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Your Investment Reference
THE
LEBANON BRIEF
ISSUE 847
Week of 02 – 07 December, 2013
ECONOMIC RESEARCH DEPARTMENT
Rashid Karame Street, Verdun Area
P.O.Box 11-1540 Beirut, Lebanon
T (01) 747802 F (+961) 1 737414
www.blom.com.lb
S A L
The Lebanon Brief Table Of Contents Page 2 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
TABLE OF CONTENTS
FINANCIAL MARKETS 3
Equity Market 3
Foreign Exchange Market 5
Money & Treasury Bills Market 5
Eurobond Market 6
ECONOMIC AND FINANCIAL NEWS 7
IMF Lowers Lebanon’s Real GDP Growth Projection to 1.5% in 2013 7
BDL’s Total Assets Slip by 0.7% to $78.29B up to November 7
BLOM Lebanon Purchasing Managers’ Index (PMI) Declines to 45.1 in November 8
Lebanon Ranks 127th on the Corruption Perception Index 2013 8
Consumer Confidence Index (CCI) falls to 51 points in November 9
BDL Gathers Data on Foreign Direct Investment (FDI) 9
CORPORATE DEVELOPMENTS 10
Bank Audi S.A.E’s Profit Rose to $42.32M up to September 10
ODEABANK Posts a Loss of $54.63M up to September 10
FOCUS IN BRIEF 11
Lebanon's Insurance Sector Struggles amid Sluggish Economy 11
This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be
reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a
solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on
the basis of information contained herein are solely the responsibility of the recipient.
The Lebanon Brief Page 3 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
FINANCIAL MARKETS
Equity Market
Stock Market
6/12/2013 29/11/2013 % Change
BLOM Stock Index* 1,154.06 1,160.66 -0.57%
Average Traded Volume 39,328 82,155 -52.13%
Average Traded Value 683,270 904,517 -24.46% *22 January 1996 = 1000
The uncertainty surrounding security clashes in the
Northern city of Tripoli in addition to the delay in the
formation of a new cabinet continued to weigh negatively
on investors’ sentiment. This was reflected by a lower
trading activity on the Beirut Stock Exchange (BSE)
during the past week, with the daily average volume
reaching 39,328 shares worth $683,270 compared to last
week’s average daily volume of 82,155 shares, worth
$904,517.
The BLOM Stock Index (BSI) that tracks listed equities
on the BSE, reached a high of 1,159 on Wednesday 04
December but closed at its lower band of 1,154.06 points
on Friday 06 December, registering a 0.57% decline from
the previous week. As for the market capitalization, it fell
by $52.78M to reach $9.24B.
When comparing to regional and emerging markets, the
Lebanese equity benchmark outperformed the MSCI
Emerging Index that dropped by 1.34% to close by Friday
at 998.45 points. S&P Pan Arab Composite LargeMidCap
index retreated by 0.12% to 129.67 points, while the S&P
AFE40 edged up by a weekly 0.29% to 62.48 points.
Egypt, Abu Dhabi and Dubai bourses topped Arab
markets this week posting respective increases of 2.39%,
2.33% and 2.29%. In contrast, Saudi Arabia and Bahrain
were the biggest losers this week with drops of 0.98% and
0.91%, respectively.
Banking stocks weighed the most on the BSE’s activity,
accounting for 69.95% of the total value traded. In details,
Audi and Byblos listed stocks declined 1.27% and 1.90%
to $6.21 and $1.55, respectively.
BLOM Preferred Shares Index (BPSI) inched 0.02% up to
105.17 points, helped by an increase in BEMO preferred
shares 06 and Byblos preferred shares 09 that added
0.50% and 0.10% to $100.50 and $101.10, respectively.
On the London Stock Exchange, BLOM and Audi’s GDR
shares slipped by 0.56% and 1.44% to close at $8.80 and
$6.50, respectively. Solidere A shares also decreased by
0.71% to close at $11.17.
