WEEKLY MONITOR FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09 ______Economy p.2 A US$ 20 BILLION CONTRACTION IN DEPOSITS IN 2020 AMID A US$ 14 BILLION LOAN REDEMPTION Amid the combination of a widening domestic economic crisis, contracting inflows towards Lebanon CONTACTS and the default of the State on its Eurobonds, banks operating conditions have deteriorated significantly over the course of the year 2020 that reported significant deposit and loan contraction, Treasury & Capital Markets pressure on bank liquidity, and net losses in income statements thus drawing on shareholders equity Bechara Serhal as per statistics released this week by BDL. (961-1) 977421 [email protected] Also in this issue p.3 Lebanon's GDP likely to contract 10% in 2021 as economic and political woes persist, as per Capital Economics Toufic Aouad p.4 Cement deliveries down by 44.7% in first ten months of 2020 (961-1) 954922 p.4 Imports of petroleum derivatives down by a yearly 9.9% in first ten months of 2020 [email protected]

Corporate Banking ______Surveys Carol Ayat p.5 OCCUPANCY OF LEBANON’S FOUR AND FIVE STAR HOTELS AT 18% IN 2020, AS PER EY (961-1) 959675 Ernst & Young issued its latest Hotel Benchmark Survey on the for 2020, with Lebanon's [email protected] hotel occupancy reporting 18% in 2020

Also in this issue p.6 Growth in consumer spending will be driven by spending on essential categories, as per Fitch Solutions

______Corporate News p.7 BALANCE SHEET OF FINANCIAL INSTITUTIONS TOTALS US$ 1,172 MILLION AT THE END OF THE YEAR 2020. According to the latest statistics issued by the Central Bank of Lebanon, the total balance sheet of financial institutions amounted to US$ 1,172.4 million at end year 2020, down by 15.2% from end-2019

RESEARCH Also in this issue p.8 Lebanese owned CMA CGM Foundation mobilizes its resources in response to the sanitary emergency Marwan Barakat in Lebanon (961-1) 977409 [email protected] p.8 AZADEA buys Adidas operations and franchise p.8 Berytech is looking for textile, clothing and fashion entrepreneurs Salma Saad Baba (961-1) 977346 [email protected] ______Markets In Brief p.9 MARKETS IN BRIEF: BOND PRICES AT RECORD LOWS AHEAD OF BDL’S FEBRUARY 28 Farah Nahlawi DEADLINE FOR BANKS TO BOOST FC LIQUIDITY (961-1) 959747 [email protected] With no breakthrough in the stalled cabinet formation process and shortly ahead of BDL’s February 28 deadline for Lebanese banks to raise capital by 20% and boost liquidity at correspondent banks to at least 3% of their FC deposits, Lebanon’s capital markets saw this week a plunge in the Lebanese pound against Zeina Labban (961-1) 952426 the US dollar on the black FX market and across-the-board price contractions on the Eurobond market, while [email protected] the equity market followed an upward trajectory. In details, the LP/US$ exchange rate deteriorated to LP/ US$ 9,650-LP/US$ 9,700 on Friday, down by 3.2% when compared to the previous week, amid dwindling FX Michele Sakha reserves and stubborn cabinet gridlock. In parallel, the bond market saw across-the-board selling operations (961-1) 977102 from domestic market players, which drove prices to record low levels of 12.50-13.13 cents per US dollar. [email protected] Finally, the equity market posted price gains, as reflected by a 2.2% rise in the BSE price index, while the total turnover contracted by 78% week-on-week. LEBANON MARKETS: WEEK OF FEBRUARY 22 - FEBRUARY 28, 2021

Money Market BSE Equity Market LP Tbs Market Eurobond Market ⬆ LP Exchange Market CDS Market - ⬌⬆ ⬇ Week 09 February 22 - February 28, 2021 ⬇ 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] FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

ECONOMY ______A US$ 20 BILLION CONTRACTION IN DEPOSITS IN 2020 AMID A US$ 14 BILLION LOAN REDEMPTION

Amid the combination of a widening domestic economic crisis, contracting inflows towards Lebanon and the default of the State on its Eurobonds, banks operating conditions have deteriorated significantly over the course of the year 2020 that reported significant deposit and loan contraction, pressure on bank liquidity, and net losses in income statements thus drawing on shareholders equity as per statistics released this week by BDL.

