,500 level before rising marginally to LP/US$ 8,200-LP/US$ 8,250 on Friday, and compared to LP/US$ 7,750-LP/US$ 7,800 at the end of last week.

In parallel, the Central Bank of Lebanon’s latest bi-monthly balance ending 15th of November 2020 showed that BDL’s foreign assets contracted further by US$ 190 million during the first half of the month to reach US$ 25.3 billion mid-November (including BDL's Eurobond holdings and facilities provided to banks). This brought year-to-date contractions to US$ 12 billion.

EXCHANGE RATES

20/11/20 13/11/20 27/12/19 LP/US$ 1,507.50 1,507.50 1,507.50 LP/£ 2,001.36 1,985.83 1,970.00 LP/¥ 14.52 14.35 13.77 ⬌⬇ LP/SF 1,654.77 1,649.89 1,543.78 ⬇ LP/Can$ 1,154.11 1,148.40 1,150.59 ⬇ LP/Euro 1,787.59 1,782.92 1,679.20 ⬇ ⬇ Source: Bank Audi’s Group Research Department

Week 47 November 16 - November 22, 2020 10 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

______STOCK MARKET: EXTENDED EQUITY PRICE CONTRACTIONS WEEK-ON-WEEK

The BSE total turnover expanded by 25.0% week-on-week, moving from US$ 2.9 million last week to US$ 3.6 million this week, noting that Solidere shares continued to capture the lion’s share of activity (96%).

As to prices, the BSE price index declined by 1.7% week-on-week. Out of five traded stocks, two stocks registered price falls, while three stocks posted price gains. A closer look at individual stocks shows that BLOM’s GDR price shed 9.8% to US$ 2.03. Solidere “B” share price decreased by 0.9% to US$ 15.71. In contrast, ’s “listed” share price rose by 2.1% to US$ 0.49. Bank Audi’s GDR price went up by 0.9% to US$ 1.10. Solidere “A” share price closed 0.2% higher at US$ 15.85.

In parallel, the Beirut Stock Exchange saw this week the delisting of “Bank Of Beirut Priority shares 2014”, which led to a decline in the market capitalization from US$ 6.8 billion at the end of last week to US$ 6.7 billion at the end of this week.

AUDI INDICES FOR BSE

22/1/96=100 20/11/20 13/11/20 27/12/19 Market Cap. Index 281.54 286.32 316.37 Trading Vol. Index 31.96 25.54 24.97 ⬇ Price Index 59.86 60.90 69.36 ⬆ Change % -1.70% -0.20% 2.37% ⬇ 20/11/20 13/11/20 27/12/19 ⬇ Market Cap. $m 6,679 6,792 7,506 No. of shares traded (Exc. BT) 412,922 271,146 333,997 ⬇ Value Traded $000 (Exc. BT) 3,595 2,875 2,294 ⬆ o.w. : Solidere 3,448 2,716 2,294 ⬆ Banks 147 153 0 ⬆ Others 0 6 0 ⬇ ⬇ Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department ______BOND MARKET: ACROSS-THE-BOARD WEEKLY BOND PRICE CONTRACTIONS AS CABINET FORMATION STALLS

With the cabinet formation process coming to a standstill in the absence of contacts to overcome hurdles and on talks about possible new US sanctions coming underway, Lebanon’s Eurobond market saw across- the-board price contractions ranging between 0.13 pt and 0.25 pt this week. Accordingly, prices of sovereigns hovered between 13.50 cents per US dollar and 16.25 cents per US dollar on Friday as compared to 13.75- 16.50 cents per US dollar at the end of last week. In parallel, the weighted average bond yield remained stable at 54%, while the average bond life declined further to 7.15 years. This compared to an average bond life of 7.50 years at end-2019.

EUROBONDS INDICATORS

20/11/20 13/11/20 27/12/19 Total tradable size $m 32,664 32,664 29,564 o.w.: Sovereign bonds 31,314 31,314 28,314 Average Yield 54% 54% 29.99% ⬌ Average Life 7.15 7.17 7.50 ⬌ Yield on US 5-year note 0.38% 0.40% 1.71% ⬌⬇ ⬇

Source: Bank Audi’s Group Research Department

Week 47 November 16 - November 22, 2020 11 NOVEMBER 16 - NOVEMBER 22, 2020 WEEK 47

INTERNATIONAL MARKET INDICATORS

Weekly Year-to-date 20-Nov-20 13-Nov-20 31-Dec-19 change change EXCHANGE RATES YEN/$ 103.86 104.61 108.64 -0.7% -4.4% $/£ 1.328 1.319 1.326 0.7% 0.1% $/Euro 1.186 1.183 1.121 0.2% 5.8% STOCK INDICES DOW JONES INDUSTRIAL 29,263.48 29,479.81 28,538.44 -0.7% 2.5% AVERAGE S&P 500 3,577.59 3,585.15 3,230.78 -0.2% 10.7% NASDAQ 11,854.97 11,829.29 8,972.60 0.2% 32.1% CAC 40 5,495.89 5,380.16 5,978.06 2.2% -8.1% Xetra Dax 13,137.25 13,076.72 13,249.01 0.5% -0.8% FT-SE 100 6,351.45 6,316.39 7,542.44 0.6% -15.8% NIKKEI 225 25,527.37 25,385.87 23,656.62 0.6% 7.9% COMMODITIES (in US$) GOLD OUNCE 1,870.99 1,889.20 1,517.27 -1.0% 23.3% SILVER OUNCE 24.18 24.67 17.85 -2.0% 35.4% BRENT CRUDE (per barrel) 44.96 42.78 62.93 5.1% -28.6% LEADING INTEREST RATES (%) 1-month Libor 0.15 0.14 1.76 0.01 -1.61 US Prime Rate 3.25 3.25 4.75 0.00 -1.50 US Discount Rate 0.25 0.25 2.25 0.00 -2.00 US 10-year Bond 0.82 0.90 1.92 -0.08 -1.10

Sources: Bloomberg, Bank Audi's Group Research Department

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