Banking Sector
Mkt 6/12/2013 29/11/2013 %Change
BLOM (GDR) BSE $8.80 $8.80 0.00%
BLOM Listed BSE $8.25 $8.25 0.00%
BLOM (GDR) LSE $8.80 $8.85 -0.56%
Audi (GDR) BSE $6.73 $6.73 0.00%
Audi Listed BSE $6.21 $6.29 -1.27%
Audi (GDR) LSE $6.50 $6.60 -1.44%
Byblos (C) BSE $1.55 $1.58 -1.90%
Byblos (GDR) LSE $71.00 $71.00 0.00%
Bank of Beirut (C) BSE $19.00 $19.00 0.00%
BLC (C) BSE $1.95 $1.95 0.00%
Fransabank (B) OTC $28.00 $28.00 0.00%
BEMO (C) BSE $1.84 $1.84 0.00%
Mkt 6/12/2013 29/11/2013 %Change
Banks’ Preferred
Shares Index *
105.17 105.15 0.02%
BEMO Preferred 2006 BSE $100.50 $100.00 0.50%
Audi Pref. E BSE $102.50 $102.50 0.00%
Audi Pref. F BSE $102.50 $102.50 0.00%
Byblos Preferred 08 BSE $100.00 $100.00 0.00%
Byblos Preferred 09 BSE $100.00 $100.00 0.00%
Bank of Beirut Pref. E BSE $100.50 $100.50 0.00%
Bank of Beirut Pref. I BSE $101.10 $101.00 0.10%
Bank of Beirut Pref. H BSE $26.00 $26.00 0.00%
BLOM Preferred 2011 BSE $26.00 $26.00 0.00%
* 52 August 2006 = 100
1050
1100
1150
1200
1250
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
BLOM Stock Index HI: 1,227.46
LO: 1104.42
The Lebanon Brief Page 4 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
Real Estate
Mkt 6/12/2013 29/11/2013 % Change
Solidere (A) BSE $11.26 $11.34 -0.71%
Solidere (B) BSE $11.28 $11.44 -1.40%
Solidere (GDR) LSE $11.17 $11.25 -0.71%
The political tensions in the north of the country
weighed negatively on the performance of Solidere
stocks with Solidere Class A declining by 0.71% to
$11.26, while its B counterpart retreated by 1.40% to
$11.28.
Manufacturing Sector
Mkt 6/12/2013 29/11/2013 % Change
HOLCIM Liban BSE $14.48 $14.48 0.00%
Ciments Blancs (B) BSE $3.25 $2.90 12.07%
Ciments Blancs (N) BSE $3.24 $3.24 0.00%
With respect to the manufacturing sector, Ste Ciments
Blancs class B shares jumped 12.07% to $3.25.
Looking forward, the BSE’s activity is likely to remain
slow as investors will maintain their wait and see
approach, hoping that the recent calm down in the
northern part of the country brings some positive vibes
to the stock market.
Funds
Mkt 6/12/2013 29/11/2013 % Change
BLOM Cedars Balanced
Fund Tranche “A” ----- $6,961.13 $6,956.01 0.07%
BLOM Cedars Balanced
Fund Tranche “B” ----- $5,073.29 $5,067.24 0.12%
BLOM Cedars Balanced
Fund Tranche “C” ----- $5,287.03 $5,283.14 0.07%
BLOM Bond Fund ----- $9,724.12 $9,724.12 0.00%
Retail Sector
Mkt 6/12/2013 29/11/2013 % Change
RYMCO BSE $3.50 $3.50 0.00%
ABC (New) OTC $33.00 $33.00 0.00%
Tourism Sector
Mkt 6/12/2013 29/11/2013 % Change
Casino Du Liban OTC $480.00 $480.00 0.00%
SGHL OTC $7.00 $7.00 0.00%
The Lebanon Brief Page 5 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
Foreign Exchange Market
Lebanese Forex Market
6/12/2013
29/11/2013
%Change
Dollar / LP 1,508.00 1,505.00 0.20%
Euro / LP 2,060.30 2,051.41 0.43%
Swiss Franc / LP 1,682.48 1,665.19 1.04%
Yen / LP 14.75 14.74 0.07%
Sterling / LP 2,465.97 2,460.69 0.21%
NEER Index** 128.10 128.16 -0.05%
*Close of GMT 09:00+2 **Nominal Effective Exchange Rate; Base Year Jan 2006=100
**The unadjusted weighted average value of a country’s currency relative to all major
currencies being traded within a pool of currencies.
Demand for the US dollar edged up over the past week as the range at
which banks exchanged the currency went from $/LP 1,503 -$/LP
1,507, with a mid-price of $/LP1, 505 to $/LP 1,506- $/LP 1,510 with
a mid-price of $/LP 1,508. Foreign assets (excluding gold) at the
Central Bank stood at $35.49B as of end November compared to
$35.63B as of end October. Meanwhile, the dollarization rate of
private sector deposits steadied at 65.7% in September.
Nominal Effective Exchange Rate (NEER)
The euro recorded yet another gain against the dollar as investors do
not foresee any further cuts in the European Central Bank’s rate.
