CREDIT LIBANAIS S.A.L.

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1 CREDIT LIBANAIS S.A.L. Issue No th December 9 th 2016 Economic Research Unit Credit Libanais Headquarters Adlieh Beirut, Lebanon Tel Fax research@cl.com.lb

2 TABLE OF CONTENTS LEBANON NEWS ECONOMIC INSIGHTS > LEBANON RANKS 90 TH IN THE WORLD IN THE 2016 ENABLING TRADE INDEX 1 > LEBANON RANKS 36 TH IN THE WORLD AND 3 RD IN THE MENA REGION IN INTERNET FREEDOM IN > LEBANON RANKS 108 TH IN THE WORLD IN THE 2014 HUMAN FREEDOM INDEX 3 > LEBANON RANKS 5 TH IN THE ARAB WORLD IN THE 2014 INDEX OF ECONOMIC FREEDOM 4 > 25% OF BEIRUT CITIZENS ARE HAPPY WITH THEIR CITY OF RESIDENCE 5 > LEBANON RANKS 7 TH IN THE MENA REGION IN EXTERNAL DEBT RETURNS YTD NOVEMBER > LEBANON S BALANCE OF TRADE DEFICIT WIDENS TO $13.23 BILLION BY OCTOBER > COMMERCIAL BANKS ASSETS UP AT $ BILLION BY OCTOBER > GROSS PUBLIC DEBT AT $74.51 BILLION AT END OF OCTOBER > OPENED LETTERS OF CREDITS DROP BY 16.13% Y-O-Y BY SEPTEMBER > NET FOREIGN ASSETS OF THE LEBANESE FINANCIAL SECTOR REGISTER A $0.55 BILLION SURPLUS YTD SEPTEMBER > WEIGHTED AVERAGE INTEREST RATE ON LBP DEPOSITS AT 5.58% IN SEPTEMBER > CONSOLIDATED ASSETS OF FINANCIAL INSTITUTIONS AT $1.65 BILLION BY END OF SEPTEMBER > CEMENT DELIVERIES UP BY 7.57% Y-O-Y BY SEPTEMBER > THE COINCIDENT INDICATOR INCREASES BY 4.68% Y-O-Y IN SEPTEMBER > RESERVES AT BDL REACH $51.20 BILLION AS AT END OF NOVEMBER > TRANSFERS TO EDL AT $ MILLION BY JULY > VALUE TRADED ON THE BSE UP BY 42.44% Y-O-Y BY NOVEMBER CORPORATE NEWS > BANK AUDI TO ISSUE NEW SERIES I PREFERRED SHARES 17 MONETARY PERFORMANCE > MONETARY AGGREGATES 18 > MONEY MARKETS 18 LEBANESE EQUITIES > LEBANESE EQUITIES & CREDIT LIBANAIS INDICES 19 LEBANON RANKS 90 TH IN THE WORLD IN THE 2016 ENABLING TRADE INDEX Lebanon ranked 9 th in the MENA region and 90 th in the world in the World Economic Forum and the Global Alliance for Trade Facilitation s 2016 Enabling Trade Index with a score of LEBANON RANKS 36 TH IN THE WORLD AND 3 RD IN THE MENA REGION IN INTERNET FREEDOM IN 2016 Lebanon ranked 3 rd in the MENA region and 36 th internationally in terms of internet freedom for the year 2016 with a score of 45 and a partly free status, according to Freedom House. LEBANON RANKS 108 TH IN THE WORLD IN THE 2014 HUMAN FREEDOM INDEX Lebanon came in the 4 th position regionally in Fraser Institute s human freedom index for the year 2014 with a score of 6.48 and a global rank of 108. LEBANON RANKS 5 TH IN THE ARAB WORLD IN THE 2014 INDEX OF ECONOMIC FREEDOM Lebanon came in the 5 th position in the Arab world in Fraser Institute s index of economic freedom for the year 2014 with a score of % OF BEIRUT CITIZENS ARE HAPPY WITH THEIR CITY OF RESIDENCE According to the Top Cities in the Middle East and North Africa Survey 2016 report published by Bayt.com, 25% of Beirut citizens are happy with their city of residence. LEBANON'S ECONOMIC & FINANCIAL SECTOR INDICATORS 21 LEBANON'S RATINGS 22 LEBANON S BALANCE OF TRADE DEFICIT WIDENS TO $13.23 BILLION BY OCTOBER 2016 Lebanon s balance of trade deficit widened by $1.04 billion on an annual basis to around $13.23 billion YTD October 2016, up from $12.20 billion a year earlier. ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: FAX:

3 SYNOPSIS OF TERMS "BDL" "ABL" "MOF" "BOP" "IMF" "Moody's" "BSE" "GDRs" "M1" "M2" "M3" "M4" "CPI" "PPI" "CLASI" "CLFI" "CLCI" EIU EOY "P/E" "P/BV" "YTD" "YTD Price Performance" "Forex" "LBP" "USD" "Yen" "GBP" "CHF" "Y-O-Y" "GDP" "MENA" LE SAR AED BD Banque Du Liban Association of Banks in Lebanon The Lebanese Ministry of Finance Balance of Payment The International Monetary Fund Moody's Investors Service Beirut Stock Exchange Global Depositary Receipts Currency in Circulation + Demand Deposits in LBP M1 + Other Deposits in LBP M2 + Deposits in Foreign Currencies M3+ Treasury Bills Held By Non Banking System, Including Accrued Interests Consumer Price Index Producer Price Index Credit Libanais Aggregate Stock Index Credit Libanais Financial Sector Stock Index Credit Libanais Construction Sector Stock Index Economist Intelligence Unit Year Price to Earnings Multiple Price to Book Multiple Year To Date Yield to Date Price Appreciation Foreign Exchange The Lebanese Pound The United States Dollar The Japanese Yen The British Pound/ Sterling Pound The Swiss Franc Year-On-Year Gross Domestic Product Middle East and North Africa Livre Egyptienne Egyptian Pound Saudi Arabian Riyal United Arab Emirates Dirham Bahraini Dinar ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: FAX:

