N°31 | April 2015

Page 3 gaining ground as real Beirut’s hotel occupancy rate may reach 49% in 2015 estate and construction lag behind

Page 4 Growth unlikely to exceed The start of 2015 is pointing to a reversal of fortune for key economic sectors in 2.2% in 2015, risks titled to the . Real estate and construction activity appear to be running out of steam, downside - IIF after maintaining robust activity in the face of economic headwinds in recent years.

Page 5 On the other hand, tourism, the laggard of the past few years, is bene ting from relative Lebanon’s exports to rise in domestic stability in the security situation to stage a moderate recovery in the early months 2015, service exports may of 2015. Low fuel prices, in addition to a depreciating Euro, are also increasing disposable reach $17bn income and improving the purchasing power of Lebanese consumers, who will likely be the main driver of economic activity during the year. Public nances will likely improve as well Page 6 over the priod. Banking activity may slow in 2015 REAL ESTATE AND FINANCIAL ACTIVITY SLOWING Real estate transactions fell by 27.6% yoy to $1bn in the rst two months of the year, and Page 7 the number of transactions dropped by 26.7% yoy to 7,531 over the same period. While it Latest data for Lebanon’s key is not unusual for the real estate market to have a slow start of the year and then end on a economic sectors high note, risks appear titled to the downside.

Page 8 Construction permits issued by Lebanon’s two orders of engineers are 18.61% yoy lower Key trends in the Lebanese at 1.81m sqm through February, reecting waning appetite among developers amid economy prolonged domestic political instability and the conict in neighboring Syria. Only 1,966 permits were issued throughout the two months, the fewest for the period in six years.

Real estate prices have stagnated in recent months, and in some cases dropped slightly amid sluggish demand, according to RAMCO, a real estate advisory rm. However, the market remains dominated by self-funded developers and end-user buyers with a very slim minority speculative investments, which keeps the market in check, stated RAMCO.

The new car market witnessed slower sales activity at the start of 2015. An estimated 4,579 new passenger cars were registered in the rst two months, 7.15% yoy fewer than the same period in 2014. The total number of registered new and used imported cars fell by 9% yoy partly as a result of new BdL regulations requiring a minimum down payment of 25% Several brands, including Audi, BMW, Mercedes, Land Rover, for car loans. However, several brands, including Audi, BMW, Mercedes, Land Rover, and and Porsche still reported Porsche still reported double-digit growth in their sales volumes through February. double-digit growth in their sales volumes through February.

Cars imported and sold (12m moving average) Real estate transactions (Jan-Feb, $bn)

Cars imported (LHS) Passenger car sales (RHS) 1.38 100,000 40,000 1.16

1.00 75,000 35,000 0.92

For any enquiries please contact us at: 50,000 30,000 Economic Research Department, Societe Generale de Banque au Liban Jan-11 Jan-13 Jan-15 2012 2013 2014 2015

[email protected] Source: PoB, AIA, Economena, SGBL Research Source: Cadastre, Economena, SGBL Research

+961-1-483001 Ext. 11458 page 1 Although healthy, growth in bank loans and deposits has slowed in recent months, and may remain relatively subdued for the rest of the year on the back of a fragile recovery and in part due to decreasing liquidity in oil-exporting countries. A slowdown in non-resident deposit inows contributed to a widening of the balance of payments de cit to $280.2 in January from $31.3m during the same month in 2014. Still, remittance inows will not decrease, even though a signi cant portion is estimated to come from oil-exporting countries, according to Standard & Poor’s (S&P), a ratings agency.

Bank pro ts from the domestic market may also slow as a result of new BdL collective provisioning requirements and a tight interest spread environment. Alpha Group banks, the 14 with deposits in excess of $2bn, had managed to increase their pro ts by a robust 9.13% to $1.87bn in 2014, but most of the gains came from branches and subsidiaries in foreign markets.

