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Your Investment Reference

THE

LEBANON BRIEF

ISSUE 978

July 52 - 29, 2016

ECONOMIC RESEARCH DEPARTMENT

BLOMINVEST Bank Headquarters

Bab Idriss, Beirut, Lebanon

T (01) 991 784/2 F (+961) 1 991 732

[email protected]

www.blom.com.lb

S A L

The Lebanon Brief ISSUE 798 July 25-29, 2016

S A L

TABLE OF CONTENT

FINANCIAL MARKETS 1

Equity Market 1

Foreign Exchange Market 3

Money & Treasury Bills Markets 3

Eurobond Market 4

ECONOMIC NEWS 5

Beirut’s Hotel occupancy Rate Dropped 14 p.p in June 5016 5

Lebanon Moves up 11 Spots on the Network Readiness Index (NRI) 2016 6

Trade Activity at the Abboudieh Customs Office Witnesses Significant Drops by May 2016 7

CORPORATE DEVELOPMENTS 8

BLC Bank’s Net Income Witnessed a 16% Yearly Decline 8

BYBLOS Bank Revealed a 6% Yearly Rise in Net Profits 8

Bank of Beirut’s Profits Rise 5.17% in H1 5016 9

BEMO Bank’s Net Income Witnessed an 8.47% Yearly Decline 9

Bank Audi’s Net Profit Up by 11.66% y-o-y in H1 2016 10

FOCUS IN BRIEF 11

Financial Results of the Three Largest Listed Lebanese Banks for the First Half of 2016: Sustainable

Profitability despite Ongoing Difficult Operating Conditions 11

World Bank’s Country Partnership Framework 12

This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be

reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a

solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on

the basis of information contained herein are solely the responsibility of the recipient.

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S A L

FINANCIAL MARKETS

Equity Market

Stock Market

29/07/2016 22/07/2016 % Change

BLOM Stock Index* 1,153.18 1,157.94 -0.41%

Average Traded Volume 83,604 66,626 25.48%

Average Traded Value 874,214 651,405 34.2%

*22 January 1996 = 1000

After witnessing an improvement for a while, Lebanon’s

stock market deteriorated this week, where the BLOM

Stock Index (BSI) dropped by 0.41% from last week’s

value to reach 1,153.18 points. As such, the Beirut

Stock Exchange’s (BSE) market cap dropped from

$9.58B to reach $9.54B on July 29th 2016. Although the

gauge fell this week, trading activity rose as the average

traded volume increased from 66,626 shares to 83,604

shares, with respective average values rising from

$651,405 to $874,214.

When compared to regional and emerging markets, the

Lebanese index outperformed S&P Pan Arab Composite

LargeMidCap Index which dropped 1.34% this week.

Nevertheless, the BSI lagged behind both Morgan

Stanley (MSCI) emerging index, that increased by 0.5%,

and the S&P AFE40, which witnessed a drop of 0.54%.

The Arab bourses witnessed fluctuations this week,

where Egypt stock exchange registered the biggest

weekly gain, of 7.99%. This significant increase can be

attributed to the Egyptian Government seeking a $12

billion loan from the IMF, which is suspected to revive

the economy. The other top performers of the week

were the Kuwaiti and Qatari bourses, which registered

respective increases of 1.29% and 1.12% from last

week’s value.

However, Saudi Arabia’s stock market registered a

4.02% downtick during this week, the worst

performance among other Arab stock markets. This

drop can be partially justified by the Saudi National

Commercial Bank’s suggestion of lowering cash

dividend per share. On a different note, both Dubai and

Tunis stock markets saw negative performances, where

their indices dropped 0.7% and 0.17%, respectively.

As for Lebanon’s stock market economy, banking

stocks grasped the highest share of total value with

81.52% this week, while the real estate and industrial

stocks contributed to the remaining 18.34% and 0.14%,

respectively.

In the banking sector, BLOM GDR lost 0.10% to $10.05

while the bank’s common stock gained 0.40% to $9.92.

Audi GDR rose by 0.81% to $6.20. Similarly, and even

though Byblos Bank’s financials depicted 6% rise in net

profits, the bank’s common shares fell 5.41% to $1.65.

Banking Sector

Mkt 29/07/2016 22/07/2016 % Change

BLOM (GDR) BSE $10.05 $10.06 -0.10%

BLOM Listed BSE $9.95 $9.91 0.40%

BLOM (GDR) LSE $10.00 $10.05 -0.50%

Audi (GDR) BSE $6.20 $6.15 0.81%

Audi Listed BSE $6.19 $6.20 -0.16%

Audi (GDR) LSE $6.10 $6.25 -2.40%

Byblos (C) BSE $1.62 $1.66 -2.41%

Byblos (GDR) LSE $75.00 $75.00 0.00%

Bank of Beirut (C) BSE $18.80 $18.80 0.00%

BLC (C) BSE $1.69 $1.69 0.00%

BEMO (C) BSE $1.50 $1.50 0.00%

Mkt

29/07/2016 22/07/2016 % Change

Banks’ Preferred

Shares Index *

104.28 104.24 0.04%

Audi Pref. F BSE $100.90 $100.30 0.60%

Audi Pref. G BSE $100.30 $100.00 0.30%

Audi Pref. H BSE $100.00 $100.00 0.00%

Byblos Preferred 08 BSE $100.10 $100.30 -0.20%

Byblos Preferred 09 BSE $100.10 $100.10 0.00%

Bank of Beirut Pref. I BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. H BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. J BSE $25.50 $25.50 0.00%

