LEBANON - Finance
Group Strategy Director, Bank Audi
Dr. Freddie C. Baz joined Bank Audi in 1991 as advisor to the Chairman and founded the Secretariat for Planning and Development at the Bank. In addition to his duties as Vice Chairman and General Manager of Bank Audi and Group Strategy Director, he held the position of Group Chief Financial Officer from 2006 to 2015. He is also the Chairman of the Board of Directors of Bank Audi France, a shareholder and board member of Istanbul-based Odeabank, and a member of the Board of Directors of several other affiliates of Bank Audi. Furthermore, he is the General Manager of Bankdata Financial Services WLL, which publishes Bilanbanques, the only reference in Lebanon that provides an extensive structural analysis of all banks located in Lebanon, in addition to other specialized periodicals and reports. He holds a PhD in Economics from Paris Sorbonne University.
There are no miracles or mysteries; the bank’s figures highlight the strong performance achieved in the three main markets of the group: Lebanon, Turkey, and Egypt. One ought yet to be careful when reading these figures because consolidated figures are normally expressed in US dollars, while the activity in our material subsidiaries abroad, mainly in Turkey and Egypt, is denominated in local currencies. Those two currencies witnessed severe depreciations in 2016 relative to the US dollar and that have affected the translation of the real performances at the consolidated level. When the Egyptian pound and the Turkish lira depreciate, the contribution to the consolidated assets and earnings translate into fewer dollars. It does not mean that the entities have not performed well; it is just a currency translation impact. Had the exchange rates of those currencies been the same as at end-December 2016 as they were as at end-December 2015, the fundamental business in both countries would increase between 10-22%, outperforming in each countries the growth achieved by peer banks. That supports and justifies the important results achieved. It is actually a combination of good performances achieved in Turkey, Egypt, and Lebanon, despite the volatility witnessed in Turkey and Egypt and despite the tough environment that prevailed in Lebanon over the year before the normalization of the political process throughout the election of the President and the formation of a national unity government. The past year was a good year for Bank Audi when taking all those factors into account.
Today, Egypt represents 7% and Turkey represents 25% of consolidated assets. In four years of average activity, we have succeeded to build USD11 billion of assets in Turkey, generating USD26 million of net profits after tax and provisions in the first quarter of 2017 as compared to USD69 million in full year 2016, underscoring an exponential growth in net profits. The latter were generated on the backdrop of a cost to income ratio of 47% and a gross doubtful to gross loans ratio of 3.0%, clearly witnessing to a good financial position. Together they represent almost one-third of total assets and earnings of the group, which falls in line with the diversification strategy followed by the group. With the regional expansion launched in 2006 aiming at achieving a balanced breakdown between Lebanon and abroad, in terms of assets and earnings we are already there. The aggregation of our foreign activity now represents 42% of the total when adding Paris, Switzerland, Jordan, Qatar, and Saudi Arabia. All these are markets where the group has a presence and has business there. Bank Audi is among the most geographically diversified banks in terms of the balance between domestic and foreign entities.
We are already covering Sub-Saharan Africa and Latin America but without a physical presence there. We have Sub-Saharan Africa and Latin American desks in Beirut, Switzerland, and Paris. We have relationship managers that only cover those two regions and have succeeded in building a business portfolio of close to USD3 billion today from the two geographies. Those are mainly deposits or assets under management in Switzerland or some trade finance or corporate loans that are mainly granted from Paris and Lebanon. When we succeed in building such an important franchise in geographies where we do not have any physical presence in, it does infer about our capacity to build material assets once we are on the ground. It could be the way forward towards a presence which form could range from representative offices to an acquisition of a small entity offering fully-fledged services. We do look at the possibility of such a move but this will materialize in due course. Today, it is still too early.
This economy requires a lot of restructuring and adjustments because it has been stagnant for the last five years. Since the outbreak of the Arab Spring and the Syrian war, real GDP growth rates have gone down from 8-9% per annum to 1-2%, per annum which represents a yearly forgone income of no less than 6-7% of GDP. That is a huge opportunity loss. The prospects have slightly improved post domestic political settlement in Lebanon that lead to the election of a new president and the formation of a new cabinet of national unity. In parallel, there are talks of possible plausible hypothetical settlements in Syria as per the recent statement of international and regional decision makers shaping events in the region. In case of a regional settlement scenario, the favorable spillover effects on Lebanon will be significant. Meanwhile, we believe that domestic economic prospects will improve but not to the extent of coming back quickly to the potential growth rates of Lebanon that are within the 6-8% range. We believe there is room to stimulate domestic consumption and investment and more external demand from the low base of the past few years. After seeing 1-2% per year for the last five years, we can assume that we are going into the next phase of growth, heading to potentially 3-4% this year and next year. The observed growth in real sector and financial indicators in the first quarter of this year are in line with such a perspective.
In Lebanon, Bank Audi is in the leadership position in the banking sector. Being the leader, we have a fiduciary responsibility, exerting a lot of pressure on us to set the tone and give an example in terms of governance, compliance, and risk management. We are keen to maintain our leadership at all those levels. There is no change in our priorities. Domestically, it still revolves around consolidating and strengthening our leadership in Lebanon with all it entails in terms of products and service offering and in terms of technology and communication investments and in terms of governance, compliance and risk abidance by the best practices. At the level of foreign businesses, we have set clear market share targets for our two most material markets: Turkey and Egypt. We will be further enhancing all means deployed in terms of financial resources, human resources or technological resources in the two markets in order to help them achieve the overall targets.
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