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Background
Bank Audi’s heritage rests on 175 years of banking tradition and experience. The origins of the Bank are rooted in Sidon, South Lebanon, when Hanna Audi inherited his father's exchange business in 1830. However, it was not until 1938 that the first branch of the Bank was established in Beirut. In 1962, the Bank was incorporated under its present form and was named "Banque Audi sal", and its shareholders' base was opened up, for the first time, to Lebanese and Arab nationals.
In the mid-1990s, the Bank floated part of its capital through two GDR issues on international markets (in 1995 and 1997). The GDR issues, presently listed on the London Stock Exchange, were the first of such an instrument in the Middle East and marked the first international public equity issues by a Lebanese institution. The capital base was further reinforced in mid 2001, following the merger with Lebanon Invest which enjoys an important shareholder base of renowned Arab and Gulf investors. In 2002, the Bank successfully closed a capital increase of US$ 100 million on local and regional financial markets, through a preferred share issue, consolidating further the Bank’s shareholder base and allowing it to ensure a larger coverage and a more significant support to its customers at large. In 2004, the Bank closed another US$ 100 million preferred share issue, in addition to a US$ 60 million capital increase, related to the issuance of new common shares dedicated to the shareholders of Banque Saradar sal, following the M/A operation with the Bank. In June 2004, Bank Audi closed a Merger/Acquisition transaction with Banque Saradar, one of the Top 10 Banks in Lebanon, the largest transaction of its kind in Lebanon, leading to a further consolidation of the Group’s domestic and regional positioning.
Subsequent to significant organic and inorganic expansion of the Group, the assets of Bank Audi sal – Audi Saradar Group represent 57% of Lebanon’s GDP, ensuring a regional dimension for the Group. Supported by the above mentioned performances, the Group has consolidated its universal banking profile, covering a large spectrum of banking services: commercial and retail banking through Bank Audi sal and Bank Audi Saradar France, private banking through Audi Saradar Private Bank sal and Banque Audi (Suisse) sa, corporate and investment banking through Audi Saradar Investment Bank sal, and insurance activities through Libano Arabe Insurance sal. The strategy of the Group in the local market rests on pursuing the efforts of extending means and developing products at the service of its customer base in particular, and Lebanon’s economic development in general.
As at end-June 2006, total assets of the Group amounted to US$ 12.7 billion. Total footings, including off-balance sheet engagements (fiduciary deposits and assets under management), reached US$ 17.5 billion. Shareholders’ equity stood at US$ 1,596 million. The Bank has a total staff of 2,551 employees as at end-June 2006. Over the past few years, Bank Audi sal improved its rankings among banks operating in Lebanon and in the region. The Bank now ranks among the top two banks in Lebanon for all major ranking criteria (assets, deposits, loans, shareholders’ equity and profits). As to regional positioning, it now ranks among the top twenty five Arab banks for the same ranking criteria.
Since the mid 1990s, the Bank undertook a huge restructuring program focusing on the following:
- The expansion of its network to 75 branches (rising from 33 in 1997), allowing it to have one of the largest networks in Lebanon. This translated in the expansion of the Bank’s retail client base to reach above 300,000 accounts by mid-2006.
- The development of its information technology and electronic banking platform operating on-line real-time.
- The enhancement of its human resources, with more than 56% of the Bank’s employees today being university graduates.
- The launching of bancassurance via Libano Arabe Insurance, one of the top seven insurance companies in Lebanon.
- The establishment of a card center, allowing the Bank to issue as well as acquire all major cards on an extensive ATM and Point of Sale (POS) network.
- The enforcement of a control, compliance and internal audit culture through the development of adequate systems as well as human resources.
- The reinforcement of the Bank’s financial flexibility via a large-scale capital increase of US$ 600 million, raising shareholders’ equity to US$ 1.6 billion, by far the largest in Lebanon and accounting for 30% of the banking sector at large.
