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1.0. Statement of The Chairman and The Chief Executive Officer

The year 2014 was another good year for Bank Audi. As a result of sound business and financial performance, the Bank continues to have an undisputed leadership position in the Lebanese banking sector in terms of all business criteria (assets, deposits, loans, equity and net profits), to benefit from a differentiated visible brand in main markets of presence, notably Turkey and Egypt, and to reinforce its position among the top 20 Arab banks at large. The annual results confirm the Group’s good mastery over the operating conditions in the various countries of presence, mainly in Turkey where the subsidiary is well placed to achieve its profits targets. Such results also confirm the Group’s good financial flexibility resulting from the diversification of activity and profit sources while bearing witness to the commercial growth momentum that represents a source of future recurrent revenues.

The Bank’s consolidated assets increased by USD 5.8 billion in 2014, from USD 36.2 billion at end-December 2013 to USD 42 billion at end-December 2014, and reaching USD 52.1 billion when accounting for fiduciary deposits, security accounts and assets under management. In spite of the negative impact of the depreciation of the local currencies versus the US dollar in a number of countries of presence, the contribution of entities outside Lebanon to consolidated assets reached 47% at end‑December 2014, bearing witness to Management’s success in reaching its set target of a balanced activity breakdown between Lebanon and abroad. This achievement is even more important when considering that 33% of consolidated assets are booked in investment grade countries, reinforcing the overall quality of the Bank’s assets.

The main drive for activity growth was customers’ deposits which increased by USD 4.7 billion, equivalent to a growth of 15.2%, achieving a good performance relative to a number of large regional banks. This growth was principally driven by deposits' increases in entities in Turkey, Egypt and Lebanon. Accordingly, consolidated customers’ deposits reached USD 35.8 billion at end-December 2014, of which 45% from entities outside Lebanon. In parallel, consolidated loans rose from USD 14.7 billion at end-December 2013 to USD 17.2 billion at end-December 2014, equivalent to an increase of USD 2.5 billion over the year.

The good activity growth was not realised at the detriment of the financial standing of the Group which was further reinforced in 2014. The Bank first sustained its high liquidity status. Consolidated primary liquidity placed with central banks and foreign banks stood at USD 16.2 billion, the equivalent of 45.1% of customers’ deposits, a high level when compared to regional and global averages.

Second, regarding asset quality, the Bank allocated USD 140 million of consolidated net loan loss provision charges to reinforce the Group’s loan quality. Within the context of a persisting challenging environment domestically and regionally, the ratio of gross doubtful loans to gross loans reached 3.1% at end-December 2014, while the coverage of those loans by specific loan loss reserves rose to 71.6% and to 87.0% when including real guarantees. Accordingly, the ratio of net doubtful loans to gross loans improved from 1.0% at end-December 2013 to 0.9% at end-December 2014. In parallel, collective provisions amounted to USD 139 million, representing 0.8% of outstanding loans.

Third, at the level of capitalisation, consolidated shareholders’ equity rose by USD 651 million in 2014 as a result of the completion of the USD 300 million capital increase at end-September 2014 and of the additional USD 221 million of reserves for revaluation of fixed assets booked in accordance with BDL Intermediary Circular No. 44, within the context of the usual changes in equity. Consequently, consolidated shareholders' equity of Bank Audi reached USD 3.3 billion at end-December 2014. When adjusting for the issued subordinated loans, regulatory capital reached USD 3.8 billion, leading to a Basel III capital adequacy ratio of close to 13%, as compared to an 11.5% regulatory minimum requirement.

As a matter of fact, among the most important developments in the Group last year was the significant capital increase of Bank Audi. Such a successful transaction was conducted in difficult regional conditions and showed the confidence of existing and new shareholders, including IFC, in the Bank’s performance and direction. The partnership with IFC will further assist the Bank in expanding our access to underserved segments such as small and medium enterprises, and support our planned expansion to new jurisdictions, in particular where IFC has significant in-country knowledge and experience.

Fourth, as far as profitability is concerned, Bank Audi’s net earnings after provisions and taxes reached USD 350 million in 2014 as compared to USD 305 million in 2013, which represents a 15% growth year-on-year. This performance stems from a 23.5% growth in total revenues, primarily as a result of the exponential growth of Odea Bank’s revenues within the context of a reinforcement of the revenue generation in the other development pillars of the Group. Revenue growth in Turkey allowed Odea Bank to report positive net profits after provisions and taxes starting the month of May 2014, building up growing net profits in accordance with the Bank’s targets for its Turkish subsidiary. Based on such results, the Bank’s profitability ratios were reinforced with the return on average assets achieving 0.9% and the return on average common equity recording 13.6% post capital dilution.