Confidence in the euro is also being boosted by reports showing that
the Eurozone’s inflation is trending upwards.
By Friday December 06th, 2013, 12:30 pm Beirut time, the euro
closed at €/$ 1.37 up by a weekly 0.43%. As for the dollar-pegged LP,
it depreciated to €/LP 2,060.30 from €/LP 2,051.41 recorded on
November 29th. The Nominal effective exchange (NEER) slipped by
0.05% over the cited period to 128.10 points, while its year-to-date
performance stood at 23.40%.
Money & Treasury Bills Market
Money Market Rates
Treasury Yields
6/12/2013 29/11/2013 Change bps
3-M TB yield 4.39% 4.39% 0
6-M TB yield 4.87% 4.87% 0
12-M TB yield 5.08% 5.08% 0
24-M TB coupon 5.84% 5.84% 0
36-M TB coupon 6.50% 6.50% 0
60-M TB coupon 6.74% 6.74% 0
6/12/2013 29/11/2013 Change bps
Overnight Interbank 2.75 2.75 0
BDL 45-day CD 3.57 3.57 0
BDL 60-day CD 3.85 3.85 0
During the week ending 21st of November, broad Money M3
increased by LP212B ($141M), to reach LP 164,693B
($109.25B).M3 growth rate reached 6.32% on a year-on-year basis
and 4.28% from end of December 2012. As for M1, it fell by LP87B
($58M) due to the downturn of LP116B ($77M) in currency in
circulation and the LP29B ($19M) rise in demand deposits. Total
deposits (excluding demand deposits) grew by LP299B ($198M),
given the LP141B rise in term and saving deposits in domestic
currency and the $105M growth in deposits denominated in foreign
currencies. Over the above mentioned period, the broad money
dollarization rate edged up from a previous 59.05% to reach 59.07%.
According to the Central Bank, the overnight interbank rate stood at
2.75% at the end of September 2013.
In the TBs auction held on November 28th, the Ministry of Finance
raised LP161B ($107M) through the issuance of 1 Year (1Y), 2Y and
3Y Treasury Bills. The highest demand was witnessed on the 3Y
notes, capturing 62% of total subscriptions, while the 1Y and 2Y
notes captured respective shares of 14% and 24%. The average
discount rate for the 1Y notes stood at 5.08% while the coupon rate
for the 2Y and 3Y notes registered 5.84% and 6.50%, respectively.
Maturing T-bills exceeded new subscriptions by LP11B ($7M).
99
104
109
114
119
124
129
134
Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13
The Lebanon Brief Page 6 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
Eurobond Market
Eurobonds Index and Yield
50/21/2013 12/22/2013 Change Year to Date
BLOM Bond Index (BBI)* 105.480 105.463 0.02% -3.28%
Weighted Yield** 5.72% 5.73% -1 70
Weighted Spread*** 434 447 -13 4
*Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market
** The change is in basis points ***Against US Treasuries (in basis points)
Lebanese Government Eurobonds
Maturity - Coupon
50/21/2013
Price*
12/22/2013
Price*
Weekly
Change%
50/21/2013
Yield
12/22/2013
Yield
Weekly
Change bps
2014, Apr - 7.375% 101.16 101.20 -0.03% 4.05% 4.13% -8
2014, May - 9.000% 101.97 102.06 -0.10% 4.07% 4.07% 0
2015, Jan - 5.875% 101.43 101.42 0.01% 4.54% 4.57% -3
2015, Aug - 8.500% 106.26 106.25 0.01% 4.55% 4.60% -5
2016, Jan - 8.500% 107.60 107.48 0.12% 4.69% 4.78% -9
2016, May - 11.625% 114.99 115.36 -0.32% 5.00% 4.90% 10
2017, Mar - 9.000% 111.24 111.35 -0.10% 5.23% 5.22% 2
2018, Jun - 5.150% 99.25 99.41 -0.16% 5.34% 5.30% 4
2020, Mar - 6.375% 101.40 101.15 0.25% 6.10% 6.15% -5
2021, Apr - 8.250% 111.27 111.28 0.00% 6.31% 6.31% 0
2022, Oct - 6.100% 97.16 97.06 0.11% 6.53% 6.54% -2
2023, Jan - 6.00% 96.02 96.07 -0.06% 6.59% 6.58% 1
2024, Dec - 7.000% 102.06 101.98 0.08% 6.73% 6.74% -1
2026, Nov - 6.600% 98.25 98.21 0.04% 6.80% 6.81% 0
2027, Nov - 6.75% 98.45 98.29 0.17% 6.92% 6.94% -2
*Bloomberg Data
The Lebanese Eurobonds market extended its timid upward trend this week with the BLOM Bond Index (BBI) inching up by 0.02% to
105.48 points, pushing its year to date negative performance down to 3.28%. Furthermore, the BBI outperformed the JP Morgan emerging
markets’ bond index that slipped by 0.70% to 619.83 points. The BBI’s progress is mainly attributed to an increasing demand for short
term maturities as the 5Y and 10Y yields on the Lebanese Eurobonds increased by weekly 4 basis points (bps) and 1 bp to 5.34% and
6.59%, respectively.