BLOM Preferred 2011 BSE $10.00 $10.00 0.00%

BEMO Preferred 2013 BSE $100.00 $100.50 0.00%

* 25 August 2006 = 100

1100

1120

1140

1160

1180

1200

Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

BLOM Stock Index

HI: 1,192.56

LO: 1,108.49

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S A L

Real Estate

Mkt 29/07/2016 22/07/2016 % Change

Solidere (A) BSE $9.56 $9.75 -1.95%

Solidere (B BSE $9.59 $9.67 -0.83%

Solidere (GDR) LSE $9.36 $10.00 -6.40%

Manufacturing Sector

Mkt

29/07/2016 22/07/2016 %

Change

HOLCIM Liban BSE $14.10 $14.15 -0.35%

Ciments Blancs (B) BSE $3.00 $3.00 0.00%

Ciments Blancs (N) BSE $3.10 $3.10 0.00%

Retail Sector

Mkt 29/07/2016 22/07/2016 %

Change

RYMCO BSE $3.23 $3.23 0.00%

ABC (New) OTC $27.00 $27.00 0.00%

As for the preferred shares, the BLOM Preferred Shares

Index (BPSI) improved by 0.04% to 104.28 points,

mainly due to the respective increases of 0.6% and

0.3% in the closing prices of Audi Preferred F and Audi

Preferred G. Still, Byblos Preferred 2008 and BLC pref C

dropped by 0.2% and 0.99%, respectively. However,

the real estate sector witnessed a downturn with

Solidere class “A” and “B” shares dropping by 1.92%

and 0.83% to $9.56 and $9.59, respectively. Despite the

fact that HOLCIM witnessed a profit in its financials, the

company’s share price fell 0.32% this week to stand at

$14.10.

Also, both Audi GDRs and Blom GDRs observed a

downfall, on the London Stock Exchange, of 2.4% and

0.5%, to reach $6.2 and $10.00, respectively.

Finally, the release of the bank’s financial statements for

the first half of the year failed in boosting investment

sentiment on the Lebanese bourse this week. However,

we are still awaiting the publication of Blom Bank and

Solidere’s results for H1 5016, which could boost

trading activity in the upcoming weeks.

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S A L

Foreign Exchange Market

Lebanese Forex Market

29/07/2016 22/07/2016 % Change

Euro / Dollar 1.1101 1.1026 0.68%

Sterling / Dollar 1.3160 1.3179 -0.14%

Dollar / Swiss Franc 0.9775 0.9855 -0.81%

Dollar / Yen 103.75 106.24 -2.34%

NEER Index** 167.07 167.37 -0.18%

*Close of GMT 09:00+2

**Nominal Effective Exchange Rate; Base Year Jan 2006=100

**The unadjusted weighted average value of a country’s currency relative to all major

currencies being traded within a pool of currencies. The NEER represents the approximate

relative price a consumer will pay for an imported good.

Nominal Effective Exchange Rate (NEER)

Demand for the Dollar on the Lebanese forex market slightly

slid over the past week as the value of the Lebanese pound

against the dollar fell from a mid-price of $/LP 1,514 within the

range of $/LP 1,513.75-1,514.25 to a mid-price of $/LP 1,513.5

within the range of $/LP 1,513 -1,514.

Foreign assets (excluding gold) of the Central Bank increased

5.50% since the beginning of the year to $36.58B by June

2016. The dollarization ratio of private sector deposits fell from

64.88% in December 2015 to 64.73% in May 2016.

By Friday 29th

of July, 2016, 2:00 pm Beirut time, the euro

appreciated against the dollar-pegged LP as the exchange rate

rose by 0.68%, over the last week, going from €/LP 1,662.17 to

€/LP 1,673.48. As for the Nominal Effective Exchange Rate

(NEER) it fell by 0.18% to reach 167.07 points.

It is no surprise to see the dollar lose ground against the

euro this week. In fact, the euro dollar exchange rate rose

from €/$1.1026 to €/$1.1101. The Federal Reserve kept

interest rates unchanged on Thursday, noting that although

the US economy has improved, fears from the Brexit

repercussions are still present.

Over the week, gold saw its price rise from

$1,325.38/ounce to $1,335.21/ounce this Friday, as it is

negatively correlated to the value of the US dollar.

Money & Treasury Bills Markets

Money Market Rates

29/07/2016 22/07/2016 Change bps

Overnight Interbank 52.3% 52.3% 0

BDL 45-day CD 3.57% 3.57% 0

BDL 60-day CD 3.85% 3.85% 0

Treasury Yields

29/07/2016 22/07/2016 Change bps

3-M TB yield 4.39% 4.39% 0

6-M TB yield 4.87% 4.87% 0

12-M TB yield 5.08% 5.08% 0

24-M TB coupon 5.84% 5.84% 0

36-M TB coupon 6.50% 6.50% 0

60-M TB coupon 6.74% 6.74% 0

During the week ending July 14th

, broad Money M3 grew by LP

184B ($122.20M) from July 7 to reach LP 190,323B ($126.25B).

