the lebanon weekly monitorimages.mofcom.gov.cn/lb/201310/20131030181520213.pdf · the breakdown of...

1Week 43 October 21 - October 27, 2013

OCTOBER 21 - OCTOBER 27, 2013

WEEK 43

Bank Audi sal - Audi Saradar Group - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected]

CONTACTS

RESEARCH

Treasury & Capital Markets

Micky Chebli(961-1) [email protected]

Nadine Akkawi(961-1) [email protected]

Bechara Serhal(961-1) [email protected]

Private Banking

Toufic Aouad(961-1) [email protected]

Corporate Banking

Khalil Debs(961-1) [email protected]

Marwan Barakat(961-1) [email protected]

Jamil Naayem(961-1) [email protected]

Salma Saad Baba(961-1) [email protected]

Fadi Kanso(961-1) [email protected]

Sarah Borgi(961-1) [email protected]

Gerard Arabian(961-1) [email protected]

Nivine Turyaki(961-1) [email protected]

LEBANON MARKETS: WEEK OF OCTOBER 21 - OCTOBER 27, 2013

The LEBANON WEEKLY MONITOR

Economy___________________________________________________________________________p.2 FOREIGN TRADE DEFICIT STAGNANT AMIDST CONTRACTING EXPORTS AND IMPORTSForeign trade statistics for the first nine months released this week suggest a stagnant trade deficit equivalent to US$ 12.7 billion which, when annualized, amounts to 40% of GDP. The stagnation of the trade deficit results from a 4.1% drop in exports and a 0.1% decline in imports. Also in this issuep.3 Tourism activity sustains its downward path year-to-date p.4 Revenues of the port of Beirut up by 28% in the first nine months of 2013

Surveys___________________________________________________________________________p.5 LEBANON’S RECOVERY DEPENDANT ON POLITICAL AND SECURITY CONSENSUS, ACCORDING TO THE IIFAccording to the regional overview on the Middle East and North Africa recently published by the Institute of International Finance (IIF), Lebanon’s GDP is forecasted to grow at 0.7% in 2013, following a growth of 1.1% in 2012.

Also in this issuep.6 Weak performance of the Lebanese economy despite modest recovery, as per JP Morgan

Corporate News___________________________________________________________________________p.7 BLOM BANK’S NET PROFITS UP BY 4.8% TO US$ 262.7 MILLION IN THE FIRST NINE MONTHS OF 2013 BLOM Bank announced net profits of US$ 262.7 million in the first nine months of 2013, up by 4.8% from US$ 250.7 million in the same period of 2012.

Also in this issuep.8 Net profits of Lebanon and Gulf Bank reach US$ 11.2 million in the first half of 2013

Markets In Brief___________________________________________________________________________p.9 LOCAL AND FOREIGN APPETITE FOR LEBANESE EUROBONDS Lebanese capital markets saw this week a rise in prices on the Eurobond market, an increase in activity on the equity market and a sustained balanced activity on the FX market. In details, bond prices rose week-on-week, as reflected by a 13 bps fall in the average yield to 5.31%, mainly driven by a local and foreign demand across the yield curve following an upgrade for Lebanon from “Underweight” to “Market Weight” at JP Morgan EMBIG and a continuous rally in US Treasuries. At the level of the equity market, the average daily trading value climbed by 158% week-on-week, while the price index declined by 0.2%. It is worth mentioning that the BSE volatility, measured by the standard deviation of share prices to the mean of prices, was quoted at 3.0% since the beginning of the year 2013, as compared to 4.4% in other emerging markets. On the foreign exchange market, activity remained balanced while commercial banks traded the US Dollar at a rate hovering between LP 1,504 and LP 1,509 versus LP 1,507 - LP 1,511 last week due to some FC-to-LP conversions in order to settle VAT dues.



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ECONOMY______________________________________________________________________________FOREIGN TRADE DEFICIT STAGNANT AMIDST CONTRACTING EXPORTS AND IMPORTS

Foreign trade statistics for the first nine months of the year have been released this week. They suggest a stagnant trade deficit equivalent to US$ 12.7 billion which, when annualized, amounts to 40% of Lebanon's GDP. The stagnation of the foreign trade deficit comes within the context of dropping exports and imports. The former dropped by 4.1% to reach US$ 3.2 billion while the latter dropped by 0.8% to reach US$ 15.9 billion.