In the U.S, expectations of the Fed starting the tapering of its financial stimulus were on the rise on positive job data. Accordingly, the
economy’s credibility improved pushing investors away of safe assets market in favor of stock markets. 5Y and 10Y Treasury yields rose
by 13 bps and 14 bps to 1.49% and 2.88%, respectively. 5Y and 10Y spreads between the Lebanese Eurobonds and U.S benchmarks
narrowed by 9 bps and 13 bps to stand at 385 bps and 371 bps, respectively.
Lebanon’s credit default swap for 5 years (CDS) was last trading at 392-418 bps, slightly lower than last week’s quote of 395-425 bps. The
5Y spread between the Lebanese Eurobonds and their U.S benchmark stood lower than the 5Y Lebanese CDS as the decline in U.S
Treasuries was tracked by a minor drop in 5Y Lebanese Eurobonds performance narrowing the spread between the two instruments. In
regional markets, Saudi Arabia and Dubai CDS quotes widened by an average of 2 bps and 17 bps to 59-65 bps and 227-237 bps,
respectively. As for emerging economies, insurance premiums against state-debt default in Brazil tightened to 202-205 bps from its
previous weekly quote of 203-207 bps, while Turkey’s 5Y CDS broadened to 212-214 bps from last week’s quote of 206-210 bps.
4.50%
5.00%
5.50%
6.00%
6.50%
Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13
Weighted Effective Yield of Eurobonds
The Lebanon Brief Page 7 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
ECONOMIC AND FINANCIAL NEWS
IMF Indicators For Lebanon
Indicators 2013P 2014P
Real GDP (Annual Growth) 1.5% 1.5%
Current Account Balance (% of GDP) -16.7% -16.7%
Overall Fiscal Balance -10.4% -11%
Inflation (Annual Growth) 6.3% 3.1%
Source: Regional Economic Outlook, November 2013
BDL’s Foreign Assets
Up to November (In $B)
Source: Banque Du Liban
IMF Lowers Lebanon’s Real GDP Growth Projection to
1.5% in 2013
In its latest Regional Economic Outlook report (REO), the IMF
released revised economic indicators for both oil-importing and oil-
exporting countries in light of the challenges faced by each category.
The macroeconomic framework of oil importing countries will continue
to suffer from the violent political transitions which are depleting
foreign reserves and widening current account balances. As for
Lebanon, the real GDP growth projection has been revised down from a
previous 2% to 1.5% in 2013, below the MENA’s 2.1%, the oil
importers’ 2.8% and the 2.9% for Arab countries in Transition
(excluding Libya). The influx of Syrian refugees is expected to pressure
Lebanon’s fiscal position with the fiscal deficit representing 10.4% of
GDP in 2013 and 11% in 2014, the second-highest ratios amongst oil
importers after Egypt. Disruptions to trade routes are expected to
subdue the growth in exports while higher demand from the Syrian
refugees is likely to inflate imports. Exports of goods and services are
estimated to increase by 1.52% from $26.3B in 2013 to $26.7B in 2014
while imports of goods and services will rise by 3.04% from $36.1B in
2013 to $37.2B in 2014. Meanwhile, oil exporting countries are set to
maintain their strong economic performance but they face several
challenges over the medium term. The vulnerability of government
budgets to falling oil prices is likely to increase with the share of the
fiscal surplus in GDP falling from 4.2% in 2013 to 3% in 2014.
External buffers are also declining with the share of the current account
surplus in GDP slipping from 13.9% in 2013 to 12.4% in 2014. As for
job creation, structural reforms aiming at encouraging private sector
employment for nationals need to be implemented.