4 LEBANON RANKS 90 TH IN THE WORLD IN THE 2016 ENABLING TRADE INDEX The World Economic Forum and the Global Alliance for Trade Facilitation recently co-published The Global Enabling Trade Report 2016 in which they assess the ability of 136 countries around the globe to facilitate the cross-border movement of goods. For that purpose, the two organizations have computed an Enabling Trade Index (ETI), which groups four sub-indices, namely Market Access (which takes into consideration two pillars: the domestic market access and the foreign market access), Border Administration (which includes one pillar: the efficiency and transparency of border administration), Infrastructure (which embeds three pillars: the availability and quality of transport infrastructure, the availability and quality of transport services, and the availability and use of ICTs), and Operating Environment (with only one pillar of the same designation). Each of the underlying pillars also entails a list of representative parameters for more comprehensive sub-indices. Sub-index scores and ETI scores both range between 1 and 7 and countries are accordingly ranked. In this context, Singapore topped the list of covered countries in the 2016 ETI with a score of 5.97, followed by the Netherlands (score: 5.70), Hong Kong SAR (score: 5.66), Luxembourg (score: 5.63), and Sweden (score: 5.61). From another standpoint, the report unveiled that an encouraging progress with regards to international trade was witnessed during the beginning of the current year, materialized by the inking of the Trans-Pacific- Partnership, optimism surrounding the Transatlantic Trade and Investment Partnership, improvements within the World Trade Organization (WTO), and a general rosy picture among world leaders. Nevertheless, said rosy picture turned somewhat bleak amid the anti-trade speeches broadcasted during the U.S. presidential elections, the Brexit, and the bickering between several WTO members. According to the report, this has stalled the aforementioned progress and eclipsed the positive developments reported in other parts of the world such as Asia and Africa. On the regional front, the United Arab Emirates outperformed its regional peers, recording an ETI score of 5.23 and ranking 23 rd internationally, followed by Bahrain (score: 4.79; international rank: 42), Qatar (score: 4.78; international rank: 43), Jordan (score: 4.73; international rank: 45), and Oman (score: 4.67; international rank: 46), only to name a few. Locally, Lebanon ranked 9 th in the Middle East and North Africa (MENA) region and 90 th in the world in the 2016 ETI with a score of 4.03, registering as such an improvement from its previous ETI results (2014 ETI score: 3.93; international rank: 92). In details, Lebanon came in 81 st in the world in the Market Access sub-index (score: 4.4), 84 th in the Border Administration sub-index (score: 4.2), 85 th in the Infrastructure sub-index (score: 3.7), and 108 th in the Operating Environment sub-index (score: 3.8). In parallel, the report included the results of a survey conducted by the World Economic Forum to determine the most problematic factors constraining the country s trade activity, citing the burdensome import procedures, corruption at the border, tariffs & non-tariff barriers, domestic technical requirements and standards, and high cost or delays caused by international and domestic transportation, among others. On the other hand, the most problematic factors it highlighted when it comes to export activities included, among others, the access to imported inputs at competitive prices, inappropriate production technology and skills, identifying potential markets and buyers, the burdensome procedures at foreign borders, and difficulties in meeting quality/quantity requirements of buyers. Lebanon's 2016 ETI Performance Overview Indices Rank Score Market Access Sub-Index: Domestic Market Access Foreign Market Access Border Administration Sub-Index: Efficiency and Transparency of Border Administration Infrastructure Sub-Index: Availability and Quality of Transport Infrastructure Availability and Quality of Transport Services Availability and Use of ICTs Operating Environment Sub-Index: Operating Environment ETI Source: World Economic Forum & the Global Alliance for Trade Facilitation, Credit Libanais Economic Research Unit SOURCE: WORLD ECONOMIC FORUM, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 1

5 LEBANON RANKS 36 TH IN THE WORLD AND 3 RD IN THE MENA REGION IN INTERNET FREEDOM IN 2016 Freedom House, the Washington-based non-profit research organization, released this week its latest report titled Freedom on the Net 2016: Silencing the Messenger: Communication Apps under Pressure, unveiling a decline in internet freedom for the sixth consecutive year, with more governments than ever before tightening up on social media and communication apps in an attempt to hinder the fast spread of information, predominantly during antigovernment demonstrations and protests. The report highlighted a multiplicity of facts witnessed over the past year of which we mention the following. First, and in a new trend, governments have been progressively targeting voice and message communication apps such as WhatsApp and Telegram. Moreover, statistical overviews in the report showed that since June 2015, police in 38 countries arrested individuals for their activities on social media (50% increase since 2013) as governments in 24 countries repressed access to social media and communication means, up from 15 in the previous year. According to the report, said deteriorations also included democracies which have upgraded their surveillance capacities during the last couple of years, while trying to balance freedom of expression with security, imposing counterterrorism measures which actually threaten privacy and free speech to a large extent. On a global level, out of the 65 countries assessed, 34 registered drops since June 2015 while only 14 countries have been on a positive trajectory. The sharpest of declines were Uganda (-6), Bangladesh (- 5), Cambodia (-4), Ecuador (-4), and Libya (-4). Furthermore, and as depicted in the table below, Estonia, Iceland, Canada, the United States, and Germany (in a descending order) topped the list of countries in internet freedom as Uzbekistan, Ethiopia, Iran, Syria, and China bottomed the list being the year s worst abusers of internet freedom. Overall, as far as the total world population is taken into consideration, the report divides people into the not assessed group, and these make up 12% of the entire population, implying that 88% have been assessed of which 35% were classified as not free, 29% as partly free, and 24% as free. On a local basis, the report positioned Lebanon among countries having a partly free internet environment, assigning it a score of 45 (on a scale of 0 to 100) for the year In details, Lebanon scored 13 (on a scale of 0 to 25) in the Obstacles to Access component, 12 (on a scale of 0 to 35) in the Limits on Content metric, and 20 (on a scale of 0 to 40) in the Violations of User Rights parameter. Consequently, Lebanon ranked 36 th in the world and 3 rd in the Middle East and North Africa (MENA) region in terms of internet freedom. Always in reference to the report, the major key internet controls enforced in Lebanon came in three forms: political, social, or religious content blocked, blogger or ICT user arrested, imprisoned, or in prolonged detention for political or social content, and finally, technical attacks against government critics or human rights organizations. In addition, the report shed light on two main incidents recorded in Lebanon over the past calendar year. The first reflects a negative image and is included in the dramatic sentences for social media crimes section of the report and revolves around Lebanon s bureau of cybercrimes interrogation of a Facebook user for criticizing a Lebanese singer. The other includes some positivity as the report gave credit to Lebanon s #YouStink movement which protested against the government, demanded accountability, and relied on various social media platforms to combat corruption, wasteful spending, and government abuse. Freedom on the Net 2016 Subtotal Scores Country Status Score (0-100 pts) Rank Obstacles to Access (0-25 pts) Limits on Content (0-35 pts) Violations of User Rights (0-40 pts) Estonia Free Iceland Free Canada Free USA Free Germany Free Tunisia Partly Free Morocco Partly Free Lebanon Partly Free Jordan Partly Free Libya Partly Free Egypt Not Free UAE Not Free Bahrain Not Free Saudi Arabia Not Free Uzbekistan Not Free Ethiopia Not Free Iran Not Free Syria Not Free China Not Free Score: Free [0-30]; Partly Free [31-60]; Not Free [61-100] Source: Freedom House, Credit Libanais Economic Research Unit SOURCE: FREEDOM HOUSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 2