The breakdown of exports by category of products suggests that mineral products increased the most, moving from US$ 62 million to US$ 340 million, followed by metals and metal products which increased from US$ 326 million to US$ 426 million, then food products which increased from US$ 288 million to US$ 323 million, and Vegetable products which surged from US$ 117 million to US$ 166 million. These were yet offset by a drastic drop in Jewelry exports which dropped from US$ 1,313 million to US$ 672 million over the same period.

The breakdown of exports by country shows that exports to Syria constituted the main growing export category, reporting an increase of 127% from US$ 194 million to US$ 441 million to represent circa 13.9% of total exports. It was followed by Saudi Arabia with 8.8%, UAE with 8.0% and Iraq with 6.6%. Switzerland, which used to account for 11.8% of Syrian exports in the first nine months of 2012, saw its share dropping to 4.8% in the first nine months of 2013, as its exports went down by 60.8% between the two periods.

The breakdown of imports by category of products suggests that electrical products increased the most, moving from US$ 1,568 million in the first nine months of 2012 to US$ 1,992 million in the first

Sources: Higher Customs Council, Bank Audi's Group Research Department

LEBANON'S TRADE ACTIVITY



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nine months of 2013, thus growing by 27.0% to account for 12.5% of total imports. Likewise, imports of chemical products rose from US$ 1,313 million to US$ 1,478 million, thus growing by 12.6% to account for 9.3% of total imports. Also, transport vehicles reported a rise of 17.0% to reach US$ 1,333 million and account for 8.4% of total imports. The import item that drove the drop in total imports remains mineral products which contracted by 13.7% to reach US$ 3,693 million over the first nine months of this year, though still holding the lion’s share of 23.2% in Lebanon’s total imports.

The breakdown of imports by country shows that imports from China constituted the main growing import category, reporting an increase of 27.8% over the nine-month period to move from US$ 1,291 million to US$ 1,650 million and represent circa 10.4% of total imports. It was followed by Italy with 8.3% and France with 7.3% of total imports. It is worth mentioning that USA, which used to account for 13.0% of Lebanese imports in the first nine months of 2012, accounted for a mere 7.3% of them in the corresponding 2013 period. Finally, Russia saw its share in Lebanese imports rising from 1.9% to 4.7% between the two periods. _____________________________________________________________________________TOURISM ACTIVITY SUSTAINS ITS DOWNWARD PATH YEAR-TO-DATE

The latest statistics released by the Ministry of Tourism covering the first nine months of 2013 showed that the sector is still hindered by the adverse local and regional conditions. As a matter of fact, incomers have sustained their downward path on the back of weaker land travel and a delicate local environment. According to the latest tourism numbers, after the relative improvement registered in August compared to August 2012, the month of September witnessed a less vibrant activity. In fact, 13.4% less tourists visited Lebanon in September 2013 compared to September 2012.

Sources: Ministry of Tourism, Bank Audi's Group Research Department

NUMBER OF TOURISTS (FIRST NINE MONTHS OF THE YEAR)



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As to cumulative numbers, tourists went down by 10.0% year-on-year to a total of 977,380 in the first nine months of 2013. Noteworthy is that this downward trend was mainly tied to the weaker arrivals of tourists of Arab origin which account for circa 40% of the total. As a matter of fact, their number edged down by 18.1% year-on-year in the first nine months of 2013. This is linked to the impact of the regional developments on land travel and mostly to the travel announcements issued by several governments within the Arab Gulf region since mid-May 2012.

The number of incomers from other parts of the world also reported an annual decline, to the exception of those coming from Africa who reported an annual rise of 7.3%. In fact, arrivals of tourists from Oceania and Asia posted the highest drop after Arab incomers, with their numbers decreasing by 15.7% and 9.8% in the first three quarters of 2013, respectively.______________________________________________________________________________REVENUES OF THE PORT OF BEIRUT UP BY 28% IN THE FIRST NINE MONTHS OF 2013

The latest statistics released by the Port of Beirut showed that its activity extended its rising path during the first nine months of the year as reflected by most of the indicators, mainly revenues, within the context of a considerable rerouting of land transport to maritime transport for foreign trade.