Interest rates in Lebanon are not expected to increase in Nevertheless, interest rates in Lebanon are not expected to increase in 2015, even with a 2015, even with a possible 0.5% possible 0.5% rise in US rates in late 2015, according to the Institute of International Finance rise in US rates in late 2015. (IIF). The BdL stimulus package and any capital inows in excess of the country’s nancing needs would help ease interest rates amid a period of disination, stated the IIF. The Central Bank announced plans to issue 30-year local and foreign currency CDs to absorb liquidity and promote national savings, indicating that markets remain adequately liquid.

TOURISM, CONSUMPTION, AND PUBLIC FINANCES IMPROVING Lower oil pricesshould ease pressure on the Lebanon’s scal and current account de cits. In particular, the Lebanese government stands to gain an estimated 2% of GDP from the drop in oil prices on lower transfers to the electricity company, thereby helping reduce the scal de cit to 7.5% of GDP in 2015 from 12.5% in 2014, according to Moody’s. But, only broad reform of the energy sector would lower medium-term scal vulnerability stemming from volatile oil prices, stated Moody’s. The ratings agency expects oil prices to average $55 per barrel in 2015 and to rise again to $65 in 2016.

The drop in fuel prices may help keep ination in check in 2015 as well. The Consumer Price Index (CPI) was down 2.1% in the rst two months of the year, although its components showed diverging price trends. Prices of food and non-alcoholic beverages, which comprise 20.6% of the basket of goods, rose by 1.57% through February, while prices of transportation, at 13.1% of total, declined by 6.08% over the same period, according to the Central Administration of Statistics (CAS). CPI growth may slow to 1% in 2015 from an estimated 3.4% in 2014, according to S&P.

Exports are expected to regain at least some of their lost ground in 2015, with the IIF forecasting Exports are expected to regain at least some of their lost ground a modest 3.2% improvement in exports in 2015 and 7% in 2016. A recent sharp depreciation in in 2015, with the IIF forecasting a the Euro may reduce the competitiveness of some Lebanese products, but only 8.8% of exports modest 3.2% improvement in were destined for the Euro area in 2014. exports in 2015 and 7% in 2016. The tourism sector has been the largest bene ciary of improved security in recent months. Tourist arrivals have been rising for nine consecutive months, including an increase of 20.5% yoy to 175,859 visitors in the rst two months of 2015. As a result, occupancy rates at Beirut’s 4- and 5-star hotels rebounded to 52% from only 39% over the same period in 2014, ahead of rates in Manama, Amman, and Cairo. However, occupancy rates at Beirut’s three-star hotels and above are still projected to lag behind those in most Arab cities in 2015, according to

Consumer Price Index (February, % ytd) Exports in 2014

Food & beverages 1.6% Restaurant & hotels 0.5% Eurozone, Furnishings and maint. 0.5% 8.9% Alcohol & tobacco 0.1% Recreation & amusement 0.1% Education 0.0% Communication -0.1% National -2.1% Health -3.0% Housing, utilities, and fuel -3.1% Transportation -6.1% Other, Clothing and footwear -8.5% 91.1%