6 LEBANON RANKS 108 TH IN THE WORLD IN THE 2014 HUMAN FREEDOM INDEX During the first week of December, Fraser Institute published its Human Freedom Index 2016 annual report which uncovers human freedom scores in 159 countries for the year 2014 and measures the extent to which people in these countries are given the freedom to enjoy and practice their basic civil rights. In fact, Fraser Institute s index of human freedom is considered a comprehensive and broad measure of freedom globally covering a total of 79 indicators of personal and economic freedom reasonably in 11 major areas or categories. These areas are divided into two main groups which together compose the overall human freedom index (HFI). The first group is comprised of personal freedom indicators which are: rule of law; security and safety; movement; religion; association, assembly, and civil society; expression; and relationships. The other group includes sub-indices related to economic freedom and follow as such: size of government; legal system and property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business. The value of the index is accordingly calculated by averaging the scores obtained in all fields which range between 0 and 10, 10 representing more freedom. The report revealed a multiplicity of facts and numbers that are worth mentioning. To begin with, over the past couple of years, the world witnessed an overall decrease in personal freedom from a score of 7.23 in 2008 to a score of 7.17 in 2014 while economic freedom increased from 6.78 to This kept the overall human freedom index constant over the scope of six years at Moreover, the report noted that in recent years, the world saw freedom being attacked increasingly in both traditional and advanced societies and cultures, particularly with the rise of more calls that target minorities, criticize trade agreements and activities, and support the expansion of police power and authority. Correspondingly, while 69 nations scored above 7 in 2008 s HFI, that number fell to 64 in 2014, with highly influential countries like China, Russia, and Turkey recording the steepest of backslides. On a global level, Hong Kong topped the list of countries on the HFI with a score of Switzerland came second enjoying a score of 8.83 as New Zealand, Ireland, and Denmark followed in a descending order with respective scores of 8.76, 8.64, and Regionally, Turkey ranked first in the Middle East and North Africa (MENA) region with a score of 6.96 placing it in the 73 rd position worldwide. Second and third in the MENA region ranking were Bahrain (score: 6.75; global rank: 88) and Jordan (score: 6.74; global rank: 91) respectively. Lebanon came in the 4 th position with an overall score of 6.48 and a global rank of 108 faring better than Kuwait (score: 6.41; regional rank: 5; global rank: 111), Qatar (score: 6.38; regional rank: 6; global rank: 117), and the United Arab Emirates (score: 6.36; regional rank: 7; global rank: 118), only to name a few. In this context, Lebanon s score of 6.48 on the HFI came as a result of the combination of its 5.90 score in personal freedom and its 7.06 score in economic freedom. Furthermore, these results depict a decline in both Lebanon s overall rank from 104 in 2013 to 108 in 2014 and its overall score from 6.54 to The figures below demonstrate the mentioned in more detail. Country Rank Personal Freedom Economic Freedom Freedom Index Hong Kong Switzerland New Zealand Ireland Denmark Turkey Bahrain Jordan Lebanon Kuwait Qatar United Arab Emirates Oman Tunisia Morocco Saudi Arabia Egypt Algeria Syria Iran Yemen Libya Source: Fraser Institute, Credit Libanais Economic Research Unit Lebanon's Human Freedom Score Over Time Source: Fraser Institute, Credit Libanais Economic Research Lebanon's Performance in the 2014 Human Index Freedom Area Score Personal freedom: 5.90 Rule of Law 4.46 Security and Safety 5.59 Movement 5.00 Religion 8.75 Association 9.17 Expression and Information 7.62 Relationship 3.33 Economic Freedom: 7.06 Size of Government 8.44 Legal System and Property Rights 4.39 Sound Money 9.71 Freedom to Trade Internationally 6.58 Regulation 6.18 Overall Human Freedom 6.48 Source: Fraser Institute, Credit Libanais Economic Research Unit Lebanon's Human Freedom Ranking Over Time Source: Fraser Institute, Credit Libanais Economic Research Unit SOURCE: FRASER INSTITUTE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 3

7 LEBANON RANKS 5 TH IN THE ARAB WORLD IN THE 2014 INDEX OF ECONOMIC FREEDOM Fraser Institute published its Economic Freedom of the Arab World: 2016 Annual Report in which it recalculates its index of economic freedom scores for the previous years, and up until 2014, amid the availability of revised data. In fact, the index of economic freedom pivots around five major pillars, namely: - Size of government (expenditures, taxes, and enterprises): Measures the extent to which countries depend on individual choice and markets rather than the political process to allocate resources and services; - Commercial & economic law and security of property rights: Assesses the security of contracts, and rightfully acquired property; - Access to sound money: Measures whether the government resorts to printing money to finance expenditures; - Freedom to trade internationally: Assesses the presence of restraints (such as tariffs for instance) that affect international exchange; and - Regulation of credit, labor, and business: Checks for the presence of regulations that restrain entry into markets and interfere with the freedom to voluntary exchange labor and products. The value of the index is accordingly calculated by averaging the related scores on a scale from zero to ten. In this context, Lebanon s overall economic freedom score remained unchanged at 7.7 between the 2013 and 2014 period. In details, the report showed that Lebanon saw only minor changes in its subindices, scoring 8.2 in the regulation of credit, labor, and business metric in both 2013 and Lebanon fared better in the access to sound money metric, registering a score of 9.4 in the year 2014 (up from 9.3 in 2013), and in the freedom to trade internationally with a score of 6.5 (up from 6.2 in 2013). Lebanon fared worse, however, with regards to size of government, which stood at 8.4 in 2014, down from 8.5 in 2013, and in the commercial & economic law and security of property rights criteria with a score of 5.9 down from 6.1 in the year Lebanon's Performance in the 2014 Index of Economic Freedom Components 2013 Score 2014 Score Size of Government Commercial and Economic Law and Security of Property Rights Access to Sound Money Freedom to Trade Internationally Regulation of Credit, Labor, and Business Summary Economic Freedom Source: Fraser Institute, Credit Libanais Economic Research Unit When compared to its regional peers, Lebanon tied with Oman and came in the 5 th position in economic freedom in the Arab world, ahead of Qatar (regional rank: 7; score: 7.6), the Palestinian Territories (regional rank: 8; score: 7.3), Yemen (regional rank: 9, score: 7.2) and Saudi Arabia (regional rank: 10; score: 7.0), only to name a few. On the other hand, Lebanon trailed behind the United Arab Emirates (regional rank: 1; score: 8.2), Jordan (regional rank: 2; score: 8.1), Bahrain (regional rank: 3; score: 8.0) and Kuwait (regional rank: 4; score: 7.8). Overall Economic Freedom Index for Arab Countries for the Year 2014 Syria Algeria Libya Iraq Mauritania Sudan Comoros Djibouti Morocco Egypt Tunisia Saudi Arabia Yemen Palestinian Territories Qatar Oman Lebanon Kuwait Bahrain Jordan United Arab Emirates Source: Fraser Institute, Credit Libanais Economic Research Unit SOURCE: FRASER INSTITUTE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 4

