Global Arab Network | Fitch: Lebanon-based Bank Audi - Ongoing weaknesses of the operating environment

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Fitch: Lebanon-based Bank Audi - Ongoing weaknesses of the operating environment

Global Arab Network - - Asmaa Malik

Monday, 20 September 2010 14:11

Fitch Lebanon-based Bank Audi - Ongoing weaknesses of the operating environment

Lebanon - Fitch Ratings has affirmed Lebanon-based Bank Audi S.A.L.'s (Audi) Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook . Fitch has simultaneously affirmed Audi's Short-term IDR at 'B', Individual Rating at 'D', Support Rating at '5', and Support Rating Floor at 'CCC'.

Audi's IDRs reflect the ongoing weaknesses of the Lebanese operating environment. The Individual Rating reflects Audi's strong franchise, competent management and resilient profitability. It also reflects Lebanon's (rated 'B'/Stable Outlook) ongoing political risks, the bank's substantial sovereign exposure and the impact of the operating environment. Fitch considers that the Lebanese authorities would provide support to Audi if it were required. Audi is systemically important to the banking sector and to the economy as a whole, especially in light of the government's reliance on domestic banks to provide it with financing. The low Support Rating reflects doubts as to the sovereign's ability to provide such support.

Audi posted a strong 22% y-o-y increase in net profit during H110. The bank's performance ratios are robust, especially given its high level of liquidity. Fitch expects profitability to remain strong for the remainder of 2010, with a fairly upbeat outlook for economic growth in Lebanon and - to varying degrees - in most of Audi's international markets.

Despite Audi's increasing diversification, its main credit risk remains that of Lebanon, with sovereign exposure amounting to well over a third of the balance sheet. Loan quality ratios remain sound. Impairments rose slightly in 2009, although from a low level. Impaired loans were a still low 2.7% of the loan book. Reserve coverage strengthened to a satisfactory 83%.

Audi has a strong deposit franchise. Deposit flows to the Lebanese banking sector rose to a record high during 2009; Audi's deposit increase was well above average at 33%. The Lebanese economy is highly dollarized, but rising depositor confidence in the economy and the banking sector has encouraged them to take advantage of higher LBP deposit rates; by end-H110 the proportion of LBP deposits had risen to about 27% of the total. Audi's growth is heavily liability-driven and the strong deposit inflow during 2009 meant capital generation did not keep pace with the bank's rapid expansion. The tier 1 ratio remained adequate however, at 11% at end-H110.

Audi is Lebanon's largest bank by assets. It is among the leading Lebanese banks in commercial and retail lending and also offers investment and private banking services. It is one of the most internationally diversified of the Lebanese banks and operates in seven markets in the Middle East and North Africa region.

Global Arab Network

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