Measured by the consolidated assets of banks operating in Lebanon, banking activity contracted by US$ 28.7 billion over the year 2020, the equivalent of 13.3%. Comparatively, they had contracted by 13.1% over the year 2019, following an average growth of 4.7% over the previous five years.

Similarly, customer deposits, which represent the bulk of bank assets in Lebanon, reported a contraction of US$ 19.7 billion over the year 2020. Since the beginning of 2019, customer deposits contracted by a cumulative amount of US$ 35.1 billion, the equivalent of 20.2%. The decline last year in customer deposits is tied to both LL and FX deposits. LL Deposits contracted by US$ 10.8 billion, while FX Deposits dropped by US$ 9.0 billion. As such, the deposit dollarization went up from 76.0% in December 2019 to 80.4% in December 2020, i.e a 28-year high.

In parallel, loans to the private sector, which contraction accounted for almost two third of deposits contraction, reported a decline of US$ 13.6 billion over the year 2020. Since the beginning of 2019, loans to the private sector contracted by a cumulative amount of US$ 23.2 billion, the equivalent of 39.1%. The decline last year in loans to the private sector is mainly tied to FX loans. LL Loans contracted by a mere US$ 1.0 billion, while FX Loans dropped by US$ 12.6 billion. As such, the loans dollarization went down from 68.7% in December 2019 to 59.6% in December 2020, i.e a 34-year low.

In line with regulatory directives, banks continued to decrease interest rates on both creditor and debtor accounts. The LP deposit rate contracted by 472 basis points over the year to reach 2.64% at end- December and the US$ deposit rate shrank by 368 bps to reach 0.94% (getting closer to international reference rates with the spread between the US$ deposit rate and the 3M US$ Libor rate at a 12-year low of 70 bps). In parallel, the average LP loans rate shrank by 132 bps over the period and the US$ loans rate declined by 411 bps in 2020.

Concerning sovereign exposure, banks Eurobond portfolio reported US$ 9.4 billion at end-December 2020, the equivalent of 8.4% of FX customer deposits, against 11.4% at end-2019 and 13.0% at end-2018.

GROWTH OF MAIN BANKING AGGREGATES (US$ MILLION)

Growth of main banking aggregates (US$ million)

10,10 ,10 ,1 ,1 ,2 2, 2,0

-00 2015 2016 2017 2018 2019 2020

-,1 -1,01 -1,18 -1,2 a e a a

Source: BDL, Bank Audi's Group Research Department

Week 09 February 22 - February 28, 2021 2 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

As to primary liquidity abroad, it witnessed a decline of US$ 2.1 billion over the last year. With respect to capitalization, banks shareholders equity amounted to US$ 19.9 billion at end-December 2020, against US$ 20.7 billion at end-2019 as a result of net losses in income statements.

As such, banks are continuing to experience difficult and uncertain operating conditions, and have been focusing their efforts on provisioning against potential losses tied to their private sector lending portfolios and sovereign Eurobond holdings, while striving to boost capitalization (by a cumulative 20%) and meet liquidity requirements (3% of their FC deposits held in liquid form abroad) by February 2021 as per the latest BDL guidelines.

______LEBANON'S GDP LIKELY TO CONTRACT 10% IN 2021 AS ECONOMIC AND POLITICAL WOES PERSIST, AS PER CAPITAL ECONOMICS

Lebanon’s economic downturn is unlikely to improve in 2021 as its GDP is set to contract by 10% this year, according to Capital Economics, a London-based consultancy.

A severe COVID-19 outbreak has added to the long list of troubles in Lebanon and, given renewed social unrest and the fact that talks with both the IMF and international creditors are at a standstill, it is likely that economic conditions will remain dire over the coming months, said the agency’s MENA Economist.

Lebanon is beset by a severe economic, political and humanitarian crisis. In March last year, the government defaulted on its Eurobond debts. In August, the blast at the Port of resulted in the deaths of 204 people and a further 6,500 injured. The blast led to the resignation of the government and a new administration has yet to be formed.

The Coronavirus outbreak is straining its already stretched health sector and reports suggest that hospitals are operating far beyond their capacity and running out of resources to treat patients. The vaccine roll out has only just begun and is likely to be slow-going as supply remains constrained.

According to the agency, caretaker PM, had previously outlined plans to turn to the IMF for financial assistance to help arrest Lebanon’s economic malaise.