As such, M3 recorded a 4.68% annual growth and a 2% rise

since the start of the year. However, M1 shrank by LP 141B

($93.67M) over the same period. This decrease can be

attributed to by the fall in money in circulation by LBP 179B

($118.74M) and the increase in demand deposits by LBP 38B

($25.21M).

Total deposits (excluding demand deposits) increased by LP

325.42B ($215.86M) during the week, as deposits

denominated in foreign currencies registered a $118M rise,

and deposits denominated in the local currency also increased

by LBP 148B.Over the above mentioned period, the broad

money dollarization rate slightly increased from 57.83% on July

7th

to 57.87% on July 14th

. According to the Central Bank, the

overnight interbank rose from 3% in April 2016 to 3.25% in

May 2016.

In the TBs auction held on July 21st

, 2016, the Ministry of

Finance (MoF) raised LBP 635.51B ($418.91M), through the

issuance of bills maturing in 6M and notes maturing in 36M

and 84M. The highest demand was achieved on the 36M

notes, which held a 64.02% share of total subscriptions, while

the 6M bills and 84M notes accounted for the remaining

shares of 1.81% and 34.17%, respectively. The discount rate

on the 6M bills stood at 4.87%, while the coupon rates of the

36M and 80M notes registered 6.5% and 7.08%, respectively.

New subscriptions exceeded existing maturities by LBP

411.51B ($272.96M).

155

158

161

164

167

170

173

Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16

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S A L

Eurobond Market

Eurobonds Index and Yield

28/07/2016 21/07/2016 Change Year to Date

BLOM Bond Index (BBI)* 103.35 103.49 -0.14% -0.73%

Weighted Yield** 6.31% 6.29% 0.32% 3%

Weighted Spread*** 547 544 0.55% 27%

*Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market

** The change is in basis points ***Against US Treasuries (in basis points)

Lebanese Government Eurobonds

Maturity - Coupon

28/07/2016

Price*

21/07/2016

Price*

Weekly

Change%

28/07/2016

Yield

21/07/2016

Yield

Weekly

Change bps

2017, Oct - 5.000% 99.68 99.5 0.18% 5.39% 5.25% 14

2018, Jun - 5.150% 99.25 99.25 0.00% 5.56% 5.56% 0

2018, Nov - 5.150% 98.88 98.88 0.00% 5.65% 5.66% 0

2019, Apr - 5.500% 99 99 0.00% 5.88% 5.89% 0

2020, Mar - 6.375% 100.5 100.5 0.00% 6.22% 6.22% 0

2020, Apr - 5.800% 98.5 98.5 0.00% 6.24% 6.25% 0

2021, Apr - 8.250% 107.5 107.75 -0.23% 6.35% 6.40% -5

2022, Oct - 6.100% 97.5 97.75 -0.26% 6.54% 6.59% -5

2023, Jan - 6.000% 96.5 97 -0.52% 6.57% 6.66% -10

2024, Dec - 7.000% 100.75 101 -0.25% 6.84% 6.88% -4

2025, Feb - 6.200% 95.5 95.75 -0.26% 6.86% 6.90% -4

2026, Nov - 6.600% 96.25 96.75 -0.52% 7.04% 7.11% -7

2027, Nov - 6.750% 97.13 97.63 -0.51% 7.05% 7.12% -7

2030, Feb - 6.650% 95.5 96.25 -0.78% 7.08% 7.17% -9

Mid Prices ; BLOMINVEST bank

As Reflected by the BLOM Bond Index (BBI), the Lebanese Eurobonds market observed a a fall in the past week, where the

index dropped by 0.14% to 103.35 points, mainly due to the lower demand for long term Lebanese Eurobonds.

However, the BBI outperformed the JP Morgan Emerging Markets’ Bond Index which lost a weekly 1.83% to 756.5 points.

Yields on the Lebanese Eurobonds maturing in 5 years barely slid from 6.18% to 6.17% while the yield on the Lebanese

Eurobonds maturing in 10 years increased from 6.81% to 6.85%.

Demand for safe-haven assets in the US was more pronounced this week after the Federal Reserve kept rates unchanged on

account of the uncertainty revolving around the unraveling of the Brexit process. Accordingly, the yields on the US treasuries

maturing in 5 years and 10 years decreased from 1.11% and 1.57% last week to 1.09% and 1.52% this week, respectively.

Therefore, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable widened from 507

bps and 524 bps to 508 bps and 533 bps, respectively.

5 Year Credit Default Swaps, Mid-Prices (in basis points)

28/07/2016 21/07/2016

Lebanon 476 473

KSA 180 170

Dubai 173 170

Brazil 297 288

Turkey 277 274

5.00%

5.50%

6.00%

6.50%

7.00%

Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16

Weighted Effective Yield of Eurobonds

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S A L

ECONOMIC NEWS

Monthly Hotel occupancy Rates in Lebanon

Source: E&Y Middle East Hotel Benchmark Survey

Beirut’s Hotel occupancy Rate Dropped 14 p.p in June

2016

According to the monthly hotel occupancy rates published by E&Y’s

Hotel Benchmark Survey, all countries in the region witnessed

drops in occupancy rates y-o-y in June 2016, the worst being

Amman, followed by Beirut, mainly on account of the instability in

neighboring countries. Amman’s hospitality market witnessed a

downfall in June 2016, with a 49.9% drop in RevPAR compared to

June 2015, mainly due to the fall in occupancy rate from 52% in

June 2015 to 27% in June 2016.