Business Lines
Bank Audi is a universal bank dedicated to building a lasting relationship with its clients, developing an understanding of the changing financial needs at different stages of their life. The Bank’s long heritage enabled it to change with time, offering quality products by means that are convenient to clients. Today, the Bank is empowered to engage in commercial, retail, investment and private banking activities. All entities are involved in the business lines. While Bank Audi sal covers all activities, Bank Audi Saradar France offers a full range of retail and commercial banking activities, Banque Audi (Suisse) sa, with its representative office in Beirut, is, along with Audi Saradar Private Bank, the Private Banking arm of the Group. All investment banking actions are conducted by Audi Saradar Investment Bank sal, while bancassurrance products are tailored by its fully owned subsidiary, Libano Arabe Insurance sal, and sold by Bank Audi’s retail network.
Bank Audi, always on an endless quest to advocate and preserve its image as a proficient lender, perceives commercial banking as one of the Bank’s fundamental activities. The Bank’s substantial market share, when compared to peers, reinforced its savoir-faire in serving its clientele vis-à-vis an exquisite and expansive spectrum of both conventional and tailor made commercial banking services and products. Its supreme goal being quality service, Bank Audi’s competitive edge relies on pricing with a greater emphasis on quality of service.
Bank Audi’s retail strategy for the past few years has rested on offering of a complete, fast and secured service that would ultimately fulfill all its clients’ daily needs in a “one stop shop”, at the best rates and quality. An expressive corporate slogan of “Grow Beyond Your Potential”, a wide branch network, the country’s widest ATM network and a top-of-the-line IT infrastructure were the key success factors which paved for Bank Audi’s aggressive plunge into the retail banking business towards the end of 1998. The human aspect was also of primary importance. In terms of employees, investments to educate and motivate branch staff became an on-going process. In terms of clients, the Bank’s customer focus approach identifying the needs and preferences of clients and categorizing them into products that conveniently provide loans, transactions, insurance, and investments, resulted in a strong growth of the Bank’s client base over the years, placing it at the forefront of the banking industry at large.
Expanding its investment banking activities has been a major element of Bank Audi’s strategy for the last few years, in parallel with the development of its capital market and research activities. To implement this strategy, the Bank merged its three subsidiaries (Audi Investment Bank, Saradar Investment House and Lebanon Invest) into Audi Saradar Investment Bank which currently serves as the investment banking arm of Bank Audi. The resulting enlarged investment banking team has extensive experience in investment and finance, and offers a wide range of Investment Banking services, including project finance, mergers and acquisitions, private placements, securitization and structured products, private equity, asset management, fund management and advisory services.
Within the same context, the capital markets department, set up in 1996, enabled Bank Audi to best fulfill the needs of its clients and counterparties, and to assist them in investing in Lebanon’s capital markets. The department’s main role is market making on all instruments issued by Lebanese entities. This commitment to quote, market permitting, a two-way price, has largely contributed to a substantial market share, both in fixed income and equity, in Lebanese Pounds and US Dollars, with an average annual turnover of around US$ 4 billion. The Bank’s capital markets department is supported by extensive research issued by the Bank’s research department, which is permanently monitoring the economic and banking environment and providing advice to the Bank’s management team in this respect. The Bank’s research publications are considered widely accredited reference sources on Lebanon’s economy and markets by both domestic and foreign analysts and investors.
Banque Audi (Suisse) sa and Audi Saradar Private Bank sal represent Bank Audi’s private banking arm. Banque Audi (Suisse) is a Swiss bank based in Geneva and regulated by the Swiss Federal Banking Commission. It has maintained a presence in Switzerland for over a quarter of a century and is the largest Lebanese-owned banking institution in Switzerland, in terms of assets under management. Professionals at Banque Audi (Suisse) are able to provide high net worth individuals and their families with the distinguished level of personalized service they expect, along with a full range of financial services. As at end-June 2006, assets under management, fiduciary accounts and custody deposits amounted to around US$ 4.8 billion, making Banque Audi (Suisse) the largest Lebanese bank outside Lebanon.