With regards to the number of ships, it posted an increase of 0.2% year-on-year to reach a total of 1,589 vessels in the first nine months of 2013. The number of containers recorded an annual rise of 20.8% to attain a total of 576,731containers in the first nine months of 2013. During last year’s same period, the former had registered a decline of 3.8% year-on-year while the latter increased by 8.7%.

At the level of the quantity of goods, there was an increase of 15.7% year-on-year to 6.178 million tons in the first nine months of 2013 following a rise of 6.3% reported in the corresponding period of 2012. Pertaining to transshipments, they were lower by 13.7% year-on-year to attain a total of 274,811 containers in the first nine months of 2013, after a decline of 3.2% recorded in the first nine months of 2012. As to the Port’s revenues, they reached US$ 164.6 million in the first nine months of 2013, up by 28.0% from US$ 128.6 million seen in the corresponding period of 2012.

Sources: Port of Beirut, Bank Audi's Group Research Department

REVENUES OF THE PORT OF BEIRUT (FIRST NINE MONTHS OF THE YEAR, US$ MILLIONS)



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SURVEYS____________________________________________________________________________LEBANON’S RECOVERY DEPENDANT ON POLITICAL AND SECURITY CONSENSUS, ACCORDING TO THE IIF

According to the regional overview on the Middle East and North Africa recently published by the Institute of International Finance (IIF), Lebanon’s real GDP is forecasted to grow at 0.7% in 2013, following a growth of 1.1% in 2012.

According to the IIF, the deceleration in growth is due to domestic political tensions and the deterioration in the security situation which adversely affected tourism and investment. In fact, the Lebanese economy has suffered from the security tensions and the spillover of the Syrian crisis, with Lebanon witnessing an influx of Syrian refugees estimated at one million, which is equivalent to 25% of Lebanon’s population. However, the IIF stated that Lebanon could reach a GDP growth level of 2.7% in 2014 in case a negotiated arrangement concerning the conflict in Syria was reached.

In addition, lower tax revenues, resulting from lower growth and a continued increase in public spending, have negatively affected public finances. The IIF expects the public deficit to widen to around 11% of GDP in 2013, basing their estimate on actual figures of the first eight months of the year.

As to the banking system, the IIF considers it to be “resilient” to regional tensions and weak economic activity. This is thanks to stable remittances and consistent inflow of deposits, with the latter remaining stable at 6% since early 2012. In addition, credit growth to the private sector is about 8%. Despite the projected government debt of 143% of GDP for 2013, Lebanon’s CDS stood at a two-year low of 390 bps in early October. As to the monetary situation, the Lebanese pound remains stable while official foreign reserves have continued to increase, unlike other oil-importing countries of the region.

According to the IIF, the country has a potential for strong recovery in the tourism sector. In addition, political stability along with structural reforms, addressing for instance the chronic electricity problem,

sources: IFS, IIF

LEBANON'S MAIN ECONOMIC INDICATORS



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could move the economy to a sustainably higher growth levels over the medium term, as per IIF. Add to this the recent discovery of large recoverable oil and gas reserves. However, a failure to implement near and medium term fiscal consolidation measures would exacerbate existing debt sustainability concerns. The main challenges, according to the IIF, are to improve a security situation and form a new consensus government. _____________________________________________________________________________WEAK PERFORMANCE OF THE LEBANESE ECONOMY DESPITE MODEST RECOVERY, AS PER JP MORGAN

In a note released upon the launching of the Middle East Composite Index, JP Morgan considered the budget deficit to have deteriorated considerably in 2013. In fact, the total deficit widened to US$ 1.9 billion in the first half of 2013, compared to US$ 1.1 billion in the same period of 2012.

