As Lebanon’s credit rating improves, its largest bank is in a strong position to grow its regional presence.
While the expansion of Gulf-based financial institutions into the wider Middle East markets such as Egypt, Jordan and the Levant, along with neighbouring GCC countries, attracts the most attention, Banque Audi already has an enviable presence throughout the region.
However, the unstable political situation and fragile Lebanese economy have held the bank back from achieving its full potential, despite the resilience of the country’s banking system. As the political situation improves and ratings agencies lift their outlook for the economy, Banque Audi could be in a good position to drive itself forward and expand its regional presence.
Date established: 1962
Main business sector: Banking
Main business regions: Lebanon
Profit: $148m (2007)
Chief executive officer: Samir Hanna
The bank embarked on a major restructuring in the mid-1990s, intended to widen its branch network, modernise its IT and banking systems, and diversify towards retail banking, private banking, investment banking and capital markets activities. This also involved some rationalisation of the domestic network, with each branch being placed into one of three groups - retail, commercial or corporate - to simplify management.
Another aspect of the restructure was setting targets for earnings and asset growth to exceed both the Lebanese banking sector and regional banking peers. It also involved more than doubling the number of branches in Lebanon to 78, giving it one of the largest networks in the country, the launch of insurance company Libano Arabe Insurance, and a $600m capital increase to $1.6bn, making it the largest bank in the country. Despite the expansion that has been under way, the bank has managed to reduce its cost income ratio to 45 per cent.
At a board level, the bank has adopted international corporate governance best practice standards and a more flexible management structure in the country and business lines, to give better communication across similar business lines in different markets.
The merger of Banque Audi and Banque Saradar in 2004 increased the bank’s assets by 48 per cent and its profits by 32 per cent, making Audi the largest bank in Lebanon by asset size.
Audi has one of the most geographically well-established networks in the region, with a presence in Jordan, Syria, Saudi Arabia, Egypt, Sudan, Qatar and the UAE, in addition to its home market. It also has a private banking arm in France and Switzerland.
This is partly the result of a recently launched aggressive expansion strategy that has led the bank to make a series of acquisitions and successful licence applications. In early 2006, it acquired Cairo Far East Bank, followed later in the year by the acquisition of National Bank of Sudan. Investment bank Audi Saudi Arabia was established in early 2007, with the Qatari presence established in March 2008, enabling the bank to capitalise on the country’s growing project finance and Islamic finance sectors.
The declining value of government treasury bills has been a cause of concern for all Lebanon’s banks, given the size of their holdings. However, the recent improvement in the country’s economic outlook from negative to stable by ratings agency Moody’s Investors Service has had a direct impact on Audi’s rating, which had been constrained by the overall country rating.
The bank has ambitious expansion plans, although the political instability in Lebanon threatens its ability to capitalise on them. The bank has ended rumours that 23 per cent shareholder EFG-Hermes, the Egyptian investment bank, backed out of merger talks because of the political risk, but it shows that these factors are still an issue, despite Audi’s continued good performance through testing periods.
Audi is hoping to grow its capital markets business in the GCC, which trades primarily through its Audi Saudi Arabia operation, and new offices in the region will play a key role in this, particularly establishing a presence in Dubai and Abu Dhabi. Currently, the bank’s assets are split between about 70 per cent held in Lebanon and 30 per cent in its other markets. Audi is now targeting a much more balanced split between its domestic and foreign markets, and wants to achieve this by 2011.
New markets that have been identified for expansion include Algeria, Tunisia, Yemen and Iraq’s northern Kurdistan area, in addition to the continued expansion in existing markets with high growth potential such as Egypt and Saudi Arabia.
Profit for 2007 - $148.1m
Profit for 2006 - $121.5m
Shareholder equity 2007 - $1.7bn
Shareholder equity 2006 - $1.5bn
Source: Banque Audi
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