In June 5016, Makkah’s hospitality market was the only one to

observe a rise across all Key Performance Indicators (KPI’s), where

its hotel occupancy rates, RevPAR, and ADR increased by 8 p.p,

85.1%, and 60%, y-o-y, respectively. These increases can be

justified by the visiting worshippers and umrah pilgrims during the

holy month of Ramdan.

In June 5016, Beirut’s hotel occupancy rate fell from 28% in June

2015 to 44%. As such, this fall in occupancy rate was

complemented by a drop of 18.7% in the average room rate, as it

dropped from $152 in June 2015 to $124 in June 2016, the highest

drop in prices when compared to countries of the Arab region.

Accordingly, the rooms’ yield fell by 38.6% y-o-y to reach $55 for

the sixth month of the year.

While the UAE maintained the highest hotel occupancy rate, both

Dubai and Abu Dhabi witnessed a fall of 11 p.p in occupancy rates.

This drop can be attributed to the rise in hotel room supply as well

as the fall in tourist inflows due to the high temperatures during the

summer.

57% 56%

53% 56% 56% 55%

53%

66%

44%

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

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S A L

MENA Countries’ Ranks in Overall NRI

Country Rank

United Arab Emirates 26

Qatar 27

Bahrain 28

Saudi Arabia 33

Oman 52

Jordan 60

Kuwait 61

Morocco 78

Tunisia 81

Lebanon 88

Egypt 96

Source: World Economic Forum

Lebanon Moves up 11 Spots on the Network

Readiness Index (NRI) 2016

According to the Global Information Technology Report, a result of

collaboration between the World Economic Forum and INSEAD,

Lebanon ranked 88th

among 139 countries, with a score of 3.8, on

the Networked Readiness Index (NRI). “The NRI measures the

capacity of countries to leverage ICTs for increased

competitiveness and well-being. It also considers innovation trends

of recent years through the lens of the NRI.” The NRI is composed

of 4 main sub-indices: environment, readiness, usage, and impact

sub-index. Under the environment sub-index, the political,

regulatory, environment, business and innovation environments are

evaluated. Infrastructure, affordability and skills are assessed in the

readiness sub-index, while the impact index measures both

economic and social impacts of higher ICT usage. As for the usage

sub-category, it considers individual, business and government

usages of ICT.

Lebanon was considered the second biggest mover of 2016, where

it went up 11 spots in overall NRI ranking. In details, Lebanon

ranked 77th in the usage sub-index, which takes into account

individual, business, and government usage of technology. Both

businesses and individuals, in Lebanon, are catching up and

strongly contributing to the successful performance; however, the

government is lagging behind in terms of digital adoption, where

the country ranked 124th among 139 countries. Also, Lebanon

ranked 91, 87, and 103 in the environment, readiness, and impact

sub-indices.

Although Lebanon moved up on the NRI, it was still outperformed

by its MENA peers: UAE, Qatar, Bahrain, KSA, Oman, Jordan,

Kuwait, Morocco, and Tunisia. However, according to the report,

Lebanon has all the tools to improve its ICT status: “Building also

on a solid basis in terms of education, skills, and knowledge-

intensive jobs, Lebanon has many of the factors in place to

continue on this positive trajectory.”

On a different note, the top performers in the world were

Singapore, followed by the Scandinavian countries, and the US.

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S A L

Imports Tonnage by Customs Office by May 2016

Name Weight in Tons

Port Of Beirut 5,917,034

Rafic Hariri Airport 1,396,154

Tripoli 373,243

Saida 101,297

Arida 30,775

Masnaa 28,551

Abboudieh 8,556

Tyre 6,374

Postal Parcel 59

Source: Lebanese Customs

Trade Activity at the Abboudieh Customs Office

Witnesses Significant Drops by May 2016

Trade activity at Lebanon’s main customs offices observed

fluctuations during the first five months of 2016. As stated by the

Lebanese Customs, total imports grew yearly 10.87% to $7.86B by

May 2016, due to the rise in imported volume of goods from 6.16M

tons up to May 2015 to 7.68M up to May 2016. As for Exports, total

exports dropped by a yearly 6.39% to $1.19B, which can be

attributed to the fall in volume from 0.81M tons by May 2015 to

0.64M by May 2016.

The breakdown of transported goods revealed that Port of Beirut

(PoB), followed by Rafic Hariri Airport, and Port of Tripoli share the

largest value of goods. In details, 72.56% of the country’s imports

value and 24.24% of the country’s exports value went through

PoB’s customs office by May 5016, compared to a share of 70.41%

of total imports and 48.35% of total exports by May 2015. As for

Rafic Hariri Airport, it processed a total of 17.76% of Lebanon’s

imports value and 31.31% of Lebanon’s exports value, by May

2016.

As for Abboudieh customs office, total exports and imports’ value

dropped by 87.19% and 40.24% to reach $27.59M and $8.55M,

respectively, by May 2016. As for volume, both imports and exports

processed in this office fell by 20.71% and 57.07%, respectively.

These significant drops can be justified bythe continuing turmoil in

the Syrian territories that is affecting Lebanon’s trade across the

borders.

