The LEBANON WEEKLY MONITOR

Transcription

1 CONTACTS Treasury & Capital Markets Micky Chebli (961-1) Nadine Akkawi (961-1) Bechara Serhal (961-1) Private Banking Toufic Aouad (961-1) Corporate Banking Khalil Debs (961-1) RESEARCH Marwan Barakat (961-1) Jamil Naayem (961-1) Salma Saad Baba (961-1) Fadi Kanso (961-1) Nathalie Ghorayeb (961-1) Sarah Borgi (961-1) The LEBANON WEEKLY MONITOR Economy p.2 LEBANON S BUDGET DEFICIT TIGHTENS ON LOWER EXPENDITURES The Ministry of Finance issued its latest data on Lebanon s fiscal accounts according to which the shortfall declined during the first two months of 2013 as expenditures weakened at a faster pace than revenues. Also in this issue p.3 Construction permits down by 12.4% in the first four months p.4 Imports of industrial machinery up by 12.8% year-on-year in the first month of 2013 Surveys p.5 BEIRUT S HOTEL OCCUPANCY STILL ON A DECLINING TREND Ernst & Young released its latest Middle East Hotel Benchmark Survey which showed that the occupancy rate of four and five star hotels within Beirut reached 58% in the first four months of 2013, down by eight percentage points from the 66% ratio recorded in the same period of Also in this issue p.6 Market issued Eurobonds represent 80.9% of foreign currency debt as at end-march 2013 Corporate News p.7 NET PROFITS OF BLC BANK AT US$ 8.8 MILLION IN THE FIRST QUARTER OF 2013 BLC Bank, part of Fransabank Group, announced 2013 first quarter net profits of US$ 8.8 million, up from a total of US$ 4.6 million recorded in the corresponding period of Also in this issue p.8 Capital Intelligence affirms BLOM Bank s foreign currency and financial strength ratings at "B" and "BBB-" respectively p.8 CreditBank inks trade finance deal with IFC Markets In Brief p.9 SHY APPETITE FOR THE NEW TREASURY BILLS ISSUE Lebanese capital markets saw this week a new Tbs issue, a rise in the overnight rate, a continuous decline in equity prices, and stability in bond spreads. In details, the Ministry of Finance issued the 8-year Tbs category at a yield of 7.80% and the 10-year Tbs category at 8.24%, which attracted shy subscriptions of LP 440 billion, noting that subscriptions were made either in cash or through swapping LP CDs issued by the BDL. This new issue coupled with tax payments resulted into a surge in the overnight rate from its low official level of 2.75% to 15% on Tuesday, yet it declined to 3% on Friday. On the equity market, the price index continued its downward trajectory, falling by 0.6% weekon-week, while the total trading value was limited to US$ 4.9 million versus an average weekly trading value of US$ 4.4 million since the beginning of the year At the level of the Eurobond market, some internationals offered their long-term papers while some other foreign market players showed demand for medium-term papers. Meanwhile, locals met the foreign demand and showed interest in buying papers maturing in Within this context, the average spread remained stable at 378 bps within the context of a stability in Lebanese and international benchmark yields. Marc Harb (961-1) marc.harb@banqueaudi.com LEBANON MARKETS: WEEK OF Nivine Turyaki (961-1) nivine.turyaki@banqueaudi.com Bank Audi sal - Audi Saradar Group - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box Lebanon - Tel: research@banqueaudi.com 1