However, talks with Lebanon’s creditors over a debt restructuring, which is ultimately needed before Lebanon can secure an IMF deal, have been at a standstill for the best part of a year and were formally put on pause after the government resigned in August.

Until a debt restructuring is agreed and the authorities allow the BdL to be audited, an IMF deal will not be forthcoming and the rapid depletion of FX reserves will continue, the report noted.

As well as deposit outflows, the economic downturn will have almost certainly resulted in a rise in bad loans – in Q1 2020, non-performing loans as a share of total loans had risen to a record high of 20.3%.

Against this backdrop, BdL instructed banks to raise capital buffers by 20% by the end of February. Some banks have managed to secure additional capital from investors and sold off foreign subsidiaries to try to meet the target, as per the report.

______CEMENT DELIVERIES DOWN BY 44.7% IN FIRST TEN MONTHS OF 2020

Cement deliveries, a coincident indicator of construction activity, declined by a yearly 44.7% in the first ten months of 2020, as recently released by the Central Bank of Lebanon.

Cement deliveries reached circa 1,591 thousand tons in the first ten months of 2020, down from 2,875 thousand tons in the corresponding period of 2019, reflecting a weakening construction activity. In October 2020, cement deliveries reported 254,341 tons, down from 289,237 tons in October 2019.

Week 09 February 22 - February 28, 2021 3 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

Cement deliveries actually reached circa 3,203,396 tons in 2019. It is worth also recalling that cement deliveries had reached 4,702,315 tons in 2018, down from 5,148,615 tons in 2017.

CEMENT DELIVERIES (IN THOUSAND TONS)

,000

,000 ,81 ,0 ,1 ,22 ,0 ,2 ,0 ,1 ,000 ,02

,000 ,20 ,000 2,8

2,000 1,1

1,000

- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 10M-2019 10M-20

Sources: Central Bank of Lebanon, Bank Audi's Group Research Department ______IMPORTS OF PETROLEUM DERIVATIVES DOWN BY A YEARLY 9.9% IN FIRST TEN MONTHS OF 2020

Imports of petroleum derivatives registered a drop by 9.9% over the first ten months of 2020 when compared to the first ten months of 2019. The latter retreated from 7,051,267 metric tons to 6,349,741 metric tons between the two periods, as released by the Central Bank of Lebanon.

Imports of petroleum derivatives stood at 782,173 metric tons in October 2020, down from 801,456 metric tons in October 2019.

It is worth noting that the imports of petroleum derivatives to Lebanon stood at 8,049,695 metric tons in 2019, down by a yearly 0.5% from 8,087,580 metric tons in the previous year.

IMPORTS OF PETROLEUM DERIVATIVES (METRIC TONS)

,000,000 8,0, ,01,2 8,08,80 8,18,80 8,000,000 ,,1 8,00, ,000,000 ,,8 ,000,000 ,000,000 ,000,000 ,000,000 2,000,000 1,000,000 -

2015 2016 2017 2018 2019 10M-19 10M-20

Sources: BdL, Bank Audi's Group Research Department

Week 09 February 22 - February 28, 2021 4 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

SURVEYS ______OCCUPANCY OF LEBANON’S FOUR AND FIVE STAR HOTELS AT 18% IN 2020, AS PER EY

Numbeo, a global statistics website, recently released its global cost of living index in which Beirut Ernst & Young issued its latest Hotel Benchmark Survey on the Middle East for 2020 (four and five star hotels), in which it showed that the performance of Lebanon’s hospitality sector witnessed a sharp contraction in occupancy rates, average room rates and room yields.

During 2020, Beirut’s hospitality market saw an occupancy drop of 49.5 percentage points from 67.5% in 2019 to 18.0% in 2020. The ADR also declined by 9.5% from US$ 189 in 2019 to US$ 171 in 2020, the combined effect of which resulted into a RevPAR drop of 75.9% over the same period.

Beirut’s hospitality market observed a notable RevPAR increase of 210.6% from US$ 28 in December 2019 to US$ 88 in December 2020. This substantial rise in RevPAR was driven by an occupancy growth of 10.0 percentage points in December 2020 coupled with an ADR increase of 134.4% from US$ 92 in December 2019 to US$ 216 in December 2020.