Source: CAS, Economena, SGBL Research Source: Customs, Economena, SGBL Research

page 2 TOURISM

Beirut’s hotel occupancy rate may reach 49% in 2015 A resurgence in tourist arrivals from the Gulf, , and Egypt is bringing some life back to Beirut’s hotels so far in 2015. The tourism sector showed double-digit Hotel forecasts for 2015 increases in virtually every indicator in the rst two months of the year, including the (3-, 4-, and 5-star) number of tourists, occupancy rates, room rates, and airport traf c. Occupancy (%) Occupancy rates at 3-, 4-, and 5-star hotels along with high quality serviced apartments in Dubai Marina 81% Beirut are projected to average 49% during the full year 2015, according to Colliers Dubai Creek 80% International, a real estate consultancy. Beirut’s occupancy rate is expected to lag behind virtually all major Arab cities, including Cairo where occupancy may hit 52% and the Doha West Bay 79% Revenues Per Available Room (RevPAR) may rise by 28% to $65 during the year. Beirut’s Dubai Sheikh Zayed 78% RevPAR is projected to reach $78, a 1% increase over 2014, with an Average Daily Rate Abu Dhabi City 76% (ADR) of $158, stated Colliers. Elsewhere, Colliers sees occupancy rates for the year at Jeddah 76% 62% in Amman, at 58% in Manama, and at 52% in Kuwait City in 2015. Sharjah 75% Doha City Centre 73% Beirut’s 4- and 5-star hotels had reported an increase in their occupancy rates to 52% in Sharm El Sheikh 67% the rst two months of 2015, compared with 39% over the same period in 2014, data collected by Ernst & Young showed. Similar quality hotels in Manama, Amman, and Cairo Fujairah 65% were less busy with less than half of their rooms booked during the period. Muscat 65% Ras Al Khaimah 63% Close to a year of relative domestic stability is helping restore some activity in the tourism Riyadh 62% sector in Lebanon. Tourist arrivals increased for the ninth consecutive month in February, Amman 62% 2015 following the lifting of travel warnings for Lebanon by Gulf countries and the Aqaba 59% implementation of a national security plan that appears to have dramatically reduced the threat of car bombings and of sectarian clashes in major cities, including Tripoli and Sidon. Manama 58% Cairo 52% Tourist arrivals rose by 20.5% yoy to 175,859 visitors in the rst two months of 2015, the Kuwait City 52% rst increase during the period since 2010. Visitors from the GCC rose by 84.3% yoy to Beirut 49% 15,937 tourists, including more than double the number of tourists from Saudi Arabia, UAE, Luxor 21% and Qatar. Arrivals from Egypt and Iraq also posted double-digit increases to 10,555 and 26,069 visitors respectively through February, with the latter now the largest tourist group Source: Colliers International, Economena, SGBL Research Note: As of February 2015 in the country with 14.8% of the total.

A pick up in passenger traf c at Beirut’s airport con rms the upward trend in tourist activity. The number of disembarked passengers grew by 10.24% yoy to 419,369 in the rst two months, the highest on record for the period.

On the other hand, the number of Lebanese, including expatriates, who came to Lebanon in the rst two months, fell by 0.5% yoy to 328,098. They had peaked at 431,045 visitors during the same period in 2011.

Arrivals are slated to mark a moderate improvement in 2015, but any signi cant change in the status quo remains dependent on a more stable political environment, according to the Institute of International Finance (IIF). Travel and tourism receipts are projected to increase by 7.9% to $6.4bn in 2015 and to accelerate by 12% to $7.2bn in 2016, as per the IIF. Travel and tourism receipts are projected to increase by 7.9% to $6.4bn in 2015 and to accelerate Tourist arrivals (Jan-Feb 2015) Lebanese arrivals ('000, Jan-Feb 2015) by 12% to $7.2bn in 2016.

Number % yoy % of total 431.0 Iraq 26,069 26.6% 14.8% GCC 15,937 84.3% 9.1% France 14,714 16.1% 8.4% USA 12,017 13.2% 6.8% Egypt 10,555 17.2% 6.0% Jordan 9,082 -0.9% 5.2% 324.5 328.1 Canada 8,330 16.8% 4.7% UK 6,353 16.2% 3.6% Germany 6,184 7.5% 3.5% Ethiopia 5,433 25.3% 3.1% Other 61,185 16.5% 34.8% Total 175,859 20.5% 100.0% 2007 "08 "09 "10 "11 "12 "13 "14 "15 Source: MoF, Economena, SGBL Research

page 3 ECONOMY

Growth unlikely to exceed 2.2% in 2015, risks titled to the downside - IIF

The Lebanese economy may grow at 2.2% in 2015, but a protracted political crisis and regional insecurity will continue to slow the recovery, especially in the absence of structural reforms, according to the IIF. Private consumption remains the main driver of economic growth, supported by a third BdL stimulus package and a modest recovery in exports.

