The LEBANON WEEKLY MONITORimages.mofcom.gov.cn/lb/201401/20140113180537048.pdfBDL COINCIDENT...

1Week 52 December 23 - December 29, 2013

DECEMBER 23 - DECEMBER 29, 2013

WEEK 52

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 DECEMBER 23 - DECEMBER 29, 2013

The LEBANON WEEKLY MONITOR

Economy___________________________________________________________________________p.2 STAGNANT IMPORTS AND DECLINING EXPORTS YEAR-ON-YEAR During the first 11 months of 2013, Lebanon’s foreign trade figures suggest a stagnation in imports along with a 7% decline in exports, all leading to a 2% widening of the foreign trade deficit. Also in this issuep.3 BDL coincident indicator up by an average of 2.9% year-on-year p.4 Fiscal deficit up by 31.5% in the first ten months of 2013

Surveys___________________________________________________________________________p.5 LEBANESE ECONOMY TO GROW BY 2% IN 2014, ACCORDING TO THE EIUIn its recent report on the Lebanese economy, the Economist Intelligence Unit (EIU) has cut its forecasts for Lebanon's real GDP growth to a little over 2% in 2014, down from a previous forecast of 2.6% before posting faster rates during the next four years.

Also in this issuep.6 S&P cautious about Lebanon’s outlook

Corporate News___________________________________________________________________________p.7 NET PROFITS OF LEBANON AND GULF BANK REACH US$ 17.8 MILLION IN THE FIRST NINE MONTHS OF 2013 Lebanon and Gulf Bank Sal posted net profits of US$ 17.8 million in the first nine months of 2013, up from US$ 12.9 million in the same period of 2012.

Also in this issuep.8 IBL Bank’s net profits up by 2.5% year-on-year in the first nine months of 2013p.8 Brazil-based company awarded Janna Dam building contract

Markets In Brief___________________________________________________________________________p.9 YEARLY RESILIENCE IN LEBANESE FINANCIAL MARKETS DESPITE UNCERTAINTIESLebanese capital markets held up well in 2013 despite local political developments and concerns about the repercussions of the Syrian unrest on the local front. On the money market, LP liquidity remained abundant and LP CDs portfolios held by banks expanded significantly due to massive subscriptions in long-term categories, while the re-issuing of the 8-year and 10-year Tbs categories and the launching of the 12-year category for the first time, contributed to boosting demand in the primary Tbs market amidst banks’ aim to reduce pressures on their interest spreads. On the FX market, activity remained balanced, supported by the high level of BDL’s foreign assets that have reached US$ 35.6 billion mid-December 2013, covering 80% of LP money supply. On the equity market, a sluggish mood reigned over. The total trading value amounted to US$ 342 million, its lowest level since 2004, while the price index declined by 3.2% and the turnover ratio was quoted at 3.4%, its lowest level ever. On the bond market, papers came under some selling pressures, especially from foreigners, amidst domestic and regional concerns, in addition to rising speculation that the US Federal Reserve may taper its bond-buying program. The average Lebanese bond spread contracted by circa 42 bps to 297 bps, and the five-year CDS spread shrank by circa 60 bps to 390 bps over the year.



WEEK 52

ECONOMY______________________________________________________________________________STAGNANT IMPORTS AND DECLINING EXPORTS YEAR-ON-YEAR

During the first 11 months of 2013, Lebanon’s foreign trade figures suggest a stagnation in imports along with a 7% decline in exports, all leading to a 2% widening of the foreign trade deficit as reflected by the trade statistics released this week by Lebanon’s Customs Authority. Indeed, Lebanon’s trade deficit rose from US$ 15.3 billion over the first eleven months of 2012 to US$ 15.6 billion over the same period of 2013, the equivalent of 39.3% of Lebanon’s GDP, ultimately generating a deficit in the balance of payments of US$ 1.5 billion up to October (latest available monetary statistics).

In details, imports reached US$ 19.4 billion in the first eleven months of 2013, a total up by 0.1% from that seen in the same period of 2012. According to the import statistics, a significant increase of 25.9% was reported in electrical equipment and products, followed by a 16.5% in transport vehicles, a 12.8% in chemical products and a 10.8% in plastic products. Imports of mineral products were however down by 15.1% year-on-year to make up 24% of the total during the first eleven months of 2013 compared with a circa 28% share seen a year earlier. Also, imports of jewelry were down by 28.8% to account for 5.4% of the total against a share of 7.3% over last year’s same period.