With the current economic and political concerns, Lebanese pound devaluation, surge in the credit levels along with the abnormalities caused by the COVID-19 pandemic and Port of Beirut Blast, the city has been braving with an intense pressure throughout the year despite the re-opening of Beirut International airport in July 2020. However, the exponential growth in performance during December is mainly attributed to the ease in COVID-19 restrictions and the influx of Lebanese expats during the vacation season.

The occupancy rate within Beirut was ranked last among 14 cities included in the survey. It was directly surpassed by Amman and Muscat (26% and 25% respectively). It is worth noting that the city’s growth rate ranked third out of 14 surveyed cities, contracting by 9.5% year-on-year. The rate of the capital’s hotels was the fifth highest in the region. It exceeded that of Manama (US$ 127) and Riyadh (US$ 140), while being surpassed by Jeddah (US$ 180) and Ras Al Khaimah (US$ 178). Beirut ranked last in the region in terms of percentage variation in room yield. Moving forward, the planned 24-hour curfew and stringent entry measures for inbound visitors are expected to soften the performance in the coming months.

ERNST & YOUNG MIDDLE EAST HOTEL BENCHMARK SURVEY

Occupancy % Average Room Rate (US$) Room Yield (US$)

2020 2019 2020 2019 2020 2019 Abu Dhabi 72 79 73 102 53 81 Doha 60 70 102 112 61 78 Riyadh 50 64 140 162 70 104 Ras al Khaimah 47 75 178 148 83 111 Dubai 46 76 197 223 90 170 Jeddah 38 58 180 265 68 154 Kuwait City 34 57 210 241 72 136 Madinah 31 64 114 159 35 101 Makkah 30 67 106 170 31 113 Cairo 30 76 92 115 27 87 t Manama 27 53 127 161 34 86 Amman 26 62 109 145 29 90 Muscat 25 64 107 136 27 86 Beirut 18 68 171 189 31 128

Sources: Ernst & Young, Bank Audi's Group Research Department

Week 09 February 22 - February 28, 2021 5 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

______GROWTH IN CONSUMER SPENDING WILL BE DRIVEN BY SPENDING ON ESSENTIAL CATEGORIES, AS PER FITCH SOLUTIONS

Fitch Solutions expects Lebanon’s food industry growth to decelerate in 2021 and across its forecast period to 2025, after the uptick seen in 2020 due to the COVID-19 pandemic. Essentials such as meat and vegetables, will continue to drive food spending growth.

Sales of processed and packaged foods will also show improving growth rates. The continued implementation of strict lockdown restrictions is weighing down on the country's economic recovery, which in turn has sent many households below the poverty line. Hence, growth in consumer spending will be driven by spending on essential categories such as food and non-alcoholic drinks.

Fitch Solutions forecast for food 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. The agency forecasts real growth in food spending to decelerate in local currency terms and to decline in US dollar terms. Food spending will decelerate to 65.5%, compared with the uptick of 104.0% in 2020. The double-digit growth in 2021 will continue to be driven by soaring consumer price inflation (CPI), which Fitch Solutions estimates to average 65.0% in 2021, down from 112% in 2020.

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 Q420, as per Fitch Solutions.

As such, many consumer goods, including staples, have become unaffordable for low and middle-income households over 2020 and into 2021.

While food spending experienced a high growth rate of 104.0% year-on-year in 2020 in local currency terms, Fitch Solutions highlight that this is below the average inflation rate, which is estimated to reach 112.0%. This indicates that consumers will have bought lower quantities of food items over 2020. Although Lebanese households prioritized food and drink spending during the pandemic as restaurants were ordered to shutter during multiple lockdowns, many non-essential food and drink products have become unaffordable for many low and mid-income households due to soaring inflation, as well as some families having become dependent on food aid following the Beirut explosion

The food sales market in Lebanon is relatively well developed, with per capita consumption estimated at just under US$ 1,088 in 2020, rising to US$ 1,165 in 2021. Total food sales are forecast to increase in local currency terms by 64.6% in 2020, and over Fitch Solutions five-year outlook to 2025 Fitch Solutions is forecasting muted growth with Lebanon's food sales set to grow at an annual average of 35.5%.

Growth in the Lebanese food industry will be driven mainly by spending on food and drink essentials as the high rate of inflation will negatively impact the Lebanese consumers' purchasing power. While Fitch Solutions expects the Lebanese economy to contract in 2021, it will be at a lower rate of -1.7% compared with the -21.9% estimated for 2020.

It is worth noting that, the Lebanese food sector benefits from the upper middle-income group being the dominant income level in the economy.