8 25% OF BEIRUT CITIZENS ARE HAPPY WITH THEIR CITY OF RESIDENCE Bayt.com, one of the leading job sites in the Middle East region, published on 27, 2016 its Top Cities in the Middle East and North Africa Survey 2016 report in which it evaluates the quality of life in key cities across the region after gathering the opinions of residents in said cities surrounding seven main factors that shape their lifestyles. These factors are: economic factors, labor rights, environmental factors, standard of living factors, socio-cultural factors, sports, arts, culture & recreation factors, and entrepreneurship factors, each of which englobing several sub-elements. In this context, the citizens of Abu Dhabi emerged as the most happy among their regional peers, with 87% of respondents unveiling that they were very or somewhat happy about their city of residence, followed by the citizens of Muscat (82% of respondents) and Dubai (75% of respondents). On the other hand, Beirut residents appeared to be the least happy among all other interviewed citizens according to Bayt.com s survey, with a mere 25% of respondents expressing their happiness surrounding their life in the city, whereas 38% appeared to be not at all happy, 16% somewhat unhappy, and 21% neither happy nor unhappy. In fact, the survey shows that the majority of Beirut citizens are rather unsatisfied with all covered economic factors and labor rights, with less than one quarter of respondents considering the related sub-elements as good or excellent. Beirut residents are also displeased with most environmental factors at the exception of the weather (48% of respondents seeing it as good or excellent ) and the beauty of architecture and buildings (39% of respondents). Concurrently, Beirut citizens are unhappy with most entrepreneurship factors at the exception of the ability to find local talent to employ (37% of respondents) and the market willingness to accept new ideas (28% of respondents). As far as the standard of living factors are concerned, the Lebanese capital scored poorly in terms of basic services such as water, electricity, and sewage systems, public transportation, and the feeling of safety and stability, yet fared better in terms of the availability and quality of healthcare facilities (44% of respondents each), the availability of entertainment avenues such as restaurants, cinemas, social activities, and others (71% of respondents), the availability of educational institutions (69% of respondents), and the quality of education (68% of respondents). Beirut also reported mixed results in terms of socio-cultural factors, yet performed exceptionally well in the sports, arts, culture & recreation category, ranking among the top MENA cities in that area, with all underlying sub-elements being considered as good or excellent by 37% to 47% of respondents. Beirut Residents' Opinions with Regards to Selected Factors of Life in their City Factors Sub-Elements Excellent Good Average Poor Bad Don't Know Availability of Jobs 0% 7% 21% 0% 38% 4% Economic Factors Labor Rights Environmental Factors Standard of Living Factors Socio-Cultural Factors Sports, Arts, Culture, and Recreation Factors Entrepreneurship Factors Availability of Affordable Housing 0% 7% 11% 30% 44% 8% Reasonably Priced Day-to-Day Amenities 3% 12% 29% 29% 25% 2% Service Benefits 0% 5% 23% 25% 29% 18% Wage Protection System 1% 4% 25% 30% 29% 11% Health Insurance and Social Security Systems 4% 18% 21% 23% 26% 8% Comfortable Weather 19% 29% 19% 11% 21% 1% Clean Air 0% 8% 10% 21% 60% 1% Clean Water 0% 10% 25% 21% 44% 0% Beauty of Architecture and Buildings 10% 29% 26% 21% 12% 2% Availability of Healthcare Facilities 18% 26% 25% 7% 19% 5% Quality of Available of Healthcare Facilities 12% 32% 23% 11% 15% 7% Water/Electricity/Sewage Systems 0% 3% 16% 27% 49% 5% Accessible Public Transportation System 1% 15% 15% 22% 44% 3% Availability of Wide Range of Entertainment Avenues 42% 29% 11% 4% 7% 7% Availability of Educational Institutions 33% 36% 11% 4% 8% 8% Quality of Education 34% 34% 11% 7% 7% 7% Feeling of Safety and Security 3% 14% 18% 23% 38% 4% Equal Treatment of Both Genders 5% 23% 29% 18% 19% 6% Stable Political Environment 0% 3% 11% 12% 68% 6% Low Crime Rates 3% 8% 33% 15% 32% 9% Availability of Natural Areas/Natural Landscapes 15% 32% 21% 11% 16% 5% Availability of Outdoor/Sports Activities 15% 32% 22% 10% 16% 5% Culture and Arts Offerings 15% 30% 22% 15% 11% 7% Ease of Starting Up a New Business 1% 10% 21% 22% 33% 13% Ease of Finding Finances to Start a Business 0% 10% 21% 22% 37% 10% Market Willingness to Accept New Ideas and Innovations 7% 21% 23% 21% 18% 10% Market Saturation 5% 11% 23% 26% 18% 17% Ability to Find Local Talent to Employ 12% 25% 16% 21% 14% 12% Source: Bayt.com, Credit Libanais Economic Research Unit SOURCE: BAYT.COM, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 5