Political uncertainty amid civil war in Syria and the rise of the Islamic State is also clouding the near-term outlook for the Lebanese economy. Although the fall in oil prices is helping reduce production costs and raise disposable incomes, tourism and investment remain subdued with signi cant improvement dependent on a more stable political environment.

Risks are tilted to the downside, emanating mostly from a potential deterioration in the security The election of a new president in situation and large-scale attacks by radical militants, according to the IIF. At the same time, a the first half of 2015 as well as an period of low ination could dampen economic activity, while infrastructure bottlenecks, including improvement in the security situation may lead to stronger growth during water and energy, transport, and IT, continue to limit Lebanon’s competitiveness. However, the the year, predicted the IIF. election of a new president in the rst half of 2015 as well as an improvement in the security situation may lead to stronger growth during the year, predicted the IIF.

Public nances may remain week in 2015. Revenues may fall by 5.6% following one-off receipts in 2014, while spending may rise by a slight 0.2% despite a likely $800m drop in transfers to the electricity company. Crude oil prices are projected to average $60 in 2015, down from $99 in 2014, helping offset a likely drop in Customs revenues from lower imports. On the other hand, personnel costs are expected to rise by 9% to $4.84bn in 2015 on military and security recruitment, assuming that the salary scale adjustment is not to be implemented in the near future. As a result, the de cit is seen widening by 21.4% to $4bn in 2015, equivalent to 8.1% of GDP.

Still, risks to the Lebanese economy are buffered by substantial of cial reserves and a robust banking system, according to the IIF, even though banking activity is seen moderating in 2015. Private sector credit to residents is projected to increase by 6.8% to $51bn in 2015, and to accelerate by 8.5% in 2016. Liquidity buffers are also adequate and capital is above the regulatory minimum, while the ratio of non-performing loans to total loans is relatively low at ~4%, stated the IIF. The country’s banks had increased their lending to residents by a strong 9.3% in 2014, a third of which through BdL’s stimulus package for the year.

REFORMS COULD HELP SPUR 3.8% GROWTH IN 2015 The IIF proposed an adjustment strategy that includes measures to combat tax evasion, dispose of real estate holdings, raise electricity tariffs and the VAT, introduce taxes on seaside-built properties, The measures could produce and raise fuel excise taxes, among others. The measures could produce savings of $1.8bn in 2015, savings of $1.8bn in 2015, or 3.6% of GDP, half of which could be used to or 3.6% of GDP, half of which could be used to nance infrastructure and to increase social finance infrastructure and to increase spending, stated the IIF. social spending, stated the IIF.

Under the proposed strategy, Lebanon’s scal de cit would narrow to 2.9% of GDP by 2018, supported in part by the phase out of all transfers to EdL. The country’s real GDP growth would reach 5%, and the debt-to-GDP would decline to 118% from an estimated 140% in 2014.

Lebanon: main economic indicators Central government fiscal accounts ($bn)

2014e 2015f 2014e 2015f % change Nominal GDP ($bn) 47.49 49.02 Public revenues 10.87 10.19 -6.2% Real GDP growth (%) 1.70 2.20 Income and profits 1.87 1.90 1.9% Private consumption 2.90 2.50 VAT 2.25 2.09 -6.7% Public consumption -3.40 4.50 Customs and excises 1.34 1.27 -5.7% Private investment 0.60 0.50 Telecom surpluses 1.83 1.65 -10.0% Public investment -0.20 4.60 Treasury receipts 1.09 0.83 -23.8% Goods exports -1.00 3.40 Public spending 14.14 14.16 0.2% Inflation (%) 2.10 -0.60 Personnel 4.44 4.84 9.0% Private credit (% change) 9.30 6.80 Debt service 4.36 4.41 1.2% M3 (% change) 5.80 5.10 Transfers to EdL 1.88 1.12 -40.5% Government debt (% of GDP) 140.30 143.20 Primary balance 1.09 0.44 -59.5% Fiscal balance -3.27 -3.97 21.4% Source: IIF, Economena, SGBL Research

page 4 TRADE

Lebanon’s exports to rise in 2015, Exports (% change) 9.8 10.0 service exports may reach $17bn 7.0