Consumers are more resilient amid economic fluctuations and help to compensate for a significant number of households, which have limited incomes (an issue exacerbated by the refugee crisis). Economically, private consumption remains Lebanon's traditional growth driver. However, a spiraling inflation will prove damaging to private consumption, eroding household purchasing power.

Private consumption growth is expected to grow 34.7% year-on-year over 2021 to 2025, slightly above the forecast average consumer price inflation rate of 32.6% according to Fitch Solutions.

Week 09 February 22 - February 28, 2021 6 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

CORPORATE NEWS ______BALANCE SHEET OF FINANCIAL INSTITUTIONS TOTALS US$ 1,172 MILLION AT THE END OF THE YEAR 2020

According to the latest statistics issued by the Central Bank of Lebanon, the total balance sheet of financial institutions amounted to US$ 1,172.4 million at end year 2020, down by 15.2% from end-2019.

In details, currency and deposits with Central Banks rose from US$ 54.9 million at end-2019 to US$ 64.2 million at end- 2020.

Claims on resident customers decreased by 23.1% at end-2020 reaching $479.9 million with respect to US$ 624.1 million at end-19. Claims on non-resident customers dropped by 72.4% standing at US$ 13.0 million versus US$ 47.3 million at end-2019.

Claims on resident financial sector as at end-2020 registered a marginal increase of 5.6% reaching US$ 323.9 million with respect to US$ 306.7 million at end-2019. Claims on non-resident financial sector deteriorated by 49.9% from end-2019 standing at US$ 25.7 million at end-2020

Claims on the public sector stood at US$ 4.6 million at end-2020, down by 11.5% from end-2019.

Securities portfolio declined to US$ 73.6 million at end- 2020, down by 18.1% from its registered figure at end-2019.

Tangible assets reported an increase of 7.3% at end-2020 with respect to end-2019 reaching US$ 50.2 million. Intangible assets declined from US$ 139.1 million at end-2019 to US$ 124.1 million at end- 2020 shrinking by 11%.

On the liabilities side, resident customer deposits registered US$ 155 million at end- 2020 with respect to US$ 171.0 at end-2019. Non-resident customer deposits reached US$ 5.2 million at end 2020 down from US$ 17.1 million at end-2019.

Resident financial sector liabilities stood at US$ 157.2 million at end- 2020, representing a decrease of 29.7% from end-2019. Non-resident financial liabilities decreased from US$ 124.7 million at end-2019 to US$ 78.2 million at end- 2020.

Public sector deposits increased to US$ 5.2 million at end-2020, up by 33.3% from end-2019.

Debt securities issued as at end- 2020 declined by 18.7% reaching US$ 91 million.

Capital accounts reported US$ 463.7 million at end-2020, down from US$ 486.4 million at end-2019.

BALANCE SHEET OF FINANCIAL INSTITUTIONS (US$ MILLION)

2000 1800 1, 1,21 1, 1, 100 1,2 1,10 1,8 100 1,2 1,12 1200 1,0 10 0 1000 81 800 28 00 81 00 200 0 End-05 end-06 End-07 End-08 End-09 End-10 End-11 End-12 End-13 End-14 End-15 End-16 End-17 End-18 End-19 End-20

Sources: Central Bank of Lebanon, Bank Audi's Group Research Department

Week 09 February 22 - February 28, 2021 7 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

______LEBANESE-OWNED CMA CGM FOUNDATION MOBILIZES ITS RESOURCES IN RESPONSE TO THE SANITARY EMERGENCY IN LEBANON

A committee of medical practitioners was set up by the CMA CGM Foundation in coordination with the hospitals and the Lebanese Red Cross to identify and cater to the needs of Lebanese healthcare establishments. The foundation organized the purchasing, packing, and transportation of the equipment on board of the CMA CGM Group’s vessel, departing from Marseille-Fos Port ().

Medical equipment were transported on board of the CMA CGM BENJAMIN FRANKLIN. With the help of CEVA Logistics, a subsidiary of the group, the foundation ensured and coordinated the land transport and distribution to the beneficiaries. Ten tons of Personal Protective Equipment (PPE) and Respiratory machines destined to six hospitals across the country: Lebanese Geitaoui hospital, Saint George hospital, Mount Lebanon hospital, The Beirut Military hospital, Tripoli and Nabatieh public hospitals and the Lebanese Red Cross.

