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Bank Audi activity highlights at end-March 2011

Beirut, April 29, 2011 - In the first quarter of 2011, the Lebanese economy reported a net slowdown in activity amid significant domestic political bickering. Major real sector indicators either show net contraction or reduction in growth since the beginning of the year. On that basis, the IMF revised downward its real GDP growth for 2011 to 2.5%, down from 7.5% in 2010. In parallel, financial sector indicators revealed a reduction in inflows and a mild growth in customer deposits. The banking sector was yet able to withstand, once again such spillovers, as evidenced by the increase in bank loans to the private sector, registering US$ 765 million in the first two months of 2011.

On the other hand, the Middle East and North Africa region reported a significant political turmoil in early 2011 on the basis of widespread protests triggered by political and socioeconomic demands. Within this environment, the IMF revised downward its MENA growth forecast for 2011 to 4.1% amid growing near term uncertainties. The region's external growth drivers, such as inflows, FDI and tourists are indeed being adversely impacted by the regional turmoil. Such adverse spillovers are partly compensated by favorable domestic growth drivers resulting essentially from higher government social spending with corollary effects on private demand. Meanwhile, banking activity is characterized by a significant wait and see attitude, with banks efforts focused on fostering liquidity, refraining on loan exposures and controlling operating expenses.

Within this environment, Bank Audi sal - Audi Saradar Group adopted a margin and efficiency focus strategy rather than volume growth, in the aim to sustain the best asset quality while consolidating its customers franchise and revenue streams:

As such, consolidated assets reported a slight growth of 0.9% in the first quarter of 2011, reaching US$ 28.9 billion at end-March 2011 and US$ 40 billion when accounting for fiduciary deposits, security accounts and assets under management.

Consolidated deposits reached US$ 24.9 billion at end-March 2011, maintaining the Bank's regional positioning among the Top 20 Arab banking groups.

Shareholders' equity amounted to US$ 2.4 billion, representing 25% of the consolidated equity of the Lebanese banking sector and translating into a capital adequacy ratio as per Basel II of close to 11%, a level well exceeding the minimum regulatory requirement (8%).

In parallel, the loan portfolio maintained its quality within the context of a conservative policy adopted by Management anchored over the reinforcement of liquidity, efficiency and profitability in the face of regional developments' spillovers, as revealed by the following indicators:

· At end-March 2011, gross doubtful loans represented 2.3% of gross loans, with the coverage of those loans by specific loan loss provisions rising from 72.6% in December 2010 to 75.4% in March 2011, through allocating US$ 12.3 million of specific loan loss provisions charge, which lead to a corollary improvement of the ratio of net doubtful loans to gross loans from 0.61% to 0.57% over the same period, a very low level within this tough environment by regional and global benchmarks. In addition to specific provisions, Management allocated, in the first quarter of 2011, US$ 5.9 million of additional collective provisions to reach a total of US$ 67.8 million at end-March 2011, the equivalent of 0.78% of net consolidated loans.

· As such, Bank Audi has allocated a total of US$ 18.2 million of loan loss provision charge in the first quarter of 2011 as a preventive measure in the face of regional spillovers, raising total loan loss provisions to US$ 175 million, the equivalent of 2.0% of gross loans. Notwithstanding, the settlement ratio for retail loan dues represented 94.6%, a satisfactory level under normal conditions.

· Primary liquidity placed with central banks and banks reached US$ 12.7 billion, representing 50.9% of customers' deposits, one of the highest liquidity levels in the region.

· Overall efficiency is further reinforced as a result of management policy restricting new operating expenses to additional revenue-generating activities within the context of a temporary freezing of all expenses related to the expansion strategy, which maintained cost to income at 46.3% in the first quarter of 2011.

· Earning power gained strength, as profits after tax and provisions grew by 12.7% from US$ 80.2 million in the first quarter of 2010 to US$ 90.4 million in the first quarter of 2011, and earnings per common share grew by 10.3% over the same period, from US$ 0.22 to US$ 0.24 respectively.

· Return on average common equity reached 16.3%, a level in line with regional, emerging and global markets' averages.

The Bank's results in the first quarter of 2011 fully translate the strategic choices and orientations of the Group and that revolve around consolidating its activity and reinforcing its presence in the MENA region. Despite the tough conditions that some countries are currently witnessing, the Bank remains dedicated to its regional expansion policy anchored over continuing to grow the customer and account franchise in new markets with potential for high growth in financial services over the medium term. Such a standpoint rests on Management conviction that the political transitions in some MENA countries towards more democracy and freedom are apt to improve with time the overall efficiency of regional economies, with positive repercussions on banking and financial markets. The main challenge remains tied to the short term costs of the transitions in terms of economic and social effects, although the Bank believes that these spillovers will remain limited in view of positive macroeconomic achievements realized in these countries in recent years.

-Ends-

For more information, please contact
Dr. Freddie Baz
Tel: +961 1 977 477
General Manager - Group CFO & Strategy Director

© Press Release 2011