3.4 3.4 Lebanon’s exports are steadily improving from their sharpest downturn since the late 1990s, despite continued disruption in trade through Syria. At the same time, imports Price performance of select markets in 2014 are showing a sharp downturn driven largely by lower oil prices and a falling Euro. -1.0 -2.8 The value of goods exports increased by 2.6% yoy to $250.2m in January, while volumes -3.8 surged by 18.6% yoy to 177,954 tons, reecting higher export volumes at lower prices. 2009 "10 "11 "12 "13 "14 "15f "16f Goods exports, which appear to have bottomed out in 2014, are expected to stage a moderate recovery in the coming two years, but are unlikely to return to their peak levels in the foreseeable future. The IIF is forecasting a modest 3.2% improvement in exports in 2015 Imports in 2014 and 7% in 2016. Exports averaged 11% of GDP over the past 15 years, one of the lowest among emerging economies, according to the IIF, thereby requiring structural reforms to boost productivity and ensure external sustainability. 35% Eurozone Services exports, those delivered to non-resident clients, including engineering, media, Other legal, tourism, consulting, and others, rose by 5.6% to $15.9bn in 2014 and are projected 65% to accelerate by 6.1% to $16.9bn in 2015, according to the IIF. Much of the increase came as a result of spending by a signi cant number of Syrian and Iraqi refugees who are treated as non-residents.

Green shoots in export activity are also coinciding with a decline in imports from lower oil prices. Total imports fell 28.4% yoy to $1.34bn in January 2015, including a sharp 61.3% Imports of pharmaceutical yoy downturn in imports of fuels and mineral oils to $211.4m during the month. products in 2014 ($m) A sharp decline in the Euro in recent months will likely help keep Lebanon’s imports Germany 178.91 subdued. Almost 34% of Lebanon’s imports, equivalent to $7.0bn, originated from the Euro France 151.01 area in 2014, including mostly oil, machinery, and pharmaceutical products. As a result, a USA 113.09 cheaper Euro should contribute to a reduction in the country’s pharmaceutical import bill Switzerland 107.09 which reached $1.14bn in 2014, but may also slow Lebanon’s growing domestic pharmaceutical production. Italy 85.78 UK 53.91 While helping reign in Lebanon’s trade de cit, weaker trade activity is taking its toll on Port Jordan 45.39 of Beirut. Port income dropped by 7.5% yoy to $32.1m in the rst two months of the year, Ireland 42.13 its sharpest downturn over the period in almost a decade. Stricter import regulations by Spain 40.19 Customs caused a signi cant slowdown in clearance activity in the rst two months of the year, but measures have been relaxed since then. Denmark 40.12 UAE 32.16 EGYPT AND IRAQ ARE KEY GROWTH AREAS Argentina 30.70 The conict in neighboring Syria and lower oil prices remain the main obstacles to a Belgium 28.41 meaningful recovery in Lebanese exports. Still, trade with Egypt and Iraq has been Other 191.97 accelerating in recent months and the two countries will likely remain key growth destinations for Lebanese products as the security situation stabilizes in major cities. Total 1,140.90 Exports to Egypt surged by 54% yoy to $8.1m in January, while those to Iraq increased by $27% to $19.0m during the month, their highest level for the month in at least six years.

Imports and exports (12m moving average, % yoy) Trade balance (12m moving total, $bn) Pharmaceutical imports ($m)

60% Exports Imports Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 1,141 0 1,091