The urgent medical assistance covers mostly needed equipment in demand by the medical institutions; 600,000 PPE items: gloves, masks, shoe-covers, blouse-covers, protective glasses and medical suits, and 20 respiratory machines in support to the hospitals’ emergency needs and intensive care units.

______AZADEA BUYS ADIDAS OPERATIONS AND FRANCHISE

AZADEA Group, a Beirut-based regional retail company, acquired the local operations and franchise rights of the Adidas Group’s brands: Adidas and Reebok said the Group’s CEO. Adidas said last year that it will no longer operate its own stores in Lebanon and will close its local back office by the end of 2020. AZADEA will gradually reopen the stores of the two international sports brands. AZADEA also plans to expand sales of the two brands through the e-commerce channel. The franchise contract is a long-term as per the Group’s CEO.

______BERYTECH IS LOOKING FOR TEXTILE, CLOTHING AND FASHION ENTREPRENEURS

The start-up incubator Berytech announced openings for Growing Innovation Project of the Sustainable Textile Action for Networking and Development of Circular Economy Business Ventures in the Mediterranean (STAND Up!). The program is 90% funded by the European Union with a total budget of US$ 4.5 million.

STAND Up! was launched in July 2020 to meet the need for a transition into an environmentally and socially responsible circular model in the textile sector, a traditional key industry in the Mediterranean. It aims at enhancing replicable and inclusive circular economy ventures in the region by developing an ecosystem of business support, innovation and technology transfer that will lead to sustainable job creation for youth and women.

STAND UP! aims at 200 entrepreneurs from five Mediterranean countries: Lebanon, Egypt, Italy, Spain and Tunisia - brought together in various projects. It calls for innovators and entrepreneurs of the fashion, clothing and textile sectors to apply to the Growing Innovation Program. If selected, the beneficiaries will get access to many opportunities including advanced business support, financing opportunities, technical assistance, soft-landing vouchers and regional networking to grow their projects into a textile or fashion venture and expand it across the Mediterranean.

In particular, the call is targeting the following categories within this sector: young independent innovators and entrepreneurs at the idea or early stage of their project, students/alumni from universities working on innovative business projects, small and medium size enterprises (SMEs), industries, organizations working on developing and launching new sustainable projects inside their organization. Special attention will be paid to women and youth.

Week 09 February 22 - February 28, 2021 8 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

CAPITAL MARKETS ______MONEY MARKET: WEEKLY CONTRACTIONS IN TOTAL RESIDENT DEPOSITS, ON LP DEPOSIT DECLINES

The overnight rate didn’t shift its stance this week, standing at 3.0%, as the local currency liquidity remained quite abundant on the money market, noting that its official rate is quoted at 1.90%.

In parallel, the latest monetary aggregates released by the Central Bank of Lebanon for the week ending 11th of February 2021 showed that total resident banking deposits contracted by LP 346 billion. This is mainly attributed to a LP 347 billion fall in total LP resident deposits amid a LP 139 billion decline in LP demand deposits and a LP 208 billion drop in LP saving deposits, while foreign currency resident deposits grew by a tiny LP 1 billion (the equivalent of US$ 0.6 million as per the official rate of LP 1,507.5). Yet, the money supply in its largest sense (M4) expanded by LP 206 billion over the covered week, mainly due to a significant rise in the currency in circulation of LP 675 billion amid a nationwide Coronavirus- induced lockdown. Within this context, it is worth mentioning that the currency in circulation crossed the LP 32,000 billion threshold on February 11, 2021 and compared to circa LP 29,000 billion at end-2020.

INTEREST RATES

26/02/21 19/02/21 31/12/20 Overnight rate (official) 1.90% 1.90% 1.90% 7 days rate 2.00% 2.00% 2.00% 1 month rate 2.75% 2.75% 2.75% ⬌ 45-day CDs 2.90% 2.90% 2.90% ⬌ 60-day CDs 3.08% 3.08% 3.08% ⬌ ⬌ ⬌ Source: Bloomberg ______TREASURY BILLS MARKET: NOMINAL WEEKLY SURPLUS OF LP 39 BILLION

The latest Treasury bills auction results for value date 25th of February 2021 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 three- year category (offering a coupon of 5.50%) and the seven-year category (offering a coupon of 6.50%).