The breakdown of imports by country of origin over the first eleven months of 2013 suggests a significant 132.4% growth in imports from Russia, followed by Ukraine with 34.0%, China with 28.3%, Switzerland with 27.8% and Turkey with 20.7%. In parallel, imports that regressed over the period were mostly from the United States with -38.5%, Greece with -31.3% and Egypt with -24.1%.

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

LEBANON EXTERNAL SECTOR



WEEK 52

At the level of exports, they reached a total of US$ 3.8 billion in the first eleven months of 2013, down by 7.0% year-on-year. The breakdown of exports by product suggests a significant growth of 253.5% in mineral products, followed by a 34.2% in chemical products, a 17.8% growth in metal products and a 15.3% in food products. Those were yet offset by a 54.0% decline in jewelry, Lebanon’s most important export item, that constituted 19.6% on Lebanon’s total exports in the first eleven months of 2013, against 39.5% in the corresponding period of 2012.

The breakdown of exports by recipient country over the first eleven months of 2013 suggests a significant 96.0% growth in exports to Syria, followed by Iraq with 95.8%, Nigeria with 74.4% Germany with 48.3%, Qatar with 15.8%, Turkey with 14.8% and Kuwait with 14.5%. In parallel, imports that regressed over the period were mostly from Switzerland with -64.7%, France with -18.2% and Egypt with -16.3%. It is also worth mentioning that the totality of land exports through Syria (Masnaa, Abbudieh and Arida border gates) registered a decline of 21.3% over the period amidst the growing insecurity of land shipment routes at large._____________________________________________________________________________BDL COINCIDENT INDICATOR UP BY AN AVERAGE OF 2.9% YEAR-ON-YEAR

Lebanon’s Central Bank (BDL) released this week its coincident indicator for the month of October 2013. According to the newly released figures, the coincident indicator recorded 270.5 in October, reporting a 3.0% decline relative to December 2012 and a mild 5.8% rise relative to October 2012. The average coincident indicator reached 263.0 over the first 10 months of this year, growing by 2.9% relative to last year’s corresponding period. It is worth mentioning that the indicator represents a weighted average of a number of indices that should coincide with economic activity but is not a measurement of the magnitude of real GDP growth in the economy. Its evolution is still a barometric indication of the behavior of the domestic economy at large.

As such, the Lebanese economy is prolonging its slowdown phase initiated since the beginning of the Arab turmoil. Still, the economy is not falling into a recessionary trap, as it is not contracting in real terms. According to most real GDP growth forecasts for this year, growth is not in the red, posting positive though relatively low figure. The most significant of those forecasts remains that of the IMF which reported a real growth of 1.5% in its World Economic Outlook published last October.

Sources: Banque du Liban, Bank Audi'sGroup Research Department

BDL AVERAGE COINCIDENT INDICATOR



WEEK 52

_____________________________________________________________________________FISCAL DEFICIT UP BY 31.5% IN THE FIRST TEN MONTHS OF 2013

Public finance figures for the month of October were released this week. They actually underline a 31.5% year-on-year increase in the public finance deficit to reach LP 5,304 billion over the first ten months of 2013. While debt service moved from LP 4,440 billion in the first ten months of 2012 to LP 4,589 billion in the corresponding period of 2013, the rise in the public finance deficit was accompanied by a drastic contraction in the primary surplus that went into negative territories. The latter reported a deficit of LP 472 billion in the first ten months of 2013, against a surplus of LP 654 billion in the corresponding 2012 period.

A look at the drivers of the rise in the public finance deficit suggests that it was a combination of revenue forgone and spending expansion. Total revenues contracted by 2.2% in the first ten months of 2013, moving from LP 12,207 billion to LP 11,941 billion. It was actually due to a 3.4% drop in budget revenues, while Treasury revenues rose by 23.0%. Within budget revenues, tax revenues dropped by 1.1% (of which -4.5% for customs revenues while VAT revenues rose by 0.1%) and non-tax revenues decreased by a more significant 11.0% (of which mainly Telecom revenues that witnessed a drop of 15.1%).