2 ECONOMY _ LEBANON S BUDGET DEFICIT TIGHTENS ON LOWER EXPENDITURES The Ministry of Finance issued its latest data on Lebanon s fiscal accounts according to which the shortfall declined during the first two months of 2013 as expenditures weakened at a faster pace than revenues. In fact, the fiscal deficit amounted to US$ 298 million in the first two months of 2013, down by 16.5% from the same period of The primary balance, which excludes the debt service, recorded a surplus of US$ 70 million in the first two months of 2013, up by 59.8% on an annual basis. Revenues totaled US$ 1,557 million in the first two months of 2013, down by 3.5% from the total posted in the corresponding period of Revenues classified under budget transactions declined by 5.3% yearon-year to attain a total of US$ 1,461 million in the aforesaid period of Such a trend was mainly tied to a decline in non-tax revenues and to a lesser extent, to the drop of tax revenues. The former weakened by 11.9% year-on-year to reach US$ 329 million in the first two months of 2013, mostly of which came from the telecom sector (-4.4% year-on-year to US$ 225 million). As to tax revenues, they edged down by 3.1% year-on-year to US$ 1,133 million in the first two months of Such a decline was due to a drop of 7.1% in VAT revenues (US$ 411 million) and a 1.3% decrease in miscellaneous tax revenues (US$ 489 million). As to customs revenues, they remained almost unchanged on an annual basis, moving slightly up by 0.5% to reach US$ 233 million in the first two months of With regards to revenues classified under treasury transactions, they improved by 33.9% year-on-year to US$ 96 million in the aforementioned period of LEBANON'S FISCAL ACCOUNTS (US$ MILLION, FIRST 2M OF THE YEAR)* Sources: Ministry of Finance, Bank Audi's Group Research Department 2

3 Total expenditures weakened at a faster pace than revenues, moving down by 5.9% year-on-year to US$ 1,855 million in the first two months of Expenditures under budget transactions declined by 5.4% year-on-year to US$ 1,450 million in the aforementioned period of This was mainly due to a drop of 30.2% year-on-year in foreign debt principal repayment (US$ 23 million) and a 6.2% decline in interest payments (US$ 345 million) with those on foreign debt as well as the domestic one weakening on an annual basis. General expenditures were lower by 4.4% year-on-year to US$ 1,082 million in the first two months of Expenditures classified under treasury transactions were also on the same path. They declined by 7.6% year-on-year and reached a total of US$ 405 million in the first two months of 2013, as per data published by the Ministry of Finance. CONSTRUCTION PERMITS DOWN BY 12.4% IN THE FIRST FOUR MONTHS The construction sector extended its declining streak as reflected by the permits issued by the Order of Engineers in Beirut and Tripoli. Indeed, the area of newly issued construction permits reached 4,133,296 square meters in the first four months of 2013, down by 12.4% relative to the same period of 2012, during which they were lower by 10.5%. This suggests that investors are not so keen on launching new projects, within the context of mounting politico-security pressures in the regional arena coupled with some negative developments in the local one. Noteworthy is that awarded permits within Beirut, Mount Lebanon and South Lebanon were lower CONSTRUCTION PERMITS IN LEBANON Sources: Order of Engineers of Beirut and Tripoli, Bank Audi's Group Research Department 3

4 by 47.2% year-on-year, 26.9% year-on-year and 9.8% year-on-year during the first four months of 2013, respectively. Permits awarded within Nabattieh, Bekaa and North Lebanon were annually up by 47.1%, 26.7% and 12.1% over the same period, respectively. Mount Lebanon captured the majority of newly issued construction permits in the first four months of 2013 with 44.6%. It was followed by the North with 20.4%, Bekaa with 11.5%, the South with 9.9%, Nabattieh with 9.0%, and Beirut with 4.6% of total permits during the first four months of IMPORTS OF INDUSTRIAL MACHINERY UP BY 12.8% YEAR-ON-YEAR IN THE FIRST MONTH OF 2013 The latest statistics released by the Ministry of Industry showed that imports of industrial machinery increased by 12.8% year-on-year in the first month of They moved from a total of US$ 23.5 million in January 2012 to a total of US$ 26.5 million in the same month of The distribution of the imported machinery by country of origin in the first month of 2013 shows that the bulk of industrial machinery imports came from Italy with a total of US$ 7.6 million and accounting for about 28.8% of all industrial imports. China came second with US$ 4.3 million or 16.1% of the total, followed by Germany with US$ 3.4 million (12.9% of total industrial machinery imports), then Malaysia with US$ 1.4 million (5.2% of total industrial machinery imports), and France with US$ 1.3 million or 5.1% of total industrial machinery imports. IMPORTS OF INDUSTRIAL MACHINERY BY COUNTRY (JANUARY 2013) Sources: Ministry of Industry, Bank Audi's Group Research Department 4