In parallel, the Treasury bills auction results for value date 18th of December 2021 showed that total subscriptions amounted to LP 129 billion, distributed as follows: LP 17 billion in the three-month category (offering a yield of 3.50%), LP 26 billion in the one-year category (offering a yield of 4.50%) and LP 86 billion in the five-year category (offering a coupon of 6.0%). These compare to maturities of LP 90 billion, resulting into a nominal weekly surplus of LP 39 billion.

______FOREIGN EXCHANGE MARKET: FURTHER DETERIORATION OF LP/US$ RATE ON BLACK FX MARKET

The Lebanese pound fell further against the US dollar this week amid a months-long cabinet deadlock and ahead of BDL’s February 28 deadline for Lebanese banks to raise capital by 20% and boost liquidity at correspondent banks to at least 3% of their FC deposits. The LP/US$ exchange rate touched the LP/US$ 9,650-LP/US$ 9,700 level on Friday versus LP/US$ 9,350-LP/US$ 9,400 at the end of last week. Within this context, it is worth mentioning that the Lebanese pound has deteriorated by circa LP 1,300 against the US dollar since year-end 2020, amid dwindling FX buffers, with BDL’s FC liquid reserves estimated to have fallen below US$ 17 billion, and continuous calls to break a cabinet impasse and secure much-needed financial international support.

Week 09 February 22 - February 28, 2021 9 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

TREASURY BILLS

26/02/21 19/02/21 31/12/20 3-month 3.50% 3.50% 3.50% 6-month 4.00% 4.00% 4.00% 1-year 4.50% 4.50% 4.50% ⬌ 2-year 5.00% 5.00% 5.00% ⬌ 3-year 5.50% 5.50% 5.50% ⬌ 5-year 6.00% 6.00% 6.00% ⬌ 7-year - - 6.50% ⬌ Nom. Subs. (LP billion) 129 122 ⬌ Short-term (3&6 mths) 17 - Medium-term (1&2 yrs) 26 - Long-term (3 yrs) - 20 Long-term (5 yrs) 86 - Long-term (7 yrs) - 102 Maturities 90 191 Nom. Surplus/Deficit 39 -69

*latest available Tbs auction results for value date 28th of January 2021 Sources: Central Bank of Lebanon, Bloomberg

The downward spiral of the Lebanese pound against the US dollar on the black FX market raised questions about a possible change in the LP/US$ exchange rate set by “Sayrafa” electronic platform (currently at LP/ US$ 3,900), noting that the Central Bank of Lebanon allows depositors in foreign currencies to withdraw their deposits in Lebanese pound at the said market rate until 31st of March 2021 (as per BDL basic circular No. 151).

EXCHANGE RATES

26/02/21 19/02/21 31/12/20 LP/US$ 1,507.50 1,507.50 1,507.50 LP/£ 2,101.61 2,108.69 2,048.54 LP/¥ 14.17 14.30 14.61 ⬌⬆ LP/SF 1,666.67 1,685.68 1,706.67 ⬆ LP/Can$ 1,194.44 1,191.13 1,178.66 ⬆ LP/Euro 1,827.84 1,829.05 1,851.21 ⬇ ⬆ Source: Bank Audi’s Group Research Department ______STOCK MARKET: BSE PRICE INDEX UP BY 2.2% WEEK-ON-WEEK

The registered upward price movements this week, as reflected by a 2.2% rise in the price index, mainly supported by price gains in Solidere “A” shares and some banking shares. Three out of seven traded stocks posted price increases, while two stocks recorded price declines and two stocks saw no price change week-on-week. In details, Bank Audi’s “listed” shares led the advance on the BSE this week, registering a 12.6% surge in prices to reach US$ 1.52, followed by ’s “listed” shares with +3.9% to US$ 0.53 and Solidere “A” shares with +3.8% to US$ 19.98. In contrast, BLOM’s GDR price fell by 7.3% to reach US$ 2.15 and Solidere “B” share price retreated slightly by 0.2% to US$ 19.16.

Week 09 February 22 - February 28, 2021 10 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

Concurrently, Bank Audi’s GDR price remained stable at US$ 1.20. Bank of Beirut Preferred “K” shares saw no change in prices week-on-week.

As to trading volumes, the BSE total turnover contracted by 78.0% week-on-week, moving from US$ 16.7 million last week to US$ 3.7 million this week, noting that Solidere shares captured the bulk of activity (98.6%).