In details, the 12-month trailing revenues have remained on a steady downtrend since early 2012 while spending accelerated this year. In fact, lower VAT revenues indicated weaker domestic demand, while despite lackluster economic performance, customs revenues remained resilient benefiting from redirected incoming freight at the Port of Beirut. On the spending side, public wages accounted for the bulk of the current spending with the primary surplus reaching 0.2% on a cash basis. According to JP Morgan, the net deterioration in the primary surplus in the past few years suggests that the public debt-to-GDP ratio is set to reverse its downward trend of recent years.

JP Morgan considered that high frequency indicators point to weak economic performance despite a modest recovery. The coincident indicator steadily recovered in the first half of 2013, and electricity production accelerated at its strongest pace in two years. High frequency indicators point to real GDP growth close to 1.5% in the first half of 2013. However, according to JP Morgan, it’s still unclear how the deterioration in the security situation and the additional spillovers from Syria will impact growth in the remainder of the year. For instance, total passenger arrivals at the airport tracked a similar performance as in 2012, with arrivals at the highest range over the previous five years. However, according to the note, further deceleration in the security situation is likely to weaken tourists’ arrivals, with hotel occupancy rates in Beirut decelerating for the second consecutive month to 55% in June. Hence, Lebanon's real GDP is expected to remain below potential through 2014.

As to the banking sector, JP Morgan considers that the stabilization of domestic liquidity will cushion the economic slowdown. Total deposit growth recovered to 9.4% year-on-year in July from last year’s trough, which is above the critical levels of 5-7% growth to finance both the private and the public sector. Foreign currency deposits accelerated faster at 11.3% year-on-year in July, up from its trough of 3.7% the previous year. Details show that non-resident deposits accelerated quickly since April which could be explained by the intensification in the Syrian conflict. The improvement in deposit growth is likely to boost credit to the private sector, with the latter rebounding by 9.9% year-on-year in July, as per JP Morgan.



WEEK 43

CORPORATE NEWS______________________________________________________________________________BLOM BANK’S NET PROFITS UP BY 4.8% TO US$ 262.7 MILLION IN THE FIRST NINE MONTHS OF 2013

BLOM Bank announced net profits of US$ 262.7 million in the first nine months of 2013, up by 4.8% from US$ 250.7 million in the same period of 2012.

Net interest income amounted to US$ 397.8 million in the aforementioned period of 2013, rising by 1.0% from US$ 393.9 million recorded in the same period of 2012. Net fees and commissions income increased from US$ 80.4 million in the first nine months of 2012 to US$ 89.7 million in the same period of 2013.

Net operating income edged up by 5.0% to attain US$ 550.7 million in the first nine months of 2013, compared with US$ 524.5 million in the same period of 2012. Total operating expenses rose by 4.9% year-on-year to US$ 228.1 million in the first nine months of 2013, of which personnel charges reaching US$ 135.3 million, 9.3% higher than those reported in the same period of 2012, and general and other administrative expenses reaching US$ 78.0 million, almost equal to the amount in the same period of 2012.

BLOM Bank’s assets totaled US$ 25.7 billion at end-September 2013, up by 2.6% from US$ 25.1 billion at end-2012. Net loans and advances stood at US$ 6.2 billion at end-September 2013, 3.4% higher than the total of US$ 6.0 billion at end-2012.

Customers’ deposits amounted to US$ 22.3 billion at end-September 2013, up by 2.4% from US$ 21.8 billion at end-2012. Shareholders’ equity totaled US$ 2.3 billion at end-September 2013, compared with US$ 2.2 billion at end-2012.

Sources: BLOM Bank, Bank Audi's Group Research Department

BLOM BANK'S MAJOR FINANCIAL AGGREGATES



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______________________________________________________________________________NET PROFITS OF LEBANON AND GULF BANK REACH US$ 11.2 MILLION IN THE FIRST HALF OF 2013

Lebanon and Gulf Bank Sal posted 2013 first half net profits of US$ 11.2 million, up from US$ 7.9 million in the same period of 2012. Net interest income increased by 57.3% over the same period to reach the equivalent of US$ 19.9 million in the first half of 2013.