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S A L

CORPORATE DEVELOPMENTS

BLC Bank Financial Highlights ($M)

June-16 Dec-15

%

change

Total Assets

5,540.34

5,741.09 -3.5%

Customers'

Deposits

4,635.51

4,582.37 1.11%

Shareholders'

Equity

513.65

505.25 1.66%

Source: BSE

BYBLOS Bank Financial Highlights ($M)

Jun-16 Dec-15

%

change

Net Profits 73.75 69.59* 5.97%

Total Assets 20,434.41 19,870.25 2.84%

Total Loans 4,999.36

4,908.55 1.85%

Shareholders'

Equity 1,662.72 1,713.73 -2.98%

* Value of June 2015

Source: BSE

BLC Bank’s Net Income Witnessed a 16% Yearly

Decline

According to BLC Bank’s income statement, the bank’s

consolidated net income reached $19.5M in June 2016, 16% lower

than the same period last year. This fall can be justified by the

booking of additional provisions in USB Bank, BLC Bank's subsidiary

in Cyprus.

Recurrent income from the operations in Lebanon, mainly

constituted of net interest and net commissions, reached $26.5M in

June 2016, a 4.3% increase from that of June 2015.

On the balance sheet, total assets narrowed 3.5% year-to-date (y-t-

d) to $5.54B, as of June 30, 2016. This drop can be attributed to the

maturity of a special loan during 2016.

Customers’ deposits increased 1.5% y-t-d to $4.64B in H1, and

5.2% compared to June 2015.

As for shareholders’ equity, it grew 1.66% to $213.62M by June

2016.

BYBLOS Bank Revealed a 6% Yearly Rise in Net Profits

The bank’s profits were boosted by 6% year-on-year to $73.75M in

the first half (H1) of 2016, mainly due to lower provisions and higher

gains generated on the financial instruments held by the bank.

Byblos Bank saw its commissions’ income drop by 1%, which could

possibly allude to the bank charging lower commissions in H1 2016

in order to become more competitive. As for net interest income, it

also fell by 2% to $151.43M. Byblos Bank’s interest spread dropped

with lower interest rates charged on loans and higher interest rates

offered on deposits.

On a year-to-date basis, on the balance sheet, total assets rose

2.84% to $20.43B. Similarly, loans and advances to customers

increased 1.85% since year start from $4.91B to $5B.

Customers’ deposits increased 3.51% y-t-d to reach $16.88B in H1.

As for shareholders’ equity, it narrowed 5.98% to $1.66B by June

2016.

According to the Bank’s report: the bank “continued its policy of

strict provisioning against possible credit losses, with a coverage

ratio going well above 100%. The Bank also posted strong liquidity

of 51% of total assets and a Basel III Capital Adequacy Ratio of

17.7%, far surpassing the regulatory requirement of 12% for end-

5012.”

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S A L

Bank of Beirut Financial Highlights ($B)

Jun-16 Dec-15 %

change

Net Profits($M) 90.88 88.95* 2.17%

Total Assets 16.14 15.33 5.29%

Customers'

Deposits 11.96 11.31 5.77%

Shareholders'

Equity 2.12 1.90 11.34%

Loans and

advances to

customers

4,451.26 4,028.5 10.49%


Source: BSE

BEMO Bank Financial Highlights ($M)

Jun-16 Dec-15 %

change

Net Profits 7.30 7.97* -8.41%

Total Assets 1659.40 1621.08 2.36%

Customers'

Deposits 1281.60 1293.50 -0.92%

Shareholders'

Equity 136.05 134.58 1.09%

Loans and Advances

to customers 714.61 674.14

6.00%


Source: BSE

Bank of Beirut’s Profits Rise 5.17% in H1 5016

According to Bank of Beirut ‘s (BoB) income statement, the bank’s

consolidated net income reached $90.88M in June 2016, 2.17%

higher than the same period last year.

On the balance sheet, total assets rose 5.29% year-to-date (y-t-d) to

$16.14M, as of June 30, 2016. The key driver of this growth in

assets was the 10.49% growth in net loans to customers to $4.45B.

Customers’ deposits increased 5.77% y-t-d to $11.96B in H1.

As for shareholders’ equity, it grew 11.34% to $5.15M by June

2016.

BEMO Bank’s Net Income Witnessed an 8.47% Yearly

Decline

According to BEMO Bank’s income statement, the bank’s

consolidated net income reached $7.30M in June 2016, 8.41%

lower than the same period last year. This came about following the

0.8% slip in net operating income to $21.12M and the 1.4% rise in

total expenses to $12.79M. Still, Net interest income and net fees

and commission income increased 8.64% and 7.51%, yearly, to

$13.18M and $2.59M, respectively.

On the balance sheet, total assets grew 2.36% year-to-date (y-t-d) to

$1.66B, as of June 30, 2016.

Loans and Advances to customers also increased by 6% to reach

$714.61M

Customers’ deposits fell 0.95% y-t-d to $1.28B in H1.

As for shareholders’ equity, it grew 1.09% to $136.02 by June 5016.

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Bank Audi Financial Results H1 (in $M)

Jun-16 Dec-15

%

change

Net Profit 225.655 202.094* 11.66%

Total Assets 41,937.53 42,270.41 -0.79%

Customer

Deposits 34,473.30 35,151.25 -1.93%

Shareholders’

Equity 3,262.35 3,287.40 -0.76%

Loans and

Advances to

customers

18,315.11 17,786.27 2.97%

(*) June 2015 figure

Bank Audi’s Net Profit Up by 11.66% y-o-y in H1 2016

Bank Audi’s released financials indicated a rise in net profits of

11.66% year-on-year to reach $225.66M at the end of June 2016.