BDL’s Total Assets Slip by 0.7% to $78.29B up to
November
According to the Central Bank’s (BDL) balance sheet, total assets slid
by a monthly 0.7% to reach $78.29B by end-November, mainly on
account of the lower value of gold reserves. The latter declined by a
monthly 6.2% to $11.50B while other foreign assets shed a marginal
0.4% to $35.49B. The value of gold reserves is following the
downward trend of the metal’s international prices, especially as signs
of a slow but steady economic recovery in the US are in favor of the
dollar. Meanwhile, loans to the local financial sector rose by 3%
month-on-month to $2.19B and the securities portfolio remained
unmoved at $12.03B. On the liabilities side, currency outside BDL and
financial sector deposits declined by 1.2% and 0.6% to $2.55B and
$56.81B, respectively. As for public sector deposits, they rose by 7.6%
to $7.61B.
27.21 30.81
32.31 35.68 35.49
2009 2010 2011 2012 2013
The Lebanon Brief Page 8 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
Index Summary
Date PMI New
Orders Output Employment
Delivery times
Stocks of Purchases
Sep-13 47 43 45 50.5 48.9 51.3
Oct-13 49.1 47.2 48.3 50.1 49.7 53
Nov-13 45.1 40.3 41.6 50.2 49.6 50.2
Source: markit, Blominvest Bank
Corruption by Region
MENA
Eastern Europe &
Central Asia
Sub-Saharan
Africa Americas
% countries with below 50 scores 84 95 90 66
Top UAE Turkey Botswana Canada
Bottom Sudan Uzbekistan Somalia Haiti
Source: Transparency International
BLOM Lebanon Purchasing Managers’ Index (PMI)
Declines to 45.1 in November
BLOM Lebanon PMI (Purchasing Managers’ Index) posted below the
50-mark separating economic expansion from contraction, registering
45.1 in November compared to 49.1 in October and 47.0 in September.
This marked contraction was worsened by the twin-bombings that took
place during November. The rate of contraction picked up to the
quickest in three months, driven by sharp declines in output, new
orders and by the fall of new export orders. The PMI which is based on
a monthly survey of business conditions in the Lebanese private sector
is calculated as a weighted average of five individual sub-components:
New Orders (30%), Output (25%), Employment (20%), Suppliers’
Delivery Times (15%) and Stocks of Purchases (10%). In detail, new
orders placed at Lebanese private sector companies and the output of
these companies slid further down in November due to the ongoing
political and economic instability. Moreover, client demand from
foreign markets eased in November with 10% of the panelists
indicating a drop in new export business. The employment index
registered close to the neutral 50.0 threshold, with respondents
indicating unchanged workforce numbers. As for the volume of
outstanding business at private sector companies, it fell for the sixth
consecutive month in November, albeit at the slowest pace in the
current sequence. Despite a slight increase in input costs, the output
prices index fell from 49.8 in October to 48.2 in November as increased
market competition compelled companies to reduce their prices.
Lebanon Ranks 127th on the Corruption Perception Index
2013
Lebanon was ranked 127th among 177 countries on the Corruption
Perception Index (CPI). Lebanon’s score of 28 was surpassed by that of
Qatar, Bahrain, Saudi Arabia, Jordan and Egypt, equaled that of Russia
and was higher than that of Syria and Yemen. The CPI measures the
perceived levels of public sector corruption in 177 countries
worldwide, scoring them from 0 (highly corrupt) to 100 (very clean).
More than two-thirds of the selected countries scored less than 50 and
no country registered a perfect score, results which truly undermine the
economic efficiency of governments around the world. The lowest
levels of corruption were registered in Denmark, New Zealand and
Finland with respective scores of 91, 91 and 89 while the most
corrupted countries with a score of 8 each were Afghanistan, North
Korea and Somalia. In the MENA region, 84% of the countries scored
below 50, the UAE were the least corrupt and Sudan was at the bottom
of the regional ranking.
The Lebanon Brief Page 9 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
CCI Levels
Source: ARA Marketing Research and Consultancy
FDI Inflows and Outflows (In $B)
Source: Institute of International Finance
Consumer Confidence Index (CCI) falls to 51 points in
November
According to ARA Marketing Research and Consultancy, the
Consumer Confidence Index (CCI) tumbled by a monthly 20 points to
reach an all-time low of 51 points in November. This drop was
aggravated by the twin suicide-bombings that occurred during the
month as shown by the 43 points fall in the Security Situation Index to
47 points. The only sub-index to have avoided a downturn is the
Current Economic Situation Index which stood at 86 points in
November compared to 77 points in October. However the sub-
component still didn’t fully recover from the 22 points slip it registered
back in October. In fact, consumer confidence remains precarious with
the Current and Expected Personal Income sub-indices losing 23 points
and 30 points to settle at 56 points and 40 points in November,
respectively. Consumers’ future outlook also seems bleak due to the
ongoing political deadlock and repeated security incidents with the
Expected Economic Situation Index slipping by 1 point to 45 points
and with the Purchase of Durable Goods Index plunging by 26 points
to 120 points.