5 SURVEYS BEIRUT S HOTEL OCCUPANCY STILL ON A DECLINING TREND Ernst & Young released its latest Middle East Hotel Benchmark Survey which showed that the occupancy rate of four and five star hotels within Beirut reached 58% in the first four months of 2013, down by eight percentage points from the 66% ratio recorded in the same period of Beirut and Cairo were the cities to have posted the most significant drops in hotel occupancy during the first four months of 2013 (also minus eight percentage points in Cairo). Also, Beirut s hotel occupancy, at 58% in the first four months of 2013, was one of the lowest within the region. Its results only exceeded those seen in Bahrain s Manama and Egypt s Cairo which posted occupancy rates of 48% and 29% in the first four months of 2013, respectively. With regards to the average room rate, that of hotels in Beirut posted the most significant decline on an annual basis during the first four months of It moved down by 22.9% year-on-year to reach of US$ 162 in the first four months of Bahrain s Manama, Qatar s Doha, KSA s Riyadh and the UAE s Al Ain were the other cities to have posted average room rate declines of 8.1%, 3.8%, 5.0% and 5.2%, in the first four months of 2013, respectively. In absolute terms, Beirut had the 11th highest average room rate out of the 16 cities covered by the report. It surpassed Amman (US$ 158) and Al Ain (US$ 142) while coming after Oman s Muscat (US$ 218) and KSA s Madina (US$ 196). As to the room yield, hotels within Beirut posted the most significant drop amongst regional peers. In fact, the room yield of four and five star hotels within the Lebanese capital moved down by 32.4% yearon-year to US$ 197 in the first four months of Over the same period, hotels in Jordan s Amman posted a drop of 19.1% year-on-year and those in Egypt s Cairo recorded a decline of 17.5%. The room yield of hotels with Qatar s Doha moved a bit down by 0.5% year-on-year in the first four months of HOTEL OCCUPANCY IN THE MIDDLE EAST (FIRST 4M OF THE YEAR) Sources: Ernst & Young, Bank Audi's Group Research Department 5

6 MARKET ISSUED EUROBONDS REPRESENT 80.9% OF FOREIGN CURRENCY DEBT AS AT END-MARCH 2013 Debt and Debt Markets, a quarterly bulletin released by the Lebanese Ministry of Finance, revealed that up until end-march 2013, the lion s share of foreign currency debt continued to be in the form of marketissued Eurobonds. In parallel, the Central Bank of Lebanon was the major holder of local currency T-bills and bonds subscriptions, followed by commercial banks, then public institutions. An in-depth look at foreign currency debt suggests that 80.9% of the total is in the form of marketissued Eurobonds, 8.1% stems from Paris II related debt, 7.1% is in the form of bilateral, multilateral and foreign private sector loans, 3.6% comes from Paris III related debt, and 0.3% from special T-bills in foreign currency. The study went on to list outstanding Eurobonds in Lebanon at end-march 2013 which reached US$ 21,353 million, lower by US$ 0.4 billion from end Consequently, foreign currency debt declined by US$ 0.4 billion from end-2012 to reach US$ 23,905 million at end-march As at end-march 2013, the list of outstanding Eurobonds hold an average time to maturity of 5.95 years and a weighted average coupon of 6.61%. Furthermore, the study provided a detailed breakdown of foreign currency bilateral and multilateral loans by currency and by sector, noting that those loans amounted to US$ 2.5 billion as at end-march The former breakdown showed that foreign currency bilateral and multilateral loans are mostly in US Dollars with a share of 33.1% of outstanding loans. Another important 29.9% of those loans are in Euros, while 21.9% are in Kuwaiti Dinars. The rest is divided between Islamic Dinars with 6.6%, Saudi Riyals with 4.0%, SDRs with 0.9%, and other currencies with 3.6%. In parallel, the breakdown of such loans by sector revealed that the majority is allocated for budgetary support, with a share of 40.0%, noting that budgetary support loans include AFD loans, as well as UAE and IBRD loans. A share of 21.7% of foreign currency loans is allocated to the water sector, followed by the transportation sector with 18.6%, the education sector with 7.8%, the power sector with 4.0% of total loans, general and technical government services with 3.2% of total loans, the health sector with 2.4% of total loans, and the social sector with 2.2% of total loans. FOREIGN CURRENCY DEBT DATA (AS AT END-MARCH 2013) Sources: Ministry of Finance, Bank Audi's Group Research Department 6