In parallel, total expenditures rose by 6.2% in the first ten months of 2013, moving from LP 16,242 billion to LP 17,245 billion. It was actually due to a 7.1% rise in budget expenditures, while Treasury expenditures rose by 2.9%. Within budget expenditures, general expenditures grew by 9.5% despite a drop of 4.0% in EDL expenditures while interest payments rose by 3.4%. As such, the public finance deficit, which accounted for 24.9% of total expenditures in the first ten months of 2012, accounted for 30.8% of expenditures in the first ten months of 2013.

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

LEBANON'S PUBLIC FINANCE



WEEK 52

SURVEYS____________________________________________________________________________LEBANESE ECONOMY TO GROW BY 2% IN 2014, ACCORDING TO THE EIU

In its recent report on the Lebanese economy, the Economist Intelligence Unit (EIU) has cut its forecasts for Lebanon's real GDP growth to a little over 2% in 2014, down from a previous forecast of 2.6% before posting faster rates during the next four years. The EIU states the fact that the Syrian civil war continues to act as a drag on Lebanon's services sector and aggregate investment as the main reason behind the cut in forecast.

Regarding the remainder of the forecast period, the EIU has cut its forecast to an average of 3.6% in the period from 2014 till 2018, down from a previous level of 4.5%.

According to the report, Lebanon's real-estate market, which provides substantial income to the economy through construction and sales revenue, has performed weakly since the civil war in Syria started as foreign investors have stayed away. However, Lebanon will derive some benefits from the unrest in Syria, as it will potentially act as a natural hub for the eventual reconstruction of Syria, as per the EIU.

According to the report, fiscal reform, particularly the expansion of revenue collection, although vital to the reduction of the structural deficit will be a low priority as policymakers are preoccupied with the potential for political unrest. Consequently, the EIU has revised up again its fiscal deficit forecasts in the context of Lebanon's weaker GDP forecasts.

In fact, the EIU now expects a fiscal shortfall of over 10% of GDP in 2014, before gradually easing to 6.8% of GDP in 2018 as an improving economy helps to strengthen the tax take. However, recurrent political disputes will mean that passing budgets will be delayed at best in most years and spending will carry on in an ad hoc manner in most ministries.

The report mentions the role of the central bank in meeting any downward pressure on the currency and in offsetting any flight to quality through holding high levels of foreign reserves, at US$ 37billion (excluding gold) in the third quarter of 2013, or around 14 to 15 months of import cover. Following the

LEBANON'S ECONOMIC INDICATORS

Sources: The Economist Intelligence Unit, Bank Audi's Group Research Department



WEEK 52

stimulus program launched in January 2013, the central bank will also inject a new stimulus package of US$ 800 million into the economy.

According to the report, the EIU previously expected that the current account deficit will shrink gradually from close to 8% of GDP in 2014 to around 2% of GDP in 2018. However, larger shortfalls are now expected in line with changes to growth forecasts. At the same time, the trade balance will remain firmly in deficit as Lebanon relies on imports of expensive fuel, raw materials and other capital goods.

As to the oil and gas sector, the report mentions the importance of its development as it would help to reduce dramatically Lebanon's imports of expensive energy products. However, the political tension in the country is affecting the development of the sector. The deadline for exploration bids has been delayed many times and the interim government lacks the constitutional authority to approve necessary legislation to carry out the auction. Political squabbling will also act as a deterrent for international firms, as per EIU, as there will be the risk of regulatory instability. In case Lebanon becomes more unsettled owing to the continuation of the war in Syria, according to the EIU scenario, this could push back investment in oil and gas well beyond EIU's forecast period ending in 2018. _____________________________________________________________________________S&P CAUTIOUS ABOUT LEBANON’S OUTLOOK

In a regional S&P report entitled “Diverging fortunes prevail as stability eludes some MENA sovereigns”, Standard and Poor’s outlined that, against a challenging political and economic backdrop, four MENA sovereigns, namely Jordan, Lebanon, Morocco, and Tunisia are on negative outlook.

According to the new regional report, rising political risks were a main factor behind S&P's one-notch downgrade of Lebanon at the beginning of November. Tensions between the Syrian regime supporters and those who oppose the regime have become increasingly palpable in Lebanon as per S&P. Moreover, there were violent outbreaks, mostly in already-tense border areas. Domestically, the political environment is at a standstill given the inability of the prime minister-designate to form a government.