40% 973 970 -5 20% 860

753 0% -10

-20% -15 2009 "10 "11 "12 "13 "14 -40% Source: Customs, Economena, SGBL Research Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 -20

page 5 IN FOCUS

Banking activity may slow in 2015

Banking activity may slow in 2015 as political uncertainty The ratings agency also cited a high proportion of retail and regional unrest weigh on business and consumer deposits that have shown resilience through various crises. con dence. Credit and deposit growth, however, are expected to remain robust driven by BdL measures and by ROBUST GROWTH AT ALPHA GROUP BANKS con dence in the country’s nancial system, according to Alpha Group banks, those with deposits in excess of $2bn, credit agencies and international nancial institutions. reported robust growth of 9.13% in net pro ts to $1.87bn in 2014, but most of the gains came from branches and Banking metrics started the year at a slow pace with credit to subsidiaries in foreign markets. On the other hand, domestic net the private sector falling by 0.66% in January to $50.56bn, pro ts were only up by 2.11% to $1.56bn, reecting the dif cult mirroring weak economic activity in the country and ahead of domestic operating environment. The country’s largest banks public sector debt issuances in February. Credit to the are increasingly focused on growing their international footprint resident private sector also contracted by 0.2% during the with half of the 67 new branches added during the year based month following rapid growth of 9.3% in 2014. Real estate abroad. By the end of 2014, a third of the Alpha Group’s 1,199 transactions had fallen by 27.6% yoy in the rst two months of branches were in foreign countries. the year, while new car sales dropped by 7.1% yoy over the same period, which may indicate a slowdown in retail lending. Despite higher pro ts, return metrics resumed their decline during the year on higher provisions. The return on average Growth in loans to residents is expected to remain robust at equity for the 14 banks contracted to 11.55% in 2014 from 6.8% in 2015, supported by a new $1bn stimulus package 11.71% the previous year, and the return on average common from the Central Bank, although an uncertain political situation equity fell to 12.9% from 13.12%. and rising real interest rates risk hampering credit demand, according to the Institute of International Finance. Domestically, assets of the 14 banks grew by 8.82% to $155.1bn in 2014, compared with growth of 9.69% in 2013, Loan guarantees issued to SMEs by Kafalat, a according to Bankdata Financial Services. Deposits lost some government-sponsored organization, also tumbled at the start momentum and grew by 6.83% to $130.93bn, down from of 2015. The value of guarantees plummeted by 44.9% yoy to 9.04% the previous year, in line with the industry’s aggregate $10.2m spread over 86 loans in the rst two months . The drop growth over the period. However, the slowdown in private credit in Kafalat loan guarantees may reect a shift by startups into was less pronounced as domestic loans posted an increase of equity nancing under the 18-month old BdL Circular 331, 7.6% to $41.23bn in 2014, compared with 8.27% in 2013. which allows banks to invest up to 3% of their capital in Lebanese startups. As of March 2015, an estimated $220m The loans to deposits ratio maintained its upward trend, had been committed for seed, early, and growth stage equity reaching 37.51% at the end of 2014, compared with 36.72% in nancing to be invested by 2020 through various funds, 2013, and 34.92% in 2012. Doubtful loans declined to 5.73% of according to industry leaders. gross loans after ticking up in the years following the outbreak of unrest in Egypt and Syria. Net provisions for credit losses still Commercial bank deposits fell by a slight 0.2% to $144.15bn increased by 5.16% to $368.37m, in part due to new BdL in January, but are still up 6.89% yoy, as strong inows in collective provisioning requirements that took effect in 2014. December are typically followed by weaker activity in the rst month of the year. Private sector deposits are projected to grow by 6% in 2015, which should be suf cient to nance public and private demand for credit, according to Standard & Poor’s (S&P). Con dence in the Lebanese nancial system remains strong, Alpha Group (2014, $bn) supported by foreign currency reserves and favorable interest Assets Deposits Loans Profits ($m) rate differentials, stated S&P. 41.96 35.82 17.18 350.33 BLOM Bank 27.98 24.00 6.91 365.37 19.04 15.72 4.73 175.72 Private sector deposits and claims (% yoy) Fransabank 18.95 15.35 5.86 166.15 15.43 12.14 4.76 133.49 20.2 Deposits Loans SGBL 15.00 11.41 3.70 155.22 Bank of Beirut 14.96 11.14 4.22 175.47 14.7 BLF 11.29 9.55 4.01 102.09 Credit Libanais 9.16 7.74 2.86 64.23 10.6 10.0 BBAC 5.45 4.74 1.46 43.60 7.6 7.9 7.4 7.6 6.9 7.5 IBL Bank 5.23 4.76 1.04 59.43 First National Bank 3.92 3.24 0.91 29.56 Lebanon Gulf Bank 3.18 2.80 1.28 27.10 Creditbank 3.00 2.60 1.48 26.72 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Total 194.57 161.00 60.39 1,874.48 Source: BdL, Economena, SGBL Research Source: Bankdata Financial Services, Economena, SGBL Research