Lebanon and Gulf Bank’s net fee and commission income was higher by 15.0% year-on-year and attained US$ 4.4 million in the first half of 2013. Net operating income progressed from US$ 21.2 million in the first half of 2012 to US$ 26.5 million in the same period of 2013, with net provisions for credit losses rising to reach US$ 6.6 million in the first half of 2013.

Total operating expenses increased by 15.5% year-on-year to attain US$ 14.0 million in the first half of 2013, with staff expenses as well as administrative and other operating expenses reaching US$ 7.6 million (+6.8%) and US$ 5.2 million (+34.9%), respectively.

Lebanon and Gulf Bank posted an amelioration in the cost-to-income ratio from 56.9% in the first half of 2012 to 42.4% in the same period of this year.

Lebanon and Gulf Bank’s total assets stood at US$ 2.5 billion at end-June 2013, up by 5.2% from end-2012. Net loans and advances amounted to US$ 957.2 million at end-June 2013, a total higher by 5.2% than that seen at end-2012.

Customers’ deposits moved from US$ 2.15 billion at end-2012 to US$ 2.25 billion at end-June 2013. Shareholders’ equity was higher by 4.1% year-to-date to US$ 197.5 million at end-June 2013.

Lebanon and Gulf Bank’s gross doubtful loans to gross loans ratio reached 6.0% at end-June 2013, against 5.8% at end-2012. Its loan loss reserves on doubtful loans to doubtful loans ratio attained 67.3% at end-June 2013, against 63.0% at end-2012.

Sources: Bankdata Financial Services, Bank Audi's Group Research Department

BALANCE SHEET AGGREGATES OF LEBANON AND GULF BANK (US$ BILLION)



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CAPITAL MARKETS_____________________________________________________________________________MONEY MARKET: CALM MOOD TRIGGERS STABILITY IN OVERNIGHT RATE

The money market maintained its calm mood during this week, with the overnight rate standing at its low official level of 2.75% set by the Central Bank of Lebanon amidst ample local currency liquidity at hand. Again, no subscriptions were made in Certificates of Deposits during this week. Interest rates on the 45-day and 60-day CDs categories remained stable at 3.57% and 3.85% respectively. The latest figures released by the Association of Banks in Lebanon showed that the weighted average rate on LP CDs stood at 8.79% at end-August 2013, against 8.82% at end-July 2013 and 9.28% at end-December 2012. The outstanding CDs portfolio reached LP 34,720 billion at end-August 2013, up from LP 35,057 billion at end-July 2013 and LP 23,073 billion at end-December 2012.

At the monetary aggregates level, figures for the week ending 10th of October 2013 released this week showed a rise in local currency deposits of LP 58 billion, as a result of an increase of LP 54 billion in LP time deposits and a growth of LP 4 billion in LP demand deposits week-on-week. Deposits in foreign currencies rose by US$ 17 million. These weekly variations compare to an average weekly rise of LP 18 billion for LP deposits, and an average weekly increase of US$ 80 million for foreign currency deposits since the beginning of the year 2013. Total money supply in its large sense (M4) expanded by LP 79 billion week-on-week. This compared to an average weekly growth of LP 179 billion since the beginning of the year.

On a cumulative basis, money supply in its large sense (M4) grew by LP 8,398 billion since the beginning of the year 2013. This is the result of a rise in local currency denominated time deposits of LP 1,920 billion, an increase in foreign currency deposits of LP 4,948 billion (the equivalent of US$ 3,282 million), an expansion in money supply (M1) of LP 139 billion, and a growth in Treasury bills held by the public of LP 1,391 billion.

_____________________________________________________________________________TREASURY BILLS MARKET: SLIGHT NOMINAL DEFICIT IN THE PRIMARY MARKET

The auction results for value date 17th of October 2013 released by the Central Bank of Lebanon showed that total subscriptions amounted to LP 163 billion and were distributed as follows: LP 42 billion in the one-year category, LP 11 billion in the two-year category, and LP 110 billion in the three-year category. These compare to maturities of LP 171 billion, resulting in a nominal deficit of LP 8 billion. In parallel, the latest auction’s results (October 24, 2013) showed stability in the average yields on the three-month, six-month and five-year categories at 4.44%, 4.99% and 6.74% respectively.