The Syria conflict has also led to a steady deterioration of Lebanon's macroeconomic fundamentals, including its growth prospects and fiscal balances. Furthermore, the influx of Syrian refugees has put increasing pressure on the country's resources; this, coupled with overall weak economic performance, continues to weigh on public finances.

According to S&P, the Syria conflict continues but its direct effect on rated sovereigns will likely remain limited. Direct spill-over risks from Syria remain limited to neighboring Jordan and Lebanon. In S&P’s opinion, the conflict presents a risk to S&P ratings on both as reflected in the negative outlooks assigned. Risks to Lebanon are predominantly political: historically, its fractious domestic political landscape has rendered it particularly vulnerable to regional sectarian strife, according to S&P. The Syrian conflict has exposed Lebanon to increased violence; factional clashes regularly erupt between those who support the Syrian regime and those who oppose it. S&P noted that the Syrian conflict is also weighing on Lebanon's trade, tourism, and investment flows, and the rating agency is expecting that the Lebanese economy will remain weak.

S&P ended up by outlining a range of strengths and weaknesses behind major rating factors of regional sovereigns. For Lebanon, the identified weaknesses were the heightened domestic political tension and rising regional tension from the ongoing war in Syria, the high general government debt burden and lack of flexibility, accountability, and predictability of fiscal policy and the external vulnerabilities driven by high trade deficits and dependence on oil imports. At the level of strengths, S&P mentioned the relative economic resilience and the large and stable resident and nonresident deposit base, which finances the government's borrowing needs.



WEEK 52

CORPORATE NEWS______________________________________________________________________________NET PROFITS OF LEBANON AND GULF BANK REACH US$ 17.8 MILLION IN THE FIRST NINE MONTHS OF 2013

Lebanon and Gulf Bank Sal posted net profits of US$ 17.8 million in the first nine months of 2013, up from US$ 12.9 million in the same period of 2012. Net interest income increased by 42.9% over the same period to reach the equivalent of US$ 30.5 million in the first nine months of 2013.

Lebanon and Gulf Bank’s net fee and commission income was higher by 12.2% year-on-year and attained US$ 6.6 million in the first nine months of 2013. Net operating income progressed from US$ 33.0 million in the first nine months of 2012 to US$ 41.0 million in the same period of 2013, with net provisions for credit losses reaching US$ 6.6 million in the first nine months of 2013.

Total operating expenses increased by 11.1% year-on-year to attain US$ 20.0 million in the first nine months of 2013, with staff expenses as well as administrative and other operating expenses reaching US$ 11.5 million (+5.9%) and US$ 6.8 million (+22.3%), respectively.

Lebanon and Gulf Bank posted an amelioration in the cost-to-income ratio from 54.0% in the first nine months of 2012 to 42.2% in the same period of this year.

Lebanon and Gulf Bank’s total assets stood at US$ 2.6 billion at end-September 2013, up by 8.4% from end-2012. Net loans and advances amounted to US$ 1.0 billion at end-September 2013, a total higher by 10.3% than that seen at end-2012. Customers’ deposits moved from US$ 2.2 billion at end-2012 to US$ 2.3 billion at end-September 2013. Shareholders’ equity was higher by 7.5% year-to-date to US$ 204.0 million at end-September 2013.

Lebanon and Gulf Bank’s gross doubtful loans to gross loans ratio reached 5.73% at end-September 2013, against 5.77% at end-2012. Its loan loss reserves on doubtful loans to doubtful loans ratio attained 67.2% at end-September 2013, against 63.0% at end-2012.

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

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



WEEK 52

______________________________________________________________________________IBL BANK’S NET PROFITS UP BY 2.5% YEAR-ON-YEAR IN THE FIRST NINE MONTHS OF 2013

IBL Bank's net profits for the first nine months of 2013 reached US$ 37.4 million, up by 2.5% from the corresponding period of 2012. Net interest income amounted to US$ 21.8 million in the aforementioned period of 2013, compared with US$ 47.8 million in the same period of 2012. Net fees and commissions income increased by 55.3% year-on-year to US$ 5.3 million in the first nine months of 2013. Net operating income edged up 12.6% annually to attain US$ 72.8 million in the first nine months of 2013.

Total operating expenses rose by 22.2% year-on-year to US$ 29.2 million in the first nine months of 2013, of which staff expenses reaching US$ 15.9 million (+13.3% year-on-year) and administrative and other operating expenses reaching US$ 11.5 million (+42.9% year-on-year).