AUDI INDICES FOR BSE

22/1/96=100 26/02/21 19/02/21 31/12/20 Market Cap. Index 317.46 310.77 302.49 Trading Vol. Index 32.81 149.15 86.63 ⬆ Price Index 66.64 65.24 63.50 ⬇ Change % 2.15% 0.02% 4.60% ⬆ 26/02/21 19/02/21 31/12/20 ⬆ Market Cap. $m 7,531 7,373 7,176 No. of shares traded (Exc. BT) 237,469 7,669,525 650,340 ⬆ Value Traded $000 (Exc. BT) 3,677 16,723 5,834 ⬇ o.w. : Solidere 3,627 6,473 5,565 ⬇ Banks 50 10,043 264 ⬇ Others 0 207 5 ⬇ ⬇ *Latest activity before lockdown Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department

______BOND MARKET: EXTENDED FALL IN BOND PRICES TO LOW TEENS

Amid a protracted cabinet impasse and ahead of BDL’s February 28 deadline for banks to boost liquidity at correspondent banks to at least 3% of their FC deposits, Lebanon’s Eurobond market witnessed this week domestic selling operations across the yield curve. This resulted into across-the-board price contractions ranging between 0.25 pt and 0.75 pt. Accordingly, prices of Lebanese Eurobonds maturing between 2020 and 2037 hovered between 12.50 cents per US dollar and 13.13 cents per US dollar on Friday as compared to 12.88-13.63 cents per US dollar at the end of last week, amid continuous international calls to make a breakthrough in the stalled cabinet formation process and implement long-overdue reforms to access much-needed financial assistance.

EUROBONDS INDICATORS

26/02/21 19/02/21 31/12/20 Total tradable size $m 32,364 32,364 32,364 o.w.: Sovereign bonds 31,314 31,314 31,314 Average Yield 62% 61% 57% ⬌ Average Life 6.90 6.92 7.04 ⬌⬆ Yield on US 5-year note 0.77% 0.56% 0.37% ⬇ ⬆

Source: Bank Audi’s Group Research Department

Week 09 February 22 - February 28, 2021 11 FEBRUARY 22 - FEBRUARY 28, 2021 WEEK 09

INTERNATIONAL MARKET INDICATORS

Weekly Year-to-date 26-Feb-21 19-Feb-21 31-Dec-20 change change EXCHANGE RATES YEN/$ 106.55 105.43 103.32 1.1% 3.1% $/£ 1.393 1.402 1.367 -0.6% 1.9% $/Euro 1.208 1.212 1.222 -0.3% -1.1% STOCK INDICES DOW JONES INDUSTRIAL 30,932.37 31,494.32 30,606.48 -1.8% 1.1% AVERAGE S&P 500 3,811.15 3,906.71 3,756.07 -2.4% 1.5% NASDAQ 13,192.35 13,874.46 12,888.28 -4.9% 2.4% CAC 40 5,703.22 5,773.55 5,551.41 -1.2% 2.7% Xetra Dax 13,786.29 13,993.23 13,718.78 -1.5% 0.5% FT-SE 100 6,483.43 6,624.02 6,460.52 -2.1% 0.4% NIKKEI 225 28,966.01 30,017.92 27,444.17 -3.5% 5.5% COMMODITIES (in US$) GOLD OUNCE 1,734.04 1,784.25 1,898.36 -2.8% -8.7% SILVER OUNCE 26.67 27.29 26.40 -2.3% 1.0% BRENT CRUDE (per barrel) 64.42 62.91 51.80 2.4% 24.4% LEADING INTEREST RATES (%) 1-month Libor 0.12 0.12 0.14 0.00 -0.02 US Prime Rate 3.25 3.25 3.25 0.00 0.00 US Discount Rate 0.25 0.25 0.25 0.00 0.00 US 10-year Bond 1.40 1.34 0.91 0.06 0.49

Sources: Bloomberg, Bank Audi's Group Research Department

______DISCLAIMER

The content of this publication is provided as general information only and should not be taken as an advice to invest or engage in any form of financial or commercial activity. Any action that you may take as a result of information in this publication remains your sole responsibility. None of the materials herein constitute offers or solicitations to purchase or sell securities, your investment decisions should not be made based upon the information herein.

Although Bank Audi sal considers the content of this publication reliable, it shall have no liability for its content and makes no warranty, representation or guarantee as to its accuracy or completeness.

Week 09 February 22 - February 28, 2021 12