At the business level, Bank Audi has further reinforced its universal bank profile, offering a full range of products and services covering principally Commercial and Corporate Banking activities, Retail and Individual Banking, Private Banking, and Treasury and Capital Market activities, along with ancillary activities such as On-line Brokerage services and Investment Banking. In particular, Bank Audi now benefits from the following leaderships:
  • A strong franchise in Commercial Banking activities, with a diversified loan portfolio covering top corporates from Lebanon, MENA and Turkey. By December 2014, the Bank had a loan portfolio of USD 17.1 billion, well diversified over economic sectors.
  • A strong franchise in Retail Banking, with a wide spectrum of retail products and services covering bancassurance, credit card and internet banking, offered in all countries where Bank Audi operates. Retail activity is supported by its 80-branch domestic network, which is the largest in Lebanon, and a 127-branch network abroad, mainly in the MENA region and Turkey. The Bank’s market penetration in terms of customers reached 20% in Lebanon in 2014, supported by the best brand image in the domestic market. In terms of credit cards, the number of cards grew by 18% in 2014 while volume growth reported 14%. As such, Bank Audi has ranked 1st in 2014 among Lebanese banks in both debit cards and credit cards.
  • A leading position in Private Banking, servicing the needs of high net-worth individuals through its subsidiaries. Bank Audi’s Private Banking arm is represented by Banque Audi (Suisse) SA (the largest Arab bank in Switzerland by AuMs) and Audi Private Bank sal (the only 100% private bank subsidiary in Lebanon), along with Bank Audi LLC (Qatar) and Audi Capital (KSA), accounting together for over USD 10 billion of assets under management at end-December 2014, by far the largest portfolio managed by a Lebanese banking group and which compares competitively with portfolios managed by leading banks in the GCC.
  • A leading position in domestic and regional capital markets activities. The Bank has strong capital markets activities in Lebanon, Saudi Arabia and Egypt. As a matter of fact, market making activities on Lebanese and GCC fixed income instruments gradually strengthened across the Group, reporting an annual turnover of circa USD 8.4 billion in 2014.

The results of the past year were supported by significant developments in support functions, such as HR and IT. At the HR level, the year 2014 was concluded with various successful accomplishments around areas of Recruitment and Selection, Training and Development, Relationship Management and Organisational Development. Bank Audi continued to own up to its position as the largest employer in the Lebanese private sector at large and the most significant contributor to job creation in Lebanon. It has the most advanced recruitment processes fully recognised in Lebanon and the region for being a benchmark in the selection strategy with a comprehensive talent attraction strategy (85.2% of staff in banking entities being university graduates). The Recruitment and Selection efforts for 2014 resulted in the engagement of 234 new employees from diverse backgrounds for different positions within the Bank. In addition, a total of 238 promotions and 290 transfers took place throughout 2014. In parallel, the Bank continued to be supported by wide full fledged training activities which were intensively focusing on academy courses and Managerial and Behavioural trainings over the past year.

At the IT level, the year 2014 marked the successful closure of multiple transformational business projects for Bank Audi IT. A new Online Banking solution was made available to all the Bank’s customers. This solution allows serving the customers efficiently by catering to the needs of the growing number of technology-aware customers through capabilities that significantly improve their online experience and enables, among other things, a 360-degree view of the customers’ relationship with the Bank. Phase 2 of this project was also immediately triggered and is expected to go live in late 2015. This phase will enhance the Online Banking experience and expand the offered features, especially for corporate customers. It will also launch the new Bank Audi Mobile Banking application. In parallel, Phase 1 of the new Enterprise Resource Planning system also went live in 2014, covering financial management, Central Bank regulatory reporting, and asset and procurement management. From the Infrastructure and Technology side, Bank Audi IT continued the strategic journey started in 2012 towards a Software-Defined Data Centre (SDDC) which makes all elements of the infrastructure – compute, networking, storage, and security – provisioned, operated and managed through software and automation, and delivered as a service.

Looking forward, the Group looks positively to the outlook, reiterating its commitment to actively meet the needs of both businesses and individuals in the various countries of presence. Bank Audi’s overall strategy hinges around the following drivers: first, consolidating and strengthening its leadership in Lebanon with a particular focus on pursuing asset utilisation optimisation while reinforcing operational efficiency to enhance a greater generation of productivity gains; second, strengthening the market background and positioning in Egypt which is witnessing a positive turnaround in its economic conditions and growth prospects; third, securing over the medium term an established positioning in the Turkish market which still enjoys a large size and high levels of growth in spite of short-term volatility; fourth, leveraging cooperation and synergies across the Private Banking entities in Europe, the Levant and the GCC, while transforming the Wealth Management operating model, enlarging its geographical footprint, and reinforcing the range of products and services to shore up Private Banking development at large.

In pursuing such a strategy, we continue to count on the crucial support of our staff known for their exemplary motivation and their utmost dedication, and of our customers for their continued trust and their strong loyalty. To them, we leave our final words of recognition as a gratitude of their permanent support to our corporate objectives.


Raymond W. Audi
Chairman and General Manager

Samir N. Hanna
Group Chief Executive Officer