7 CORPORATE NEWS _ NET PROFITS OF BLC BANK AT US$ 8.8 MILLION IN THE FIRST QUARTER OF 2013 BLC Bank, part of Fransabank Group, announced 2013 first quarter net profits of US$ 8.8 million, up from a total of US$ 4.6 million recorded in the corresponding period of Net interest income amounted to US$ 26.4 million in the first quarter of 2013, rising from US$ 25.5 million in the same period of Net fee and commission income improved from US$ 3.7 million in the first quarter of 2012 to US$ 4.8 million in the same period of this year. Net financial revenues after impairment charge for credit losses was up from US$ 25.9 million in the aforesaid period of 2012 to US$ 31.4 million in the first quarter of BLC Bank s staff costs retreated from US$ 13.8 million in the first quarter of 2012 to US$ 12.9 million in the same period of Administrative expenses also declined from US$ 6.5 million in the first three months of 2012 to US$ 6.2 million in the first three months of BLC Bank s total assets stood at US$ 5.0 billion at end-march 2013, slightly down from US$ 5.1 billion at end Loans and advances to customers were up from US$ 1,776 million at end-2012 to US$ 1,783 million at end-march Customers deposits moved a bit down from US$ 4,292 million at end-2012 to US$ 4,182 million at end-march Shareholders equity rose from US$ million at end-2012 to US$ million at end-march NET PROFITS OF BLC BANK (US$ MILLION) Sources: BLC Bank, Bank Audi's Group Research Department 7