page 6 LATEST DATA

Key indicators Unit 2014 Nov-14 Dec-14 Jan-15 %Y/Y YTD PYTD Cleared cheques $bn 74.25 5.78 6.29 5.82 -5.54 5.82 6.16 Real estate transactions $bn 8.95 0.64 0.90 0.53 -31.54 0.53 0.77 Construction permits Sqm, m 13.55 0.90 0.99 0.84 -19.95 0.84 1.05 Cement deliveries Tons, m 5.52 0.38 0.44 0.26 -38.78 0.26 0.43 Tourist arrivals m 1.35 0.09 0.13 0.09 22.65 0.09 0.07 Airport traf c m 6.57 0.43 0.57 0.50 11.39 0.50 0.45 Balance of payments $bn -1.41 -0.42 -0.12 -0.28 795.21 -0.28 -0.03 Money supply: M3 $bn 117.68 116.46 117.68 117.14 5.59 117.14 110.93 BSE volumes m 96.79 3.44 10.83 2.92 -11.37 2.92 3.30 Passenger car sales 37,816 2,438 3,294 2,436 2.7 2,436 2,372 Hotel occupancy (average) % 52.00 51.00 61.00 50.00 14.00 50.00 36.00

Indices 2014 Dec-14 Jan-15 Feb-15 %Y/Y %YTD Consumer con dence index - ARA 80.58 84.00 84.00 n.a. 27.27 27.27 Consumer Price Index 100.81 99.29 97.13 97.20 -2.97 -2.10 Purchasing Managers' Index 47.55 49.30 49.50 48.70 7.03 -1.22 BdL Coincident Indicator 273.18 292.50 269.90 n.a. -3.71 -7.73

Trade Unit 2014 Nov-14 Dec-14 Jan-15 %Y/Y YTD PYTD Imports $bn 20.49 1.39 1.65 1.34 -28.40 1.34 1.87 Exports $bn 3.31 0.25 0.27 0.25 2.45 0.25 0.24 Trade balance $bn -17.18 -1.14 -1.38 -1.09 -33.02 -1.09 -1.63 Port of Beirut volumes TEUs, m 1.21 0.09 0.10 n.a. 5.48 1.21 1.12

Financial and monetary Unit 2014 Jan-14 Dec-14 Jan-15 %Y/Y YTD %YTD Commercial bank assets $bn 175.70 164.43 175.70 175.74 6.88 0.04 0.02 Claims on the resident private sector $bn 45.37 41.36 45.37 45.28 9.46 -0.09 -0.20 Claims on the non-resident private sector $bn 5.53 5.68 5.53 5.29 -6.91 -0.25 -4.45 Claims on the public sector $bn 37.35 37.97 37.35 37.16 -2.14 -0.19 -0.52 Resident private sector deposits $bn 114.12 107.67 114.12 113.17 5.67 -0.35 -0.31 Dollarization rate (average) % 60.13 60.00 59.99 59.73 -0.28 59.73 -0.26 Non-resident private sector deposits $bn 30.30 27.19 30.30 30.38 11.72 0.08 0.26 Dollarization rate (average) % 87.54 87.66 87.27 87.19 -0.47 87.19 -0.08 Private sector deposits $bn 144.43 134.86 144.43 144.15 6.89 -0.27 -0.19 Private loans / deposits % 39.08 38.42 39.75 39.80 1.38 39.80 0.04 Public sector deposits $bn 3.21 3.04 3.21 3.28 7.96 0.07 2.03 BdL foreign assets $bn 37.86 35.62 37.86 38.86 6.28 0.00 -0.01 BSE market capitalization $bn 11.22 11.05 11.22 11.25 1.83 0.03 0.27 Gross public debt $bn 66.56 63.95 66.56 n.a. 4.86 3.08 4.86

