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STATEMENT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

The year 2013 was another good year for Bank Audi at both business and performance levels whereby the results fairly reflect the set strategic orientations. They underscore the Group’s leaner organisation and its capacity to seize opportunities for the development of activities and expansion in new better rated countries, ensuring added value to all stakeholders within its customers’ and shareholders’ base at large.

Late 2012, after the outbreak of the “Arab Spring” and the ensuing challenging environment in key markets of presence, the Group strategy was re-adjusted, channelling the development over the coming five years around the following drivers:

  • Consolidating and strengthening its leadership in Lebanon (the home market)
  • Strengthening the market background and positioning in Egypt
  • Securing over the medium term an established positioning in the Turkish market, building a franchise ranking second to Lebanon in terms of size and earnings
  • Leveraging cooperation and synergies across the Private Banking entities in Europe, the Levant and the GCC.
2013 marked the beginning of the implementation phase of the transformation strategy, centering on sustained quality growth supported by an effective capital placement and pursuing greater operational efficiency. Consolidated assets increased year-on-year by USD 4.9 billion (15.6%), reaching at end-December 2013 USD 36.2 billion, of which 42.6% in subsidiaries outside Lebanon (USD 15.4 billion). In parallel, assets under management (fiduciary deposits, security accounts and assets under management) increased by USD 841 million in 2013, translating in a total of assets and assets under management of USD 45.5 billion at end-December 2013, of which more than 33% is built in investment grade countries, a level unparalleled among the Lebanese banking groups at large.

FINANCIAL HIGHLIGHTS

Assets (USD MILLION)

 

Net earnings (USD MILLION)

(1)
1 Reflecting the initial stages of the launch of the fully owned subsidiary in Turkey.

earnings per common share growth (usd)

(1)
1 Reflecting the initial stages of the launch of the fully owned subsidiary in Turkey.
BANK AUDI: SELECTED CONSOLIDATED FINANCIAL DATA (USD MILLION)

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02Management
Discussion and Analysis

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05Management

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06Addresses

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STATEMENT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

The year 2013 was another good year for Bank Audi at both business and performance levels whereby the results fairly reflect the set strategic orientations. They underscore the Group’s leaner organisation and its capacity to seize opportunities for the development of activities and expansion in new better rated countries, ensuring added value to all stakeholders within its customers’ and shareholders’ base at large.

Late 2012, after the outbreak of the “Arab Spring” and the ensuing challenging environment in key markets of presence, the Group strategy was re-adjusted, channelling the development over the coming five years around the following drivers:
2013 marked the beginning of the implementation phase of the transformation strategy, centering on sustained quality growth supported by an effective capital placement and pursuing greater operational efficiency. Consolidated assets increased year-on-year by USD 4.9 billion (15.6%), reaching at end-December 2013 USD 36.2 billion, of which 42.6% in subsidiaries outside Lebanon (USD 15.4 billion). In parallel, assets under management (fiduciary deposits, security accounts and assets under management) increased by USD 841 million in 2013, translating in a total of assets and assets under management of USD 45.5 billion at end-December 2013, of which more than 33% is built in investment grade countries, a level unparalleled among the Lebanese banking groups at large.

During the year, the growth in activity was driven by opposite trends across the main development pillars of the Group:
The growth in the Bank’s activity was not realised at the detriment of its financial standing. Primary liquidity placed with central banks and foreign banks reached USD 12.6 billion, representing 40.4% of customers’ deposits, an elevated level when compared to regional and global averages. At the loan quality level, gross doubtful loans accounted for only 2.8% of gross loans, with the coverage of those loans by specific and collective loan loss provisions reaching 95% at end-December 2013, within the context of the allocation of USD 90.3 million of additional loan loss provision charges in 2013. Adjusting to real guarantees, the doubtful loan coverage ratio would exceed the 100% threshold reaching 110%. Consolidated shareholders’ equity reached USD 2.7 billion, representing 7.5% of the Bank’s consolidated assets, while total regulatory capital as per Basel III reached USD 3 billion, reinforced by the USD 350 million subordinated debt issuance closed in September 2013. Accordingly, the Bank’s Basel III capital adequacy ratio would reach 12.1% at end-December, against a 10.5% minimum regulatory requirement set for end-2013 (including the 1.5% of conservation buffer).

At the profitability level, Bank Audi’s net earnings reached USD 305 million in 2013, against USD 361 million in 2012 before the exceptional profits related to discontinued operations, decreasing by 15.6% mainly due to the initial launching stages of the Turkish banking subsidiary, whose network encompasses 31 branches with the subsequent normal time lag between immediate operating expenses and expected revenues.

The above supported Bank Audi’s leadership position in the Lebanese banking sector in terms of all business criteria and reinforced its position among the top 20 Arab banks, whereby it reported the third highest activity growth rate among top Arab banks in 2013.

Subsequently, the most important development in 2013 was the first full-year outstanding performance of the Turkish subsidiary. Performance highlights at the end of the first full year of operation show USD 7.6 billion in assets, USD 5.8 billion in customers’ deposits, USD 5.3 billion in loans to customers on the back of a staff count of 1,101 employees and 31 operating branches. Turkey is a sizeable emerging country with a population of 76 million inhabitants and a GDP of USD 852 billion, within a track record of sustained economic growth, registering on average 6.0% per annum over the last 4 years. Over and above its size, the significance of the Turkish market for the Group lies in the growing trade flows between Turkey and the Arab World, surging more than 15 times to USD 50 billion in the last decade. Moreover, having the luxury of being granted a license and entering a market from scratch without incurring goodwill provided Bank Audi with a competitive edge in acquiring top-notch people, investing in the best technology, and acquiring all the necessary means to keep said technology deployed.

On the back of the Bank’s recent financial and business achievements, Bank Audi looks at the future with faith and optimism. Going forward, the key strategic priorities continue to revolve around enhancing the efficiency of its Lebanese entities while developing its subsidiaries abroad in a way to ensure a significant contribution of foreign entities abroad in the growth of consolidated assets and net earnings starting 2015. Successful execution of this strategy lies on the importance of the diversified business model and on the Group’s capacity on the continuing growth in the cross-border flows between the Near East, the Middle East, North Africa and Turkey and the significant wealth creation particularly in the MENA region, Latin America and Sub-Saharan Africa. The Bank’s ultimate objective remains to shortly become the most diversified regional bank by both business lines and countries of presence on a regional landscape that still lacks a full fledge well diversified regional bank at large.

Within that scope, Bank Audi was granted a license by the Central Bank of Iraq to open 7 branches and launch banking operations in Baghdad and each of Irbil, Basra, Najaf, Suleymanieh, Salaheddine and Mosul. A team from the Group is currently laying the organisational and operational grounds of this network in the aim of launching operations in Iraq during the course of 2014. As a result of this continued cross-border expansion, the Group is currently present in 13 different countries, namely Syria, Jordan, Egypt, Sudan, Saudi Arabia, Qatar, Turkey, the United Arab Emirates through a representative office, and shortly in Iraq over and above its historic and dominant presence in Lebanon and in Europe (France, Switzerland and Monaco).

In pursuing our objectives, we continue to count on the permanent support of our different stakeholders: our customers who have again showed strong confidence in us, our shareholders who have backed us in all circumstances, and our employees who demonstrated firm loyalty and exemplary dedication. To all those stakeholders, we are happy to express, once again, our renewed commitment for striving to align their individual interest with our overall corporate objectives.

Sincerely,

Raymond W. Audi
Chairman and General Manager

Samir N. Hanna
Group Chief Executive Officer