9 LEBANON RANKS 7 TH IN THE MENA REGION IN EXTERNAL DEBT RETURNS YTD NOVEMBER 2016 According to the High Yield & Emerging Market Profiles report published by Merrill Lynch, the yield on Lebanon s external debt stood at -2.22% during the month of 2016 (down from -0.06% in October) with the cumulative return on the external sovereign debt reaching 2.43% as at the end of the first eleven months of 2016 (down from 4.75% YTD October). This poises Lebanon to occupy the 7 th place among 9 MENA countries included in the external debt EM sovereign bond index in terms of total yield, with Iraq topping the list and enjoying a total return of 26.39% by, followed by Egypt (11.23%) and Tunisia (9.73%), only to name a few. It is worth highlighting that these returns are not risk-adjusted, which explains the fact that countries with high sovereign returns are associated with high Option Adjusted Spreads (OAS) as sketched in the table below. When factoring-in all emerging economies in the Merrill Lynch index, however, Ecuador emerged as the best performer with a sovereign yield of 37.97%, while Belize suffered the worst performance (a negative yield of 42.17%). As far as Lebanon is concerned, its excess return reached 1.06 % by, ranking eighth among surveyed MENA countries, noting that Iraq also recorded the highest excess return of 25.01% and the highest OAS of 779 bps. Furthermore, the report indicated that option adjusted spreads on Lebanon s External Sovereign Debt increased to 520 basis points (bps) by end of up from 511 bps YTD October. In this perspective, the weight assigned to Lebanon in Merrill Lynch s Emerging Markets external debt index advanced to 2.66% by end of up from 2.65% in the previous month, as captured in the following analysis: Lebanon's Sovereign External Debt Month of October 2016 Month of 2016 YTD October 2016 YTD 2016 Returns (%) Excess Return (%) Option Adjusted Spreads (bps) Lebanon's Weight in the Index (%) Source: M errill Lynch, Credit Libanais Economic Research Unit Total Return on Sovereign External Debt in MENA Countries YTD 2016 Country Returns (%) MENA Rank OAS (bps) Excess Return (%) MENA Rank Iraq Egypt Tunisia Bahrain Morocco UAE Lebanon Qatar Turkey Source: M errill Lynch, Credit Libanais Economic Research Unit SOURCE: MERRILL LYNCH, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 6

10 LEBANON S BALANCE OF TRADE DEFICIT WIDENS TO $13.23 BILLION BY OCTOBER 2016 On the current account side of the balance of payments, Lebanon s balance of trade deficit widened by $1.04 billion on an annual basis to around $13.23 billion YTD October 2016, up from $12.20 billion a year earlier, according to statistics published by Lebanon s Higher Customs Council. Said increase in the deficit was fueled by some $1.03 billion y-o-y expansion in imports to $15.72 billion, coupled with a $9 million drop in exports to $2.49 billion. Balance of Trade For the Ten-Month Period Ending Y-O-Y (US$ Million) Oct-2015 Oct-2016 % Change Exports 2,494 2, % Imports 14,689 15, % Trade Balance (12,195) (13,234) 8.52% Source: Higher Customs Council, Credit Libanais Economic Research Unit USD Million 20,000 16,000 12,000 8,000 4, ,000-8,000-12,000-16,000 Cumulative Balance of Trade Deficit Oct-2015 Oct-2016 Exports Imports Deficit Source: Higher Customs Council, Credit Libanais Economic Research Unit China topped the list of countries exporting to Lebanon, with its exports bill reaching $1,773 million (11.28% of Lebanon s imports). South Africa, on the other hand, led the list of countries importing from Lebanon, with its imports invoice aggregating to $574 million (23.12% of Lebanon s exports). This is further elaborated in the tables below: Major Import Sources (in USD Million) China 1, % Italy 1, % U.S.A. 1, % Germany % Greece % Source: Higher Customs Council, Credit Libanais Economic Research Unit Major Export Destinations (in USD Million) South Africa % Saudi Arabia % U.A.E % Syria % Iraq % Source: Higher Customs Council, Credit Libanais Economic Research Unit Exports of pearls, precious stones and metals accounted alone for 29.19% ($725 million) of total Lebanese exports by end of October 2016, followed by prepared foodstuffs, beverages, & tobacco ($365 million <14.70%>), machinery & electrical instruments ($272 million <10.95%>), and chemical products ($257 million <10.34%>). On the other hand, mineral products constituted the lion s share of imported goods ($3,324 million <21.14%>), trailed, and by far, by chemical products ($1,700 million <10.82%>), machinery & electrical instruments ($1,541 million <9.80%>), and transport equipment ($1,441 million <9.17%>). Product Breakdown of Exports by Product YTD October 2016 Value ($ Million) % of Total Pearls, Precious Stones and Metals % Prepared Foodstuffs, Beverages, Tobacco % Machinery, Electrical Instruments % Chemical Products % Others % Total Exports 2, % Source: Higher Customs Council, Credit Libanais Economic Research Unit Product Breakdown of Imports by Product YTD October 2016 Value ($ Million) % of Total Mineral Products 3, % Chemical Products 1, % Machinery, Electrical Instruments 1, % Transport Equipment 1, % Others 7, % Total Imports 15, % Source: Higher Customs Council, Credit Libanais Economic Research Unit SOURCE: HIGHER CUSTOMS COUNCIL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 7