As such, according to Bank Audi’s press release, the bank’s growth

was mainly attributed to the “reinforcement of the earnings

generation capacity of entities in Egypt and Turkey in line with the

adopted strategic plan”. In fact, the respective yearly increases of

9.26% and 3.11% in net interest margin and net fee and

commission income, which registered $498.64M and $129.63M,

respectively, in H1 2016.

By the end of June 5016, Audi’s total assets reached $41.94B,

decreasing 0.79% from the end of 2015. Net loans and advances to

clients witnessed a 5.97% growth to $18.35B, while customers’

deposits lost 1.93% since year start to $34.47B. Total shareholders’

equity fell by 0.76% on year to date basis to $3.26B compared to

$3.29B registered end of 2015.

The bank’s metrics point to healthy levels of liquidity, profitability

and capitalization, where the return on average common equity

stood at 14.9%. Also, primary liquidity to customers’ deposits ratio

registered 45.9%, while the capital adequacy ratio as per Basel III,

recorded 13.9%. Gross doubtful loans to gross total loans stood at

3.1%, “reaching 0.9% when deducting specific loan loss reserves,

excluding collective provisions.”

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FOCUS IN BRIEF

Financial Results of the Three Largest Listed Lebanese Banks for the First Half of 2016: Sustainable

Profitability despite Ongoing Difficult Operating Conditions

Net Profit ($ mn)

ROACE (%)

ROAA (%)

Cost-to-Income (%)

BLOM

226.68

16.62

1.55

35.88

Audi

225.66

14.90

1.07

55.38

Byblos

73.75

8.30

0.73

54.20

The un-audited financial results of the three largest listed Lebanese banks (BLOM, Audi, and Byblos) for the first half of 2016

show that they have maintained their sustainable profitability, despite the continuing difficult operating conditions arising from

the political and economic turmoil in Lebanon and in neighboring countries. Aggregate net profit increased to $526.09 million in

the first half of 2016, growing by 13.74% over the same period in 2015. This increase in net profit was largely obtained as a

result of the increase in profits of the banks’ units outside Lebanon.

On an individual basis, BLOM BANK reported the highest net profit of $226.68 million, growing by 19.08% from the first six

months of 2015. Bank Audi came second, growing its net profit by 11.66% to reach $225.66 million; while Byblos Bank’s net

profit ranked third, growing by 5.20% to $73.75 million.

The profit performance of the three banks can also be seen from looking at profitability ratios, namely the rate of return on

average common equity (ROACE) and on average assets (ROAA), which measure the productivity to generate earnings from

equity and assets. BLOM Bank recorded the highest ROACE at 16.62% and the highest ROAA at 1.55%. The two other banks

followed, with Bank Audi’s ROACE at 14.90% and ROAA at 1.07%, and Byblos bank’s ROACE at 8.30% and ROAA at 0.73%.

BLOM bank’s high profitability ratios can be attributed to its superior managerial and operational efficiency. This is

demonstrated by BLOM bank’s cost-to-income ratio of 35.88%, the lowest of all three, followed by 54.20% for Byblos Bank

and 55.38% for Bank Audi.

Growth was not limited to profit only, since it was also registered in key balance sheet items. BLOM reported $29.5 billion in

assets, growing by 3.09% from end of June 2015, while its loan portfolio grew by 4.73% to $7.35 billion and its shareholder’s

equity went up by 7.27% to $2.72 billion. Assets at Byblos reached $20.43 billion, growing at 6.59%, while its loan portfolio

increased by 7.27% to $5.02 billion, and its shareholder’s equity rose to $1.66 billion at a rate of 2.33%. As for Audi, its assets

fell by 0.88% to $41.94 billion, with its loan portfolio increasing by 8.48% to $18.49 billion, while its shareholder’s equity

increased by 4.29% to $3.26 billion.

As important, the three banks’ performance also involved strong banking fundamentals. In this respect, for all three banks, net

non-performing loans ratios did not exceed 1.4% (Audi, 0.9%; Byblos,1.3%; BLOM, 1.4%), capital adequacy ratios did not go

below 13.9% (BLOM, 18%; Byblos, 17.7%; Audi, 13.9%), and primary liquidity ratios did not fall below 45.9% as well (BLOM,

65%; Byblos, 51%; Audi, 45.9%).

Once again, these results show the top three listed Lebanese banks’ ability to maintain good profitability and financial strength

by pursuing conservative and cautious policies, given the exceptional circumstances still facing them. As a result, they

reconfirm the Lebanese banking sector’s position as the leading financial pillar in the country and the backbone of the

economy.

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World Bank’s Country Partnership Framework

Lebanon is a small country, housing different cultures, religions and political parties, with a population of around 4.5M people.

Lebanon’s diverse composition resulted in the country being a channel of socio-political freedom in times of serenity, and a

catalyst worsening problems during regional and international conflicts.

Its economic growth has been substantially less than a potential of 2.5%, at 1.5% in 2015. Fiscal policy has been unproductive

and inefficient, with the Syrian crisis exacerbating fiscal costs by an estimated $2.6B ($1.1B in lost revenues and $1.5B in

increased expenditures) over the period 2012-2014. Public debt has been on the rise, with debt-to-GDP ratio being the highest

in the world at 148.7% at the end of 2015.