The latest monthly report released by the Association of Banks in Lebanon showed that the weighted average yield on outstanding LP Treasury bills stood at 6.72% at end-August 2013, against 6.71% at end-July 2013 and 6.58% at end-December 2012.

INTEREST RATES

Source: Bloomberg



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TREASURY BILLS

Sources: Central Bank of Lebanon, Bloomberg

_____________________________________________________________________________FOREIGN EXCHANGE MARKET: SUSTAINED BALANCED ACTIVITY

The foreign exchange market initiated the week with some FC-to-LP conversions in the aim of setting VAT dues, while commercial banks traded the US Dollar at a rate hovering between LP 1,504.00 and LP 1,506.00. Yet, the green currency started to be on demand towards the end of the week, which lifted the LP/US$ interbank rate to LP 1,506.00-LP 1,509.00. Meanwhile, the Central Bank of Lebanon remained on the sidelines throughout the week.

The Central Bank of Lebanon’s foreign assets reached US$ 35.6 billion mid-October 2013, declining moderately by US$ 132 million since year-end 2012, and covering 80.2% of LP money supply, which spots light on the Central Bank’s strong ability to meet market needs for foreign currencies and maintain a stable exchange rate.

EXCHANGE RATES

Source: Bank Audi’s Group Research Department

_____________________________________________________________________________STOCK MARKET: SIGNIFICANT RISE IN AVERAGE DAILY TRADING VALUE

The Beirut Stock Exchange was marked by a relatively improving momentum. The total trading value amounted to US$ 11.7 million versus US$ 1.8 million during the previous two-day week and an average weekly trading value of US$ 4.5 million since the beginning of the year 2013. The average daily trading value surged from US$ 903 thousand last week to US$ 2.3 million this week, which resulted into a 158.1%



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EUROBONDS INDICATORS

Source: Bank Audi’s Group Research Department

AUDI INDICES FOR BSE

Sources: Beirut Stock Exchange, Bank Audi’s Group Research Department

hike in the trading volume index to 100.74. As far as prices are concerned, the BSE price index retreated by a tiny 0.2% to close at 104.62.

Banking shares captured 96.1% of activity, with Byblos Bank Preferred shares 2009 alone accounting for 90.6% of the total trading value. Bank Audi’s “listed” share price declined by 0.7% to close at US$ 6.11. Bank Audi’s GDR price surged by 4.0% to US$ 6.75. Byblos Bank’s “listed” share price stood unchanged at US$ 1.50. BLOM’s “listed” share price remained unchanged at US$ 8.25. BLOM’s GDR price declined by 1.2% to US$ 8.50. Byblos Bank’s “Preferred 2009” retreated by 0.2% to US$ 100.00. Solidere shares accounted for 3.76% of the total trading value. Solidere “A” share price remained stable at US$ 11.35, and Solidere “B” share price edged up by 0.2% to US$ 11.23. Amongst industrials, Holcim’s share price fell by 9.8% to US$ 13.34.

The Beirut Stock Exchange’s weekly performance compared to a rise of 1.8% in broader Arabian markets’ share prices (as per S&P Pan-Arab Composite Index) and a fall of 1.1% in broader emerging markets’ share prices (as per S&P Emerging Market Composite Index).

_____________________________________________________________________________BOND MARKET: RISE IN PRICES, CONTRACTION IN SPREADS

The Eurobond market witnessed a local and foreign demand across the curve, which triggered a rise in prices. The rise in Lebanese bond prices was mainly supported by: first, a rally in US Treasuries amidst speculation the US economy is recovering too slowly for the US Federal Reserve to begin reducing bond purchases this year; second, an upgrade for Lebanon from “Underweight” to “Market Weight” at JP Morgan EMBIG, as spreads have underperformed and short-term regional tensions have eased. Within this context, the average yield declined from 5.44% last week to 5.31% this week, while the average spread contracted by 10 bps to 356 bps. As to the cost of insuring debt, Lebanon’s five-year CDS spreads continued to hover between 380 and 405 basis points.



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INTERNATIONAL MARKET INDICATORS

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 Audi Saradar Group 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.

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