On the background of the completion of the restructuring of the Group following its acquisition of Banque Saradar sal in the first half of 2004, the merger of Banque Audi France sa and Banque Saradar France sa, leading to the largest near eastern bank operating in France, and the restructuring of Banque Audi (Suisse) sa, the Bank’s regional expansion policy gained ground significantly. It started with the launching of Bank Audi’s retail network in Jordan in July 2004, with 7 out of 10 licensed branches now operational, all mainly dedicated to retail and related commercial activities. It was followed, in September 2005, by the launch of operations in Syria where Bank Audi Syria already has a network of 5 branches. By early 2006, the Bank acquired an Egyptian bank, the Cairo Far East Bank, that ensures a good footprint within the Egyptian market. It was followed, by mid-2006, by the acquisition of a Sudanese Bank, the National Bank of Sudan, which ensures an optimal coverage of the promising Sudanese market. In parallel, the assessment of expansion to other regional captive markets is currently underway.
Evolution and Growth
Through a string of mergers and acquisitions and a dynamic expansionary policy over the years, Bank Audi sal has grown into one of the two largest banks in Lebanon’s crowded but gradually consolidating banking system. While the business focus remains universal banking, the push towards expanding its international operations is aimed at diversifying the asset base and earning streams within the geographic context. The successive capital increases have significantly improved capitalization and provided the resources for Bank Audi to continue consolidating its market position.
The Bank’s consolidated assets grew by 25.5% p.a. over the past five years (as compared to 10.6% growth for the sector). The Bank’s higher than average asset growth resulted in an increase in its asset market share from 11.7% as at December-end 2001 to 16.9% as at June-end 2006, while its customer deposits market share reached 17.3% and loans market share reached 15.2% respectively by mid-2006.
In parallel with its market share growth, Bank Audi operates the largest branch network in Lebanon with 75 licensed branches as at October 2006. The Bank has been able to expand its network rapidly, principally as a result of four transactions: the acquisition of three banks, Crédit Commercial du Moyen-Orient and Orient Credit Bank in 1997 and 1998, and Banque Saradar in 2004, and the acquisition of two networks of banks, Adcom and Banque Nasr Libano-Africaine in 1998. I n parallel, the number of employees at Bank Audi expanded from 867 employees in 1997 to 2,551 employees in June 2006.
The Bank’s growth performance was not reached at the detriment of its financial standing. Its liquidity ratio amounted to over 80%, with its capital adequacy ratio standing at slightly above 29% at June-end 2006, well above the 12% ratio required by the Central Bank. Strong capitalization has been at the core of the Bank’s strategy: the Bank has gradually increased its capitalization to reach adequately high levels in absolute and relative terms. The adequate capitalization enables Bank Audi to cover its third party risk with own funds and to finance its expansionary strategies and growth objectives over the years ahead.
The Bank’s financial philosophy is to increase its products and services sales, to boost its operating margins and to well manage its capital intensity within very strict control procedures. These operating measures represent the main drive of the increase in the Bank’s market value added and the generation of economic profits to shareholders. As such, net earnings were able to grow by 43% per annum over the past five years. The policy of growth and profitability within the context of adequate risk coverage and productivity improvement places Bank Audi in a strong position to meet the challenges and opportunities that lie ahead.
Strategy and Outlook
Leadership has been Bank Audi’s motto for the past several years. The Bank has indeed led in triggering:
- the process of accessing international markets through the first GDR issue in the Middle East, followed by six equity and debt issues,
- the consolidation process in the domestic banking industry, closing five M&A transactions, the largest ever for a bank in Lebanon,
- the business diversification process, having been the first in implementing retail banking, capital markets and bancassurance activities,
- the IT and Telecom network enhancement, having been the only bank operating on-line real time during a period of two years,
- the HR development policy, by implementing the first training and HR development center in the industry.
Management vision, innovation and leadership have always been recognized by rating agencies covering Lebanese banks as major competitive advantages of Bank Audi.
In conclusion, the Bank has significantly reinforced its presence in Lebanon and diversified its range of products and services to cover all activities of a universal bank. It currently enjoys (1) a strong franchise in commercial banking activities, with an asset market share of close to 17%, against an average market share of 1.2% per bank in Lebanon; (2) a leadership in capital market activities, with US$ 6 billion of annual trading on Lebanese Treasury bills and Eurobonds; (3) a strong franchise in retail banking, positioning the Bank as the one of largest issuers of payment cards in the country, of bancassurance and personal loans; (4) an important franchise in private banking, with individual deposits over US$ 1 million each, amounting to above 30% of the Bank’s deposits base. Assets under management, fiduciary deposits and custody accounts amounted to US$ 4.8 billion at June-end 2006; (5) a significant expertise in investment banking with close to US$ 2.7 billion of investment banking mandates closed over the past few years supported by extensive research coverage.