8 _ CAPITAL INTELLIGENCE AFFIRMS BLOM BANK S FOREIGN CURRENCY AND FINANCIAL STRENGTH RATINGS AT "B" AND "BBB-" RESPECTIVELY Capital Intelligence affirmed BLOM Bank s financial strength rating at "BBB-". The Support level was affirmed at 3. The Bank's foreign currency long and short-term ratings were both affirmed at B. The outlook on all ratings remains stable. According to the rating agency, the financial strength rating reflects BLOM Bank s strong franchise and liquidity, as well as its cost efficiency and better than sector average profitability. However, it remains constrained by weaker loan asset quality, and ongoing exposure to Lebanese sovereign and local and regional political risks. The support level mirrors the the high likelihood of official support in case of need, given BLOM Bank's systemic importance and BdL's record of assisting banks. As to the foreign currency ratings, they remain constrained by the agency s sovereign ratings of Lebanon. Capital Intelligence notes that the financial strength rating is pressured by negative trends in asset quality. In fact, BLOM Bank's asset quality weakened because of a very sharp rise in non-performing loans, as per Capital Intelligence. Further loan asset quality deterioration may yet be expected in Syria and possibly Egypt, as per the same source. Given the prospect of only very subdued economic growth in Lebanon this year, credit quality could begin to weaken in the household sector which is one of BLOM Bank's growth segments, as per Capital Intelligence. Despite the large increase in provision expense last year, loan loss reserve coverage fell to a level which is assessed barely adequate in view of expected asset quality trends. However, BLOM's risk absorption capacity remains intact, and it is expected that loan loss reserve coverage is likely to be restored throughout the current year to a better level, as per Capital Intelligence. The Bank's capital ratios remain sound and provide additional buffers against rising credit risks. Over the years, BLOM has consolidated a strong customer deposit franchise, a leading position in a broad cross section of businesses, and a significant footprint within MENA, as per Capital Intelligence. This has endowed the Bank with strong liquidity and resilient and diversified sources of gross income. Despite measured increase in total assets, good growth in gross income combined with a very competitive cost structure enabled the Bank to record a sustained rise in operating profit amidst the economic slowdown in Lebanon and ongoing difficult conditions in Syria and Egypt, as per Capital Intelligence. _ CREDITBANK INKS TRADE FINANCE DEAL WITH IFC The International Finance Corporation (IFC), the World Bank s private sector investment arm, has concluded a trade finance deal with CreditBank according to which the Lebanese lender will receive a revolving fund facility to back its trade finance services. The IFC has allocated US$ 5 million to be used as risk guarantees for trade-related transactions undertaken by CreditBank, as per a statement from the World Bank s affiliate. The agreement is part of the IFC s Global Trade Finance Program with more than 265 partner banks worldwide. The program aims to facilitate cross-border trade in risky markets by reducing the risk exposure that often accompanies such transactions. The IFC mainly covers transactions in riskier markets like Africa and even some parts of Europe, because transactions that are assured can be easily financed by various institutions. The IFC prefers to support trade transactions that involve basic commodities, like food and other basic supplies. CreditBank is the seventh local bank to join the IFC s Global Trade Finance Program. The program already includes Bank of Beirut, Fransabank, BLC, Banque Libano-Française, Credit Libanais, and BBAC, as per newswires. The IFC's Global Trade Finance Program has provided local banks guarantees covering transactions worth US$ 1.35 billion since its inception in 2006, as per the same source. 8

9 CAPITAL MARKETS MONEY MARKET: RISE IN OVERNIGHT RATE The overnight rate rose from its low official level of 2.75% at the end of last week to 8%-10% on Monday and 15% on Tuesday within the context of the growing demand for LP liquidity in order to subscribe in the 8-year and 10-year Tbs categories issued by the Ministry of Finance and to pay different taxes. However, the overnight rate declined to 4% on Wednesday and 3.5% on Thursday following the conclusion of Tbs subscriptions and the decline in demand for local currency liquidity, to reach 3% at the end of the week. As to Certificates of Deposits, no subscriptions were made during this week. Interest rates on the 45-day and 60-day CDs categories remained stable at 3.57% and 3.85% respectively. At the monetary aggregates level, figures for the week ending 23rd of May 2013 released this week showed a rise in local currency deposits of LP 159 billion, as a result of an increase of LP 79 billion in LP time deposits and a growth of LP 80 billion in LP demand deposits week-on-week. Deposits in foreign currencies went up by US$ 178 million. These weekly variations compare to an average weekly rise of LP 23 billion for LP deposits, and an average weekly increase of US$ 81 million for foreign currency deposits since the beginning of the year Total money supply in its large sense (M4) expanded by LP 368 billion week-on-week. This compared to an average weekly growth of LP 188 billion since the beginning of the year. On a cumulative basis, money supply in its large sense (M4) grew by LP 5,264 billion since the beginning of the year This is the result of a rise in local currency denominated time deposits of LP 1,991 billion, an increase in foreign currency deposits of LP 2,798 billion (the equivalent of US$ 1,856 million), a contraction in money supply (M1) of LP 493 billion, and a growth in Treasury bills held by the public of LP 968 billion. INTEREST RATES Source: Bloomberg TREASURY BILLS MARKET: NEW 8-YEAR AND 10-YEAR TBS ISSUES The Ministry of Finance issued this week the 8-year and 10-year Tbs categories offering a yield of 7.80% and 8.24% respectively. Subscriptions were made in cash or through swapping existing LP Certificates of Deposits issued by the Central Bank of Lebanon. Subscriptions in these two categories totaled LP 440 billion and were distributed as follows: LP 61 billion in the 8-year category and LP 379 billion in the 10- year category. In parallel, the auction results for value date 30th of May 2013 released by the Central Bank of Lebanon showed that total subscriptions amounted to LP 718 billion and were distributed as follows: LP 26 billion in the one-year category, LP 6 billion in the two-year category, and LP 686 billion in the three-year category. These compare to maturities of LP 660 billion, resulting in a nominal surplus of LP 58 billion. Also, the latest auction s results (June 06, 2013) showed stability in the average yields on the three-month, sixmonth and five-year categories at 4.44%, 4.99% and 6.74% respectively. 9