Public nance Unit 2013 Nov-13 Oct-14 Nov-14 %Y/Y YTD PYTD Revenues $bn 9.42 0.60 0.92 0.58 -3.91 9.41 8.52 Value Added Tax $bn 2.19 0.12 0.31 0.11 -11.12 2.07 2.06 Telecommunications $bn 1.43 0.11 0.12 0.11 -5.91 1.18 1.13 Income taxes $bn 1.66 0.06 0.15 0.07 15.12 1.79 1.60 Customs $m 541.64 43.16 44.50 38.16 -11.59 466.66 497.34 Expenditures $bn 13.64 1.06 1.14 1.16 9.33 12.43 12.50 Transfers to EdL $bn 2.03 0.08 0.14 0.18 124.32 1.81 1.88 Debt service $bn 3.79 0.45 0.46 0.47 4.61 3.88 3.49 Primary balance $bn -0.24 0.00 -0.14 -0.10 - 1.03 -0.31 Fiscal balance $bn -4.22 -0.46 0.26 -0.59 -5.52 -3.02 -3.98 YTD: year-to-date, PYTD: previous year-to-date Source: MoF, BdL, BSE, ARA, Customs, Markit, EY, RHIA, CAS, Economena, SGBL Research

page 7 KEY TRENDS

Coincident vs. cement (12m moving average, % yoy) Resident deposits and claims (% yoy) A downturn in construction indicators is weighing on overall economic Growth in deposits of residents has slowed in recent months, but it activity in the country. BdL’s coincident indicator grew by 2.35% in the remains robust at 5.7% as of Janaury, 2015. Although weaker, credit 12 months through January, 2015, its slowest pace in 15 months. activity is also still strong in the high single digits.

20% 20% 30% BdL Coincident Indicator (LHS) Resident deposits Cement deliveries (RHS) 15% Claims on residents 25% 15% 10% 20% 5%

10% 0% 15%

-5% 9.5% 10% 5% -9.73% -10% 5% -15% 5.7% 2.35% 0% -20% 0% Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: BdL, Economena, SGBL Research Source: BdL, Economena, SGBL Research

Permits to initiate construction (millions of sqm) Household broadband internet download speed (Mbps) The Order of Engineers & Architects in Beirut issued final permits for the Broadband internet speeds increased substantially in recent months initiation of construction over 8.21 million square meters in 2014. More despite an antiquated copper network for internet traffic. Download than half of all activity was concentrated in Mount Lebanon. speeds as measured by Ookla, an internet speed test website, reached 3.35 Mbps in March 2015 from 2.49 Mbps in March 2014. 0.10 4.00 0.58 3.50 0.90 Mount Lebanon 3.00 South Lebanon 2.50 Bekaa 1.04 Nabatieh 2.00 4.47 Beirut 1.50 North Lebanon 1.13 1.00

0.50

0.00 Mar-09 Mar-11 Mar-13 Mar-15 Source: OEB, Economena, SGBL Research Source: Ookla, Economena, SGBL Research

This report is provided for information purposes and is not intended for investment and/or trading and/or any other purposes. This report may include certain information provided “as is” gathered from various sources considered to be reliable. “Societe Generale de Banque au Liban s.a.l” makes no warranty of any kind, express or implied, as to the accuracy and/or completeness of its content, merchantability or fitness for a particular purpose. None of the information contained in this report constitutes a solicitation, offer, opinion, or recommendation by “Societe Generale de Banque au Liban s.a.l” to buy and/or sell any itme and/or to provide any investment advice whatsoever. © 2015 Societe Generale de Banque au Liban s.a.l. page 8