BDL Gathers Data on Foreign Direct Investment (FDI)
Lebanon’s Central Bank (BDL) recently issued a circular urging banks,
resident financial institutions and all financial intermediation
institutions starting 2014 to fill the Coordinated Direct Investment
Survey-CDIS at the end of each year, by no later than the 31st of July.
The aim of the survey, coordinated by the International Monetary Fund,
is to compile foreign direct investment in Lebanon, that is, data on
direct investments made in Lebanon by non-residents and those made
by residents outside of Lebanon. Tracking the growth in FDI flows is
primordial for measuring their impact on the Lebanese economy. This
endeavor is in line with the IMF’s recommendations for Lebanon in
terms of improving the balance of payments and international
investment statistics.
79
65 66
89
68
51
68
51
72 71
51
4.8 4.3
3.5
1.1 1.1 0.487 0.745
0.65
2009 2010 2011 2012
FDI Inflows FDI Outflows
The Lebanon Brief Page 10 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
CORPORATE DEVELOPMENTS
Bank Audi (S.A.E) Financial Highlights (In $B)
Sept 2013 Dec 2012 change
Customer's deposits 2.70 2.32 17%
Net Loans & advances to
customers 1.42 1.34 6%
Total assets 3.09 2.70 14%
Total Shareholders’
Equity ($M) 301.17 265.74 13%
Net Profit ($M) 42.32 25.69(*) 65%
(*): Value of September 2012
ODEABANK Financial Highlights
Sept 2013 Dec 2012 change
Customer's deposits 5.07 1.26 3.81
Net Loans & advances to
customers 4.29 0.87 3.42
Total assets 6.72 1.82 4.9
Total Shareholders’
Equity ($M) 473.18 256.91 216.27
Net Loss ($M) -54.63 - -
Source: Company Data
Bank Audi S.A.E’s Profit Rose to $42.32M up to
September
Bank Audi S.A.E, the bank’s Egyptian subsidiary, recorded a profit of
$42.32M up to September, a 65% year-on-year (y-o-y) increase. In
detail, net interest income and net income from fees and commissions
increased by 15% and 9% to reach $75.89M and $16.91M, respectively.
As for total assets, they increased by 14% y-t-d to $3.09B as loans and
facilities to customers rose by 6% to $1.42B. On the liabilities side,
customers’ deposits and total shareholders’ equity registered y-t-d
upturns of 17% and 13% to $2.70B and $301.17M, respectively.
ODEABANK Posts a Loss of $54.63M up to September
Due to heavy operating expenses linked to a still nascent expansion in
Turkey, ODEABANK, Bank Audi’s Turkish subsidiary posted a loss of
$54.63M as of September’s end. As for total assets, they rose from
$1.82B in December 2012 to $6.72B up to September especially since
loans and facilities to customers increased over the same period from
$865.84M to $4.29B. On the liabilities side, customers’ deposits and
total shareholders’ equity surged from $1.26B and $256.91M in
December 2012 to $5.07B and $473.18M up to September 2013.
The Lebanon Brief Page 11 of 14
ISSUE 847; Week of 02 - 07 December 2013
S A L
41.87%
15.23%
27.64%
8.95% 3.30%
1.61% 0.85% 0.54%
Claims Composition
Medical Life Motor Fire Workmen Other Cargo Public Liability
FOCUS IN BRIEF
Lebanon's Insurance Sector Struggles amid Sluggish Economy
Premiums and Claims Compositions in H1 2013
Source: ACAL
As one of the most resilient economic sectors in Lebanon, insurance industry kept on defeating the regional and domestic developments
that mounted in 2013. In details, the geopolitical uprisings of the war in Syria, the Euro zone recession's spillovers as well as the local
political stalemate amid an absence of a new Cabinet formation hindered the steady growth of the insurance sector in Lebanon but couldn’t
cease it. Even though several economic sectors were hit by the rocky domestic market, both insurance and banking sectors succeeded to
show a satisfactory performance since the beginning of the year.