Due to the rise of the Arab Spring and the war in Syria, the World Bank Group (WBG), with the help of other international

institutions, initiated a new six-year program, the Country Partnership Framework (CPF), covering fiscal years 2017 to 2022, to

support the Lebanese economy that has been impaired by the political and regional mayhems. Lebanon is considered to be

providing the world with a public good by accommodating the largest per capita number of refugees in the world.

The CPF’s main goal is to alleviate the spillover effects from the Syrian crisis, by tackling the major challenges that hinders the

development of the Lebanese economy. The CPF sheds attention on achieving two major matters: broadening the accessibility

to and improving the quality of services provided, and increasing economic opportunities and human capital. In specific, the

International Finance Corporation (IFC) will continue to back the private sector and to create job opportunities.

Country Partnership Framework’s Goals

Source: World Bank

CPF Focus Areas

Broaden Accessibility to and Improve Quality of Services

Provided

Water

Environment

Transport

Municipal and Local Economic

Development

Increase Economic Opportunities and Human

Capital

Business Environment

Access to Finance

Education

Health

Social Protection

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The first focus area, broadening the accessibility to and improving the quality of services provided, will be addressed by

improving Lebanon’s infrastructure, which in some cases will be done by encouraging private sector participation .

First, the WBG, with the Ministry of Energy and Water and Regional Water Establishments, the Council for Development and

Reconstruction, and Ministries of Environment and Agriculture, will work on improving water supply services in Greater Beirut.

Alongside the ongoing Greater Beirut Water Supply Project ($200M loan) and the Water Supply Augmentation Project ($474M

loan), the Bank will be also working on the implementation of the National Water Sector Strategy. These projects, which are

financed by the World Bank, would lead water supply in Lebanon to be buoyant against impacts of climate change.

Reducing pollution, which results in around $700M of costs to the Lebanese economy, is another point on the WBG’s agenda,

with water pollution being the most critical. The Bank has already reinforced the development of environmental regulation.

Moreover, the Bank is working on reducing industrial, hazardous and wastewater pollutions through the Environmental

Pollution Abatement Project ($15M), the PCB (Polychlorinated biphenyls) management in the Power Sector, and the proposed

Lake Qaraoun Pollution Prevention Project ($55M loan, under preparation). Meanwhile, the IFC is working with local banks to

promote sustainable energy finance that would decrease demand for fossil fuels.

The third objective consists of improving the transportation services. Poor road condition, traffic congestion, high transport

costs and the lack of a reliable and safe public transport in Lebanon are undermining private investments and trade

competitiveness. With the help of the IFC to include private participation, the WBG will fulfill the Lebanese government’s

urgent request of designing and implementing a Bus Rapid Transit (BRT) project. In addition, a project to rehabilitate roads in

rural areas will be implemented. This project will create employment for Lebanese and Syrian refugees.

The last target to fulfill the first focus area is improving capacity of central and local governments to provide basic services to

communities hosting Syrian refugees and stimulating economic development at the local level. The Municipal Services

Emergency Project, financed out of the Lebanon Syrian Crisis Trust Fund, is providing funds directly to the communities

hosting Syrian refugees for small-scale investments. This project boosts the capacity to supply local services in a sustainable

manner, strengthening municipal service delivery.

As for the second focus area, increasing economic opportunities and human capital, it would be achieved by improving private

investment environment, access to finance, and the education services.

Many constraints have impeded job creation and poverty reduction in Lebanon such as mismatch between the labor demanded

and supplied, a dysfunctional investment environment, and lack of financial inclusion.

Hence, the WBG will address these hurdles through policies and programs, with a focus on the private sector that is the main

motor for job creation.

To improve the private investment environment, the World Bank and the IFC advise the government on developing the Tripoli

Special Economic Zone, and other potential industrial and special economic zones that could serve to promote job

opportunities. Moreover, the World Bank and the IFC would also engage in financing needs by crowding in the private sector

through Private-Public Partnership arrangements .

These private-sector-led job creation initiatives will continue to be complemented by selective technical assistance and

advisory services that foster increased firm entry and growth through targeted regulatory and institutional reforms.

Additional efforts by IFC and the Bank will aim at enhancing credit infrastructure to improve access to finance through the

development of modern and predictable insolvency regime, developing a comprehensive, reliable and innovative credit

reporting, and promoting movable assets as collateral for loans as a means to increase access to finance options for smaller

firms.

On another note, the Bank is also providing technical assistance to the Directorate of Land Register and Cadastre with a view

to linking land registry and Cadastre records with other public geospatial datasets. This will reduce discretionary practices in

the management of land and natural resources and reduce subjectivity around property valuation and taxation.

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Another objective the WBG seek to attain to increase human capital is ameliorating access to finance and financial inclusion.

Specific activities include an ongoing loan, from the International Bank for Reconstruction and development, targeting the

provision of early seed equity capital to start-up and young enterprises with potential to grow. The project is complemented by

a small matching grant facility to strengthen the business ecosystem, supporting start-up businesses. In addition, the WBG is

providing technical assistance and advisory services to: (i) develop the capital market capacity through regulatory reform,

institutional strengthening of the Capital Market Authority, including supervision of corporate financial reporting, as well as

support to diversify capital market products; (ii) strengthen financial sector architecture through passage of secured

transactions and insolvency laws; (iii) continue partnering with the Lebanese Association for Certified Public Accountants to

strengthen the professional accountancy body and to support accountancy and auditing reforms; and (iv) further develop the

security and inclusiveness of the national payments system.