11 COMMERCIAL BANKS ASSETS UP AT $ BILLION BY OCTOBER 2016 The consolidated balance sheet of commercial banks operating in Lebanon rose by 7.36% (LBP 20,627 billion) during the first ten months of 2016 to LBP 301,006 billion ($ billion), up from LBP 280,379 billion ($ billion) at end of year On an annual basis, the consolidated assets of the banking sector came in 9.55% higher than the LBP 274,771 billion ($ billion) reading reported at end of October The sector remains highly liquid, enjoying a primary liquidity ratio of 81.54% up from 78.06% a year before. USD Billion Oct Oct-2016 Total Assets Loans to the Private Sector Customer Deposits, o/w: Resident Private Sector Deposits Non-Resident Private Sector Deposits Public Sector Deposits Capital Accounts Dollarization Rate 65.92% 64.82% 66.14% 65.71% 64.57% 64.88% 65.10% Private Sector Loans/Deposits Ratio 33.45% 34.04% 34.05% 34.48% 34.71% 34.99% 35.12% - LBP Private Sector Loans/LBP Deposits 20.53% 20.84% 22.65% 23.58% 24.61% 24.11% 25.97% - FC Private Sector Loans/FC Deposits 40.47% 41.63% 40.26% 40.53% 40.94% 41.26% 40.36% Source: The Association of Banks in Lebanon, Credit Libanais Economic Research Unit USD Billion Evolution of Commercial Banks' Consolidated Assets Oct On the funding side of the balance sheet, customer deposits (private and public sector) rose by 4.16% (LBP 9,717 billion) during the first ten months of 2016 to LBP 243,306 billion ($ billion) at end of October, up from LBP 233,589 billion ($ billion) at year-end Said rise comes as a result of the 4.20% (LBP 7,583 billion) expansion in deposits from the resident private sector to LBP 188,072 billion ($ billion), accompanied by a 3.26% (LBP 1,567 billion) increase in deposits from the nonresident private sector to LBP 49,593 billion ($32.90 billion). From a currency denomination standpoint, deposits in Lebanese Pounds rose by 3.80% (LBP 3,244 billion) since beginning 2016 to LBP 88,583 billion ($58.76 billion), with foreign currency deposits increasing by 4.37% (LBP 6,474 billion) to LBP 154,724 billion ($ billion). In this context, the deposit dollarization rate rose to 65.10% in October, from 64.88% at end of year 2015 and 64.57% in October On an annual basis, customer deposits rose by 5.70% from LBP 230,180 billion ($ billion) at end of October 2015 to LBP 243,306 billion ($ billion) at end of October On the lending front, loans to the private sector increased by 4.54% (LBP 3,710 billion) YTD October to LBP 85,453 billion ($56.69 billion), up from LBP 81,743 billion ($54.22 billion) in December The loans portfolio increased by 6.97% annually, lifting the ratio of net loans to customer deposits to 35.12%, up from 34.99% and 34.71% in December and October of last year respectively. More specifically, the ratio of LBP-denominated private sector loans to LBP deposits inched higher to 25.97%, from 24.11% at year-end 2015 and 24.61% at end of October On the other hand, the ratio of foreign currencydenominated private sector loans to foreign currency deposits inched lower to 40.36% in October, down from 41.26% in December and 40.94% in October of last year. The consolidated capital accounts of commercial banks operating in Lebanon reached LBP 26,688 billion ($17.70 billion) in October, compared to LBP 25,131 billion ($16.67 billion) at end of year 2015 and LBP 24,547 billion ($16.28 billion) in October of last year. This can be explained by banks continuous reinforcement of their capital bases in order to meet BDL s solvency requirements Source: ABL, Credit Libanais Economic Research Unit SOURCE: ABL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 8

12 GROSS PUBLIC DEBT AT $74.51 BILLION AT END OF OCTOBER 2016 On the public finance front, Lebanon s gross public debt contracted by around $ million during the month of October 2016 to $74.51 billion, down from $74.73 billion in September. On an annual basis, gross public debt grew by $5.46 billion from $69.05 billion in October The Lebanese banking sector remains a major financing source for the Lebanese government, with its share of gross public debt decreasing to 46.62% in October, from 47.26% in September. As far as debt in local currency is concerned, the latter contracted by 0.30% month-on-month while rising by 5.97% year-on-year to $45.50 billion. Concurrently, debt in foreign currencies inched lower by 0.30% on a monthly basis and increased by 11.09% on a yearly basis to $29.01 billion. The share of debt in local currency remained almost flat at 61.06% of gross public debt in October while the share of foreign currency debt stood at 38.94%. Net public debt, which factors out public sector deposits, came in 6.59% higher y-o-y at $64.39 billion, up from $60.41 billion in October Public Debt (USD Billion) Oct-2015 Oct-2016 Y-O-Y % Change Gross Public Debt % Debt in LBP % Debt in Foreign Currencies % Public Sector Deposits % Net Public Debt % Source: The Association of Banks in Lebanon, Credit Libanais Economic Research Unit Composition of Gross Public Debt in October 2016 Debt in Foreign Currencies 38.94% Debt in LBP 61.06% Source: ABL, Credit Libanais Economic Research Unit The chart below sketches the annual evolution of Lebanon s public debt since October 2009, resulting in a 5.68% compounded annual growth in net debt over the concerned period. Evolution of Net Public Debt Billions of USD Oct-2009 Oct-2010 Oct-2011 Oct-2012 Oct-2013 Oct-2014 Oct-2015 Oct-2016 Source: ABL, Credit Libanais Economic Research Unit SOURCE: ABL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 9

13 OPENED LETTERS OF CREDITS DROP BY 16.13% Y-O-Y BY SEPTEMBER 2016 According to Banque Du Liban statistics, opened letters of credit (L/Cs), a measurement tool for trade activity, inched up by 34.65% during the month of September 2016 to $ million, up from $ million in August. On a cumulative basis, the face value of opened L/Cs came in 16.13% lower y-o-y at $4, million by September 2016, down from $5, million a year earlier. Evolution of Total Opened L/Cs $ Million 8,000 7, , , , , ,000 5, , ,000 4, ,000 4,000 3,000 2,000 1,000 - Up to Sep Up to Sep Up to Sep Up to Sep Up to Sep Up to Sep Up to Sep Up to Sep Source: BDL, Credit Libanais Economic Research Unit Documentary L/Cs opened to finance imports activities shed 6.33% y-o-y to $3, million by September, from $3, million in the same period last year. Concurrently, utilized credits for imports slipped to $3, million, from $3, million by September In parallel, inward bills for collection, another documentary credit form of financing (backed by invoices), plunged by 16.55% on a yearly basis to $ million, down from $1, million in the equivalent period in Documentary Credits for Imports' Financing for the Period Ended $ Million September 2015 September 2016 Y-O-Y % Change Documentary L/Cs Opened Credits 3, , % Utilized Credits 3, , % Outstanding Credits , % Bills For Collection Inward Bills 1, % Outstanding Bills % Source: BDL, Credit Libanais Economic Research Unit $ Million 4,000 3,500 3,000 2,500 2,000 1,500 1, Opened Letters of Credits & Inward Bills for Imports' Financing during the Period Ended 3, , , September 2015 September 2016 Opened Credits Inward Bills In a related note, documentary L/Cs opened to finance exports activities notched 35.84% lower y-o-y to $1, million by the month of September 2016 compared to $1, million a year earlier. Utilized credits to finance exports also dropped by 29.44% to $1, million (108.64% of opened L/Cs for exports), from $1, million in the corresponding period in Concurrently, outward bills for collection fell by 15.02% annually to $1, million, while the value of outstanding outward bills rose by 43.11% to $ million. Documentary Credits for Exports' Financing for the Period Ended $ Million September 2015 September 2016 Y-O-Y % Change Documentary L/Cs Opened C redits 1, , % Utilized C redits 1, , % Outstanding Credits 1, % $ Million 2,000 1,500 1,000 Opened Letters of Credits & Outward Bills for Exports' Financing during the Period Ended 1, , , , Bills For Collection Outward Bills 1, , % Outstanding Bills % Source: BDL, Credit Libanais Economic Research Unit September 2015 September 2016 Opened Credits Outward Bills SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 10