Lebanon ranked 48th globally and 2nd in the MENA region in terms of insurance penetration rate, according to the latest report published by
Swiss Re, a leading global reinsurer. Lebanon’s insurance sector was closely behind Morocco which stood at the 47th place and ahead of
Jordan (54th) and UAE (58th), Saudi Arabia (80th), Egypt (81th), Syria and Iraq.
Lebanon’s 2012 market penetration rate was estimated by Swiss Re at 2.85% of the Gross Domestic Product (GDP) standing below 2011's
figure of 2.9%. Yet, the sector's contribution in 2012 to the country’s economic growth (represented by the penetration rate) remained
relatively bigger than the 2.8% recorded in 2010. In more details, 2012 insurance penetration rate for non-life business was 2.02%, while
life segment grasped the remaining 0.83%.
Lebanon is also well positioned in terms of insurance density that reached $301.9 in 2012 relative to $289.8 in 2011. Accordingly, an
average of $301.9 was spent on insurance by each resident this year, revealing an improving population’s consciousness of the primordial
need of insurance protection that used to be extensively considered as a secondary necessity. Moreover, Lebanon’s insurance density
ranked 5th among the MENA countries and captured the 51st place globally, behind Kuwait (ranked 48th globally) and ahead of Oman
(ranked 54th globally).
Insurance market in Lebanon is characterized by its small size and the presence of several players. The sector counts over 50 companies
with several international and regional businesses. On a comparative scale, the market size of the Lebanese insurance sector remains
relatively small compared to other regional countries, as it accounted for 5.3% of the MENA region in 2012, versus 29.5% for the UAE
and 19.9% for Saudi Arabia.
The Lebanese insurance sector benefits from a high degree of competitiveness. AROPE Insurance sources explained that several
companies were adopting aggressive pricing strategies; while others are betting on their excellence in Customer Service, better interest
rates for investment plans and loyalty programs. In addition, several insurance companies are bank-owned which is allowing them to
benefit from an additional advantage as branches are supplementary Point of Sales (POS) handling a wide geographic scope.
Bancassurance products allowed customers to simplify the management of their financial needs on one hand, and fastened the companies’
ability to promote their products and boost their insurance premiums on the other hand.
32.56%
27.18%
21.90%
7.44%
3.02% 4.06%
2.39%
1.45%
Premiums Composition
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118,771
150,333
185,383 200,852
2010 2011 2012 2013
Several barriers to growth still exist and need to be eliminated. First, the presence of several players isn’t always profitable to the market
given its small size and the fact that the majority of adherent companies found no barriers to entry given the low capital requirement of
$1.5M. Therefore, the sector is suffering from an unclear regulatory frame with several laws held at the legislative level reducing the
industry’s effectiveness. Second, several challenges pushed numerous insurance companies to hedge their risk portfolio via the reinsurance
scheme. This explains the proliferation of brokers and intermediaries in Lebanon that amounted to 1,626 companies by the end of 2011
according to the Insurance Control Commission annual report.
As for the top five non-life insurers, MEDGULF maintained its leading position and topped the list in 2012 with approximately $100M
non-life premiums and was tracked by AXA M.E. in the second place with $84M. BANKERS came third with total non-life premiums of
$83.7M, while LIBANO SUISSE and AROPE ranked fourth and fifth with respective $72M and $55M.
Although the regional tensions had their impact on Lebanon, the insurance sector continued to register a decent growth, yet a decelerating
one. Total premiums rose by an annualized 7.4% in the first half of 2013 compared to a 17.2% and 9.4% growth rates recorded in the first
half 2011 and 2012, respectively. In fact, premiums reached $739.02M by End June compared to $688.29M in 2012. This value is almost
at half Business Monitor International’s (BMI) forecast of $1.41B worth of premiums at end of December 2013. BMI’s forecast may not
be reached if the second half’s developments burdened the sector’s performance. In addition, BMI expected a 9% increase in total life
premiums to attain $411M by the end of 2013, while we are still at 8.3% at mid-year.
On the claims level, total indemnities paid to beneficiaries reached $333.32M according to ACAL, jumping by 12.5% in H1 2013
compared to the same period in 2012.
Cultural Resistance, Social and financial factors keep on weighing over life insurance progress in Lebanon. Worth noting that life
insurance isn’t a legal requirement and has no current benefits which gives the priority to other insurance segments in Lebanon such as
motor and medical insurance. When comparing to other countries, the aforementioned division remains scarcely exploited with its market
share standing at 27.2% by June 2013, and at 29.1% as at end December 2012. Luxembourg, Ireland and Hong Kong were the leading
countries in terms of life insurance share of total premiums in 2012, grasping respective stakes of 88.7%, 83.8% and 88.6%.