In order to enhance shareholder return, the Group’s strategy hinged over reaching the best universal banking profile among peers, in the aim of consolidating its market positioning and of strengthening its earning power. The restructuring and activity diversification strategy translated into a diversification of the Bank’s income sources towards new business lines, and consequently reinforced its global immunity against adverse trends in the domestic market. While, in the late nineties, income was broken down over interest margin (80%) and non-interest income (20%) with the latter mainly driven by commercial activities (LCs, LGs, forex, etc), the share of non-interest income reached 37% as at June-2006 and was more evenly broken down over the different activities (Retail, capital markets, bancassurance, private banking and commercial activities). The Bank intends to maintain its focus on its core commercial and retail banking, while continuing to develop its investment banking and private banking operations. Ha ving succeeded in diversifying its income sources, the Bank’s strategy for the five years to come consists of further market diversification.
Regional expansion
On a consolidated basis, Bank Audi manages today a global activity of US$ 17.5 billion, of which 24% in Europe and the Middle East and 76% in Lebanon. The strategy of the Bank is to further expand its activity abroad in order to reach a more balanced activity structure and to reinforce the global immunity of the Group. Such a strategy consists of reinforcing its presence in markets where it is already present, expanding towards new markets and reinforcing the Bank’s immunity against adverse developments in the region. The Bank’s regional expansion focuses on countries where the environment for launching banking activities is supportive and that provide interesting growth perspectives.
On that background, the regional expansion of Bank Audi is evolving rapidly. Established in July 2004, the Bank’s Jordan Network now consists of 7 operating branches out of 10 licensed branches, dedicated mainly to retail banking and related commercial banking activities. Activity in Jordan has actually well taken off, allowing the Group to build assets of US$ 256 million in 21 months of activity, which ensures to the Bank a privileged position on this market. The 2005 performance ensured a breakeven in net earnings, prior to the preset target, with a strong growth in bottom line expected for 2006.
Activity in Syria has taken off last September, with very encouraging first results, exceeding US$ 235 million in assets in less than a year period. Bank Audi Syria was established in September 2005, with a capital of US$ 47 million. The Bank in Syria is owned to the extent of 47% by Bank Audi sal – Audi Saradar Group, after an initial Public Offering for 25% of the Bank’s capital was significantly oversubscribed (about 10 times). Bank Audi Syria has a targeted network of 20 operating branches, covering the majority of Syrian territories, mainly dedicated to commercial, retail and corporate banking activities.
In addition, the Bank closed, in March 2006, the acquisition of an Egyptian bank, the Cairo Far East Bank sae, that ensures a good platform to launch Audi’s activities in the Egyptian market which it considers promising. The capital of the new subsidiary, Bank Audi sae, was subsequently raised to US$ 100 million, allowing for a rapid deployment of the action plan. The latter mainly hinges over the development of commercial and corresponding banking activities, along with extensive retail activities based on the Bank’s acquired expertise in that field, with the aim of turning it into the main activity of the new entity. Bank Audi sae is looking to deploy an extensive retail network of 30 branches within a 3-year period.
In May 2006, an investment activities license was granted by the Saudi Capital Market Authority to Audi Saudi Arabia. Activities in Saudi Arabia will cover primarily the activities of a full fledged investment bank offering dealing, underwriting, management, arranging, advisory and custody services. Audi Saudi Arabia will officially launch its activities in the fourth quarter of 2006 and will be backed by the investment expertise of the Audi Saradar Group. Bank Audi will contribute to 70% of the new subsidiary’s capital, with the remaining 30% owned by prominent Saudi individuals and business groups.
The prospection for new regional markets with high potential is now in progress, with plausible perspectives in Algeria and Sudan. The expansion of the Bank to these countries is a key prerequisite for its regional positioning, with the aim of firmly integrating, in a five-year horizon, the restricted Group of large regional banks.
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