10 TREASURY BILLS Sources: Central Bank of Lebanon, Bloomberg FOREIGN EXCHANGE MARKET: DECLINE IN BDL S FOREIGN ASSETS The US Dollar offer that was observed last week allowed commercial banks to build up some green currency surpluses, which they sold on Monday to the Central Bank of Lebanon at the lower end of its intervention bracket (LP 1,501). However, the FX market started to see some demand for the US Dollar on Tuesday, and commercial banks traded the green currency at a rate hovering between LP 1, and LP 1, till the end of the week, while the BDL remained on the sidelines. The Central Bank of Lebanon s latest bi-monthly balance sheet ending 31st of May 2013 showed that foreign assets declined by US$ 290 million during the second half of May to stand at US$ billion at end-may. Accordingly, the Central Bank s foreign assets covered 83.7% of LP money supply, with this coverage ratio rising to 113.4% when accounting for gold reserves estimated at US$ billion at end- May. In addition, the BDL s foreign assets covered 20.0 months of imports. These ratios reflect the BDL s strong ability to defend the currency peg and meet demand for foreign currencies should any pressures arise. EXCHANGE RATES Source: Bank Audi s Group Research Department STOCK MARKET: SLUGGISH ACTIVITY COUPLED WITH PRICE DECLINES The Beirut Stock Exchange continued to witness a sluggish activity during this week. The total trading value was limited to US$ 4.9 million versus US$ 5.1 million last week and an average weekly trading value of US$ 4.4 million since the beginning of the year The average daily trading value fell from US$ 1,022 thousand last week to US$ 975 thousand this week, resulting into a 4.6% decline in the trading 10

11 volume index to close at As far as prices are concerned, the BSE price index decreased by 0.6% week-on-week to close at Banking shares captured 77.3% of the total trading value. Bank Audi s listed share price declined by 0.3% to close at US$ BLOM s listed share price went down by 0.7% to US$ BLOM s GDR price closed 0.6% lower at US$ Byblos Bank s listed share price fell by 1.3% to close at US$ Solidere shares accounted for 22.0% of activity. Solidere A share price shed 1.0% to US$ and Solidere B share price dropped by 1.5% to close at US$ Industrial stocks accounted for the remaining 0.7% of activity, with Rymco s share price surging by 15.1% to US$ All in all, the Beirut Stock Exchange s performance compared to a 2.5% fall in other emerging markets as per S&P Emerging Market Composite Index and a 1.1% rise in other Arabian markets as per S&P Pan-Arab Composite Index. AUDI INDICES FOR BSE Sources: Beirut Stock Exchange, Bank Audi s Group Research Department BOND MARKET: STABILITY IN AVERAGE YIELDS AND SPREADS The Eurobond market saw some international sellers for long-term papers and some foreign demand for medium-term papers, especially those maturing in 2019, 2021 and Meanwhile, local market players met the foreign offer and showed interest in buying papers maturing in Within this context, the average yield remained relatively stable at 5.10%, and the average spread widened by a tiny 2 bps to 378 bps due to stability in Lebanese and international benchmark yields. For instance, the five-year US Treasuries yields remained relatively stable at 1.00%. As to the cost of insuring debt, Lebanon s five-year CDS spreads hovered between bps this week versus bps in the previous week, up by 10 bps. EUROBONDS INDICATORS Source: Bank Audi s Group Research Department 11

12 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. 12