Yet, the growing awareness for savings’ importance and future protection increased the number of licensed companies under Lebanese
Law to carry-out life insurance operations to 34 establishments. Life insurance stake during the first six months of 2013 was relatively
higher than 2012’s stake of 26.9%. According to ACAL statistics, total premiums for life insurance increased by 8.3% y-o-y to reach
$200.85M as at June end, with 84.6% of contracted agreements relating to life protection but contributing to 42.1% only of total value.
This rise is partially attributed for life insurance standing as a major condition for banks to grant loans especially housing loans.
Meanwhile, 57.9% of total life premiums came from savings’ insurance on a lower number of contracts. Total paid claims in life insurance
amounted to $50.77M by June 2013, slipping by 6.2% y-o-y compared to last year’s similar period.
Total Non-Life Premiums by June Total Life Premiums by June ((In $, 1/1000)
(In $, 1/1000) (In $, 1/1000)
Source: ACAL
417,738
478,661 502,910
538,169
2010 2011 2012 2013
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The non-life insurance businesses showed a 7.0% yearly improvement during the first 6 months of 2013, representing 72.8% of total
premiums compared to 73.1% in 2012, with medical insurance and motor insurance leading divisions. Total non-life premiums stood at
$538.17M by June 2013, while non-life claims jumped 16.6% y-o-y to reach $242.28M.
Medical insurance, which accounts for 44.7% of the non-life sector and 32.6% of the total sector, witnessed growths in both premiums and
claims following the increasing hospitalization fees. Accordingly, premiums reached $240.64M million by June, rising by an annual 11%,
resulting of respective 11.0% and 7.0% yearly increases in premiums of medical and expatriates’ accounts. The progress of this division
was supported by the low portion of population that benefits from the National Social Security Fund (NSSF) scheme. The medical
insurance took up 41.9% of total claims by June 2012 reaching $139.55M and growing by 13.0% on higher medical costs.
Motor insurance in Lebanon barely moved in the first six months of 2013, recording a 1% increase to $161.85M. The growth in the
mentioned line of business was mainly attributable to the rise in motor non-compulsory premiums (accounting for 85.0% of total motor
premiums) by 3% y-o-y to $137.712M that offset the 11% yearly decline in the compulsory segment to $24.14M. As for claims, total paid
claims up to June 2012 rose 4% to $92.13M contributing to 27.6% of total claims in the sector, the second highest contribution after
medical insurance.
The motor section was hardly hit by the Syrian influx to Lebanon as many Syrian cars were uninsured despite the Syria, Jordan and
Lebanon arrangement to oblige motorists to buy liability insurance policy in order to cross borders. In addition, the orange card insurance
scheme between most of Arab Countries only “covers damages to third parties caused by accidents occurred from insured vehicles
according to the compulsory insurance laws of each participating country.” As a market leader in Motor non-compulsory insurance,
AROPE Insurance explained that premiums haven’t increased following the Syrian influx to the country as no new laws were implemented
to cover the material damages; only bodily injuries are concerned. On the claims side, AROPE declared that Syrian refugees aren’t insured
in Lebanon forcing companies to pay additional claims without being able to recover them.
Net investment income to the insurance sector edged 2.0% up to reach $54.17M up to the 2nd quarter of 2013. Around 72.4% generated by
net income from life related investments growing by 6% to $39.24 million. Net income from non-life investments has generally seen a
drop especially in the most heavy-weighted divisions, with net income from investment in medical and motor recording each a double digit
yearly decline of 10% to $4.45M and $5.77M, respectively.
Regarding Takaful scheme, the Islamic alternative to insurance that complies with Sharia rules, it is still timidly present on the Lebanese
insurance market with only one company operating in the field. The system is underexploited due to the lack of public awareness, a shy
demand, as well as the shortage in well-trained specialists.
To sum up, Lebanon’s insurance sector kept on posting profits and maintained its strong position despite the continuous domestic and
regional uprisings, yet at a slower pace. The industry’s overall development could show better results in the future after the implementation
of several reforms. Public awareness of the sector’s importance should be enhanced, strengthening the existing underdeveloped divisions,
reinforcing the actual regulatory system as well as investing in many new lines of business like political risk or unemployment insurances.
The Lebanon Brief
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Your Investment Reference
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Research Department:
Riwa Daou [email protected]
Mirna Chami [email protected]
Marwan Mikhael [email protected]