IBL Bank’s assets totaled US$ 4.6 billion at end-September 2013, up by 5.3% from end-2012. Its return on average assets ratio moved from 1.21% in the first nine months of 2012 to 1.11% in the same period of this year. Net loans and advances stood at US$ 891.3 million at end-September 2013, 1.8% higher than the total of US$ 875.8 million recorded at end-2012.

As to its asset quality ratios, the gross doubtful loans to gross loans ratio ameliorated from 5.2% at end-2012 to 3.6% at end-September 2013. Loans loss reserves on doubtful loans to doubtful loans moved from 88.8% at end-2012 to 84.7% at end-September 2013.

Customers’ deposits amounted to US$ 4.2 billion at end-September 2013, up by 5.1% from US$ 4.0 billion at end-2012. IBL’s loan-to-deposit ratio went down from 22.0% at end-2012 to 21.3% at end-September 2013.

Shareholders’ equity totaled US$ 315.8 million at end-September 2013, up by 6.5% from end-2012. IBL Bank’s return on average equity went down from 17.3% in the first nine months of 2012 to 16.0% in the same period of this year.______________________________________________________________________________BRAZIL-BASED COMPANY AWARDED JANNA DAM BUILDING CONTRACT

Brazil-based international firm Andrade Gutierrez was awarded the contract to build the Janna dam, consisting of the second phase of the dam project in Nahr Ibrahim, as per newswires. Phase one includes building a conveying tunnel and access roads, and is being handled by Consolidated Engineering and Trading, a local firm.

The Beirut Mount Lebanon Water Establishment (BMLWE) is responsible for monitoring the execution of the project’s two phases. According to the project manager at BMLWE, a joint committee was formed of representatives from the Water Establishment and the Ministry of Energy and Water to coordinate efforts and keep works on schedule.

According to the same source, the first phase would be completed within a few months, while the construction of the dam would take four years as of the launch date. The total cost of the project is estimated at US$ 200 million, where the dam would enable the storage of up to 38 million cubic meters of water, as per the same source.



WEEK 52

CAPITAL MARKETS_____________________________________________________________________________MONEY MARKET: SIGNIFICANT EXPANSION IN LP CDS PORTFOLIO

The year 2013 was characterized by an ample local currency liquidity at hand, which kept the overnight rate stable at its low official level of 2.75% set by the Central Bank of Lebanon. The outstanding LP Certificates of Deposits portfolio expanded significantly by LP 11,398 billion during the first ten months of 2013 to hit LP 34,471 billion at end-October 2013, following contractions in 2011 and 2012. It was mainly supported by cash subscriptions in the 7-year LP CDs category offering a yield of 7.60%, the 8-year category (7.80%) and the 10-year category (8.24%). It is worth mentioning that the Central Bank of Lebanon has also conducted swap operations between LP CDs maturing in 2013 and 2014 and the aforementioned long-term categories.

In parallel, Money supply in its broadest sense (M4) expanded by LP 10,443 billion since year-end 2012 to reach LP 175,122 billion mid-December 2013. This is the result of a growth in foreign currency deposits of LP 6,177 billion (the equivalent of US$ 4,098 million), a rise in local currency denominated time deposits of LP 2,887 billion, a contraction in Money supply (M1) of LP 19 billion, and an increase in Treasury bills held by the public of LP 1,398 billion. The said expansion in M4 compares to a relatively similar expansion of LP 10,815 billion during the corresponding period of 2012.

_____________________________________________________________________________TREASURY BILLS MARKET: NOMINAL SURPLUS OF CIRCA LP 8,000 BILLION IN 2013

The primary Treasury bills market was marked by a shy investor appetite during the year 2013, which called for the Central Bank’s intervention in the market, as reflected by a LP 1,919 billion expansion in its LP securities portfolio since year-end 2012 till mid-December 2013, noting that the Central Bank has conducted a swap operation between its LP securities portfolio and its Eurobond portfolio in April 2013.