14 NET FOREIGN ASSETS OF THE LEBANESE FINANCIAL SECTOR REGISTER A $0.55 BILLION SURPLUS YTD SEPTEMBER 2016 The net foreign assets of Lebanon s financial sector recorded a monthly surplus of $188.7 million in September 2016 compared to a surplus of $1,787.8 million in August and a surplus of $352.1 million in July. This result is attributed to the $334 million surplus in the net foreign assets of banks & financial institutions which wiped out the $145.7 million deficit in the net foreign assets of the Lebanese Central Bank. On a cumulative basis, the net foreign assets of Lebanon s financial sector registered a surplus of $554.9 million by September compared to a deficit of around $1,771 million in that same period last year. This comes as a result of the accumulation of a surplus of $3,942.7 million in the net foreign assets of the Central Bank amid the introduction of the swap mechanism with banks in May 2016, outweighing the deficit of $3,388.0 million in the net foreign assets at the level of banks and financial institutions. Net Foreign Assets For the Nine-Month Period Ending In Millions of USD September 2015 September 2016 % Change Central Bank 1, , % Banks & Financial Institutions (2,929.0) (3,388.0) 15.67% Total (1,770.7) % Source: Banque Du Liban, Credit Libanais Economic Research Unit Cumulative Net Foreign Assets of the Financial Sector USD Million 2,940.3 USD Million Monthly Evolution of the Financial Sector's Net Foreign Assets 1, (301.8) (280.2) (152.6) (287.9) (254.9) (417.4) (13.0) (121.8) (332.0) (676.4) (1,539.0) (1,770.7) (1,931.7) Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep (718.9) (794.3) (861.6) Source: Banque Du Liban, Credit Libanais Economic Research Unit Source: Banque Du Liban, Credit Libanais Economic Research Unit WEIGHTED AVERAGE INTEREST RATE ON LBP DEPOSITS AT 5.58% IN SEPTEMBER 2016 According to BDL statistics, the weighted average interest rate on Lebanese Pound denominated deposits rose to 5.58% during the month of September 2016, from 5.56% in August and 5.57% in September Concurrently, the weighted average interest rate on U.S. Dollar denominated deposits increased to 3.43% in the ninth month of this year, from 3.39% in August and 3.14% a year before. In parallel, commercial banks discount and lending rate on LBP denominated loans came in higher at 8.44% in September, yet fell to 7.20% on USD denominated loans as elaborated hereunder: Interest Rate Levels August 2016 September 2016 LBP USD LBP USD LBP USD Average Rate on Deposits 5.57% 3.14% 5.56% 3.39% 5.58% 3.43% Term Savings & Deposits Rate 5.96% 3.60% 5.94% 3.83% 5.97% 3.88% Discount & Loans Rate 7.08% 7.19% 8.29% 7.28% 8.44% 7.20% Source: Banque Du Liban, Credit Libanais Economic Research Unit % 10.0 September 2015 Evolution of LBP Lending & Deposits Rates % Evolution of USD Lending & Deposits Rates Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Spread LBP Average Rate on Deposits LBP Discount and Loans Rate Spread USD Average Rate on Deposits USD Discount and Loans Rate Source: BDL, Credit Libanais Economic Research Unit Source: BDL, Credit Libanais Economic Research Unit SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 11

15 CONSOLIDATED ASSETS OF FINANCIAL INSTITUTIONS AT $1.65 BILLION BY END OF SEPTEMBER 2016 The consolidated balance sheet of financial institutions operating in Lebanon widened by LBP 99,815 million ($66.21 million) during the month of September 2016 to LBP 2, billion ($1, million), up from LBP 2, billion ($1, million) in August. This comes as a result of the 6.98% ($58.57 million) monthly hike in claims on the private sector to LBP 1, billion ($ million). On an annual basis, the balance sheet of Lebanese financial institutions rose by 1.03% in September 2016, compared to a 12.11% yearly contraction in September 2015 and a 21.20% annual increase in the same period in On the lending front, claims on the private sector, which constitute 54.31% of the total assets of financial institutions, came in 4.89% higher y-o-y at LBP 1, billion ($ million). On the other hand, claims on the public sector shed 8.08% annually to just below LBP billion ($ million), representing a stake of 8.13% of the total assets of Lebanese financial institutions. Financial Institutions Consolidated Balance Sheet USD Million Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep-2016 Y-O-Y % Change Assets Cash & Banks % Claims on the Private Sector % Claims on the Public Sector % Other Assets % Total Assets , , , , , , % Liabilities Liabilities to the Private Sector % Liabilities to the Financial Sector % Other Financial Liabilities % Capital Accounts % Other Liabilities % Total Liabilities , , , , , , % Source: Banque Du Liban, Credit Libanais Economic Research Unit Breakdown of Financial Institutions Balance Sheet as at September 2016 Claims on the Public Sector 8.13% Cash & Banks & Other Assets 37.56% Claims on the Private Sector 54.31% Source: BDL, Credit Libanais Economic Research Unit In a related note, the compounded annual growth rate (CAGR) in the balance sheet of Lebanese financial institutions hit the 10.01% mark over the September 2010 September 2016 period, as sketched in the chart hereunder: Evolution of Financial Institutions' Assets $ Million 2,000 1, ,800 1, , , ,600 1,400 1, , , , Sep-2010 Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep-2016 Source: BDL, Credit Libanais Economic Research Unit SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 12

16 CEMENT DELIVERIES UP BY 7.57% Y-O-Y BY SEPTEMBER 2016 Cement deliveries, the coincident indicator of construction activity, fell by 7.30% during the month of September 2016 to 479,369 tons, down from 517,135 tons in August. On a cumulative basis, however, cement deliveries rose by 7.57% y-o-y to 3,893,180 tons in the first three quarters of 2016, from 3,619,074 tons during that same period a year earlier. Evolution of Cumulative Cement Deliveries (Tons) Sep ,674,648 Sep ,868,439 Sep ,164,060 Sep ,923,130 Sep ,215,377 Sep ,220,390 Sep ,619,074 Sep ,893,180 Source: BDL, Credit Libanais Economic Research Unit 3,500,000 3,000,000 2,500,000 2,000,000 Yearly Evolution of Cement Deliveries Tons 4,500,000 3,868,439 4,164,060 3,923,130 4,220,390 4,215,377 3,674,648 3,619,074 3,893,180 4,000,000 Source: BDL, Credit Libanais Economic Research Unit Cement deliveries registered an extremely shy compounded annual growth rate (CAGR) of 0.83% over the September 2009 September 2016 period, mirroring the lackluster activity of Lebanon s construction sector. THE COINCIDENT INDICATOR INCREASES BY 4.68% Y-O-Y IN SEPTEMBER 2016 Banque Du Liban s coincident indicator, which is an indicative measure of the country s overall economic activity, and which comprises import of petroleum derivatives, electricity production, check clearing activity, cement deliveries, foreign passengers, foreign trade, and the M3 monetary aggregate, fell by a shy 0.14% during the month of September 2016 to 284.2, down from in August. On an annual basis, however, the coincident indicator came in 4.68% higher than the reading recorded in September of last year, portraying as such a moderate improvement in Lebanon s overall economic activity. Evolution of Lebanon's Coincident Indicator Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Source: BDL, Credit Libanais Economic Research Unit SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 13