The World Bank Group will also be piloting initiatives to test out new instruments that can broaden access to financial services.

This includes the proposed Subsidized Temporary Employment Program (“STEP”), whose objective is to trigger private sector

business expansion, conditional upon the creation of formal jobs.

In addition to these financial sector interventions, IFC will look to further strengthen its existing client relationships in the

financial sector by employing targeted instruments such as risk sharing facilities and traditional funding lines, as well as

providing risk management and capacity building support. IFC will also tap into the private equity space and seek to facilitate

expanded access to finance through investments in funds that target real sector firms to support job creation. IFC will continue

its support to microfinance institutions and take a targeted approach to increasing access to finance and non-financial services

for very small enterprises, women, and other disadvantaged Lebanese communities, as well as refugees residing in Lebanon

when feasible to do so. This will include an exploration of possible investment opportunities in non-banking financial

institutions, including microfinance and leasing, in order to address issues of financial inclusion, particularly for vulnerable

groups, as well as to mitigate the effects of climate change through sustainable energy finance products.

Such interventions will help increase opportunities for better job and livelihood opportunities for Lebanese citizens and refugee

populations, thus mitigating risks of elevated level of socio-economic stress within Lebanon. In addition, the WBG has

developed a strong dialogue with the Central Bank, to follow up work on capital market and national payments system reform.

Developing education and skills is another prerequisite needed to improve labor market in Lebanon. However, this prerequisite

has been worsened by the Syrian influx to Lebanon, which is putting enormous pressure on the Lebanese public education

system.

In response to the high number of Syrian refugees in Lebanon, the Government launched the Reaching all Children with

Education (RACE) initiative, which has succeeded in increasing the number of Syrian students in formal education from 18,935

in 2011/12 to 141,722 in 2015/16. Nonetheless, this seven-fold increase has strained the formal education system’s ability to

maintain both the quality of the education system and the level of access for Lebanese students. The success of RACE and the

need for additional support led to the development of a longer-term system-level strategy to increase both access and quality,

RACE II. The Bank, along with other partners, is supporting RACE II with a view to providing equitable access to quality

education services to Lebanese and refugee children. Specifically, a $235M Program-for-Results is currently under preparation

and will help expand equitable access to schooling, improve conditions for learning, and strengthen management of the

education system. It is expected that efforts under the RACE II initiative will minimize the short and medium-term costs of

displacement for refugee families while strengthening the long-term capacity of the Lebanese education system to prepare

children for life and work once regional stability returns.

In addition to supporting the Government’s RACE II program, the World Bank is supporting improved teaching quality and

learning environments in general education and pre-school as well as improved governance and managerial capacity within the

sector through the ongoing Second Education Development Project ($40M approved in FY11). The Bank also extended an

emergency grant ($35 million) in FY12 to support the Government’s immediate response to the Syrian refugee influx and the

need for schools to expand access to this population .

Another important feature of the Bank’s engagement is work on improving data collection with a view to creating a

comprehensive data tracking system. This will lead to greater transparency of education expenditures and learning outcomes,

thereby enabling decision makers and the public to make informed choices about public resource allocations and reducing

opportunities for elite capture .

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Finally, WBG’s support seeks to transform education and training systems to produce educated, skilled and productive citizens.

IFC will explore opportunities for partnering with domestic or regional education providers, building on its past experience in

supporting SABIS International School in Lebanon.

On the skills development side, the WBG has a number of ongoing engagements that provide life skills and on-the-job training

for youth. The CPF will facilitate labor market entry for unemployed youth through employment services combining life skills

training, job search techniques, counseling, practical on-the-job training, and incentives for employers through the New

Entrants to Work Program and the National Volunteer Services Program. These engagements will be complemented by

employment services interventions targeting the youth, to help them connect to jobs by facilitating labor market transitions

from inactivity or unemployment into jobs, or from low to high productivity jobs. The Bank will incorporate a key skills

development component – designed and implemented in close collaboration with the Lebanese government and the private

sector - to close skills gaps and demand and supply mismatches in the labor market. Leveraging its network of banks and

microfinance institutions, IFC will explore opportunities to expand provision of non-financial services (training, mentoring and

other skills development activities) to underserved Lebanese citizens and, potentially, refugee communities.

Meeting these two major focus areas also requires the World Bank to strengthen financial institutions, improve data availability,

and contribute to the policy reforms.

The outcomes targeted by this framework are subject to various political, security, and economic risks, in addition to risks

pertaining to institutional capacity and program implementation. The delicate political and regional security environment is the

most substantial risk that might hinder the ability to attain the CPF objectives.

Furthermore, sizable macroeconomic imbalances expose the country to considerable risks. The Lebanese economy’s

dependence on the declining capital inflows to finance its current account deficit, led to deterioration in the country’s net

foreign asset position. In addition, increasing expenditures and decreasing revenues are increasing the fiscal deficit and

broadening public debt.

Your Investment Reference

S A L

Research Department:

Dina Antonios [email protected]

Lana Saadeh [email protected]

Riwa Daou [email protected]

Myrna Chami [email protected]

Maya Mantach [email protected]

Marwan Mikhael [email protected]

mailto:[email protected]

mailto:[email protected]

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