Also, the Ministry of Finance re-launched this year the 8-year and 10-year Treasury bills categories at a yield of 7.80% and 8.24% respectively, and issued for the first time ever the 12-year category at a yield of 8.74%. Subscriptions in these categories were made in cash or by swapping existing LP Certificates of Deposits issued by the Central Bank of Lebanon and maturing in 2013 and 2014. Total subscriptions in Tbs amounted to circa LP 18,000 billion in 2013 as compared to LP 21,864 billion in 2012. The three-year category captured 44.5% of subscriptions in 2013, followed by the 12-year category (19%), the 10-year category (9.4%), the six-month category (8.5%), the five-year category (6.6%), the one-year category (5.3%), the three-month category (4.3%), the two-year category (2.4%), and the 8-year category (0.4%). These compared to maturities of circa LP 10,000 billion, which led to a nominal surplus of around LP 8,000 billion in 2013.

INTEREST RATES

Source: Bloomberg



WEEK 52

TREASURY BILLS

Sources: Central Bank of Lebanon, Bloomberg_____________________________________________________________________________FOREIGN EXCHANGE MARKET: SUSTAINED BALANCED ACTIVITY IN 2013

The foreign exchange market maintained a balanced activity during the year 2013 despite lingering local political and security tensions and worries about the repercussions of the Syrian unrest on the local front. The balanced activity was mainly supported by the sustained high level of BDL’s foreign assets that have reached US$ 35.6 billion mid-December 2013, covering 79.6% of LP money supply and 20.1 months of imports, reflecting the Central Bank’s strong ability to defend the currency peg and meet demand for foreign currencies should any pressures arise. It is worth highlighting that the volume of BDL’s foreign assets remained almost stable in 2013 despite the significant contraction in the Bank’s Eurobond portfolio as a net result of the sale of a large portion of its bonds holdings to banks.

EXCHANGE RATES

Source: Bank Audi’s Group Research Department

_____________________________________________________________________________STOCK MARKET: A 3.2% DECLINE IN PRICE INDEX IN 2013

A sluggish mood governed the Beirut Stock Exchange during the year 2013 amidst lingering local political and security concerns, and worries about the repercussions of the Syrian unrest on the local front.

The average daily trading value amounted to US$ 1.4 million as compared to an average of US$ 1.7 million in 2012 and an average of US$ 4.7 million during the 2008-2010 period that was marked by a flourishing activity on the BSE. As such, the total trading value amounted to circa US$ 342 million in 2013



WEEK 52

EUROBONDS INDICATORS

Source: Bank Audi’s Group Research Department

AUDI INDICES FOR BSE

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

as compared to US$ 408 million in 2012. The total turnover ratio, measured by the annualized trading value to market capitalization, reached 3.4% in 2013 against 4.1% in 2012, which spots light on the slowdown in activity on the BSE.

As far as prices are concerned, the price index declined by circa 3.2%, due to some selling operations and as some market participants remained reluctant to add new positions despite attractive market pricing ratios in the Lebanese stock exchange relative to international benchmarks. For instance, the BSE traded at a weighted P/E ratio of 7.2x at end-December 2013 as compared to a P/E of 13.8x in the MENA region. Despite falling prices, the BSE market capitalization rose from US$ 9,982 million at end-2012 to circa US$ 10,041 million at end-2013, mainly due to new listings of preferred shares for Bank Audi, BLC and Bank of Beirut.

_____________________________________________________________________________BOND MARKET: EXPANSION IN YIELDS AND CONTRACTION IN SPREADS IN 2013

The Lebanese Eurobond market came under some selling pressures in 2013, especially from foreign investors, amidst domestic and regional environment concerns, in addition to rising speculation that the US Federal Reserve may taper its bond-buying program, which effectively took place on December 18, 2013. As to credit rating changes, Standard & Poor's lowered in November 2013 its long-term foreign and local currency sovereign credit ratings on the Republic of Lebanon from “B” to “B-“, while it affirmed the short-term ratings at “B”. The outlook remained “negative”. Also, Fitch revised in December 2013 Lebanon’s outlook from “Stable” to “Negative”, citing heightened political risk, deteriorated public debt dynamics and weak growth prospects. This followed a revision of outlook from “Stable” to “Negative” by Moody’s in May 2013. The weighted average bond yield rose by 71 bps to 5.07%, while the average spread contracted by 42 bps to 297 bps due to a higher rise in international benchmark yields on US Federal Reserve tapering concerns. As to the cost of insuring debt, Lebanon’s five-year CDS spread shrank by circa 60 bps to 390 bps.



WEEK 52

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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