17 RESERVES AT BDL REACH $51.20 BILLION AS AT END OF NOVEMBER 2016 The Lebanese Central Bank s balance sheet conveys some $ million contraction in its foreign assets (foreign currency reserves) portfolio during the second half of 2016 to $40.27 billion, from $40.57 billion as at mid-. Similarly, the value of gold reserves at BDL contracted by around $ million to reach $10.94 billion under pressure of a stronger U.S. dollar and possibility of an interest rate hike by the U.S. Federal Reserve during the month of December. On an annual basis, foreign assets at BDL came in 6.49% ($2.46 billion) higher than the $37.81 billion reading reported at end of Similarly, the value of gold reserves appreciated by around $1.19 billion (12.26%) year-on-year when compared to the $9.74 billion figure booked at end of of last year. Overall, total reserves (foreign currency and gold) at BDL increased by $3.65 billion annually to $51.20 billion, up from $47.56 billion a year before. These reserves cover around months of debt service and constitute around 4.59 folds the principal value of foreign and local currency debt that matures in 2016, and 68.52% & 79.67% of Lebanon s gross and net public debt on a respective basis: $ Billion Gold Foreign Assets Total Reserves Source: Banque Du Liban, Credit Libanais Economic Research Unit Total Reserves as a % of Year 2016 Short Term Debt* % as a % of Gross Public Debt (1) 68.52% as a % of Net Public Debt (1) 79.67% In months of Debt Service (2) * Due to the unavailability of data on projected interest payments for the year 2016, this figure only includes principal repayments on Eurobond Securities and Treasury Bills (1) As at September 2016 (2) Average Monthly Debt Service as at August 2016 Source: ABL, MOF, Credit Libanais Economic Research Unit Evolution of Total Reserves at Banque Du Liban USD Billion Gold Foreign Assets Source: Banque Du Liban, Credit Libanais Economic Research Unit In a related note, BDL s balance sheet contracted by $462.7 million during the second half of to $ billion as a result of the 1.30% drop in total reserves to $51.20 billion and the 0.56% decrease in fixed assets to $0.22 billion which outweighed the 0.09% increase in BDL s securities portfolio to $25.96 billion coupled with the 0.71% expansion in loans to local financial sector to $6.29 billion and 0.76% improvement in the value of other assets to $19.30 billion. $ Billion 2015 Mid Bi-Weekly (% change) Y-O-Y (% change) Total Reserves % 7.67% Securities Portfolio % 47.51% Loans to Public Sector Loans to Local Financial Sector % 25.95% Valuation Adjustment % 0.00% Other Assets % % Fixed Assets % -3.06% Total Assets % 12.00% Currency in Circulation Outside BDL % 13.79% Financial Sector Deposits % 12.49% Public Sector Deposits % -9.08% Valuation Adjustment % 36.69% Other Liabilities % 27.89% Capital Accounts % 3.26% Total Liabilities % 12.00% Source: Banque Du Liban, Credit Libanais Economic Research Unit Loans to Local Financial Sector 6.10% Loans to Public Sector 0.00% Breakdown of BDL's Balance Sheet as at 2016 Valuation Adjustment 0.00% In the same vein, the share of gold and foreign currency reserves at BDL dropped to 49.72% of the Central Bank s total assets by end of 2016, down from 50.15% as at mid- of the same year, and continue to linger behind the 51.73% level reported in the same period in Securities Portfolio 25.21% Other Assets 18.75% Source: BDL, Credit Libanais Economic Research Unit Fixed Assets 0.21% Total Reserves 49.72% SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 14

18 TRANSFERS TO EDL AT $ MILLION BY JULY 2016 The Lebanese Ministry of Finance published its monthly snapshot on government transfers to Electricité Du Liban (EDL), revealing a $ million annual contraction in the amounts transferred to LBP billion ($ million) during the first seven months of 2016, down from LBP 1, billion ($ million) during that same period in This owes primarily to the 40.78% year-on-year slump in the value of gas and fuel purchases from KPC and Sonatrach to LBP billion ($ million) amid the sizeable drop in the average prices of crude oil over the concerned period. In fact, the weighted average price of crude oil per barrel fell by nearly 29.55% y-o-y to $40.40 YTD July 2016, from $57.35 a year before, according to MOF statistics. Transfers to EDL For the Seven-Month Period Ending (USD Million) July 2015 July 2016 Y-O-Y % Change Transfers to EDL, of which: % - Debt Service % - Reimbursement for Purchase of Gas and Fuel % Source: The Lebanese Ministry of Finance, C redit Libanais Economic Research Unit It is worth noting that the amounts transferred to EDL constituted 7.81% of the government s total primary expenditures during the aforementioned period, compared to a much higher proportion of 14.16% in the same period last year. Share of Transfers to EDL of Primary Expenditures up to July 2015 Transfers to EDL 14.16% Share of Transfers to EDL of Primary Expenditures up to July 2016 Transfers to EDL 7.81% Other Primary Expenditures 85.84% Source: MOF, Credit Libanais Economic Research Unit Other Primary Expenditures 92.19% Source: MOF, Credit Libanais Economic Research Unit SOURCE: MOF, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 15

19 VALUE TRADED ON THE BSE UP BY 42.44% Y-O-Y BY NOVEMBER 2016 The unparalleled boom witnessed on the Beirut Stock Exchange (BSE) during the month of October attenuated to some extent in the subsequent month as the buildup in anticipation of a successful presidential election dissipated and the possibility of a delay in the formation of a new government started to emerge. Concurrently, the frequency and size of block trades were much more tamed in compared to the exceptionally large traded chunks of listed banking stocks recorded a month before. In this context, volume traded on the BSE plunged by 72.24% during the month of to just below 6.38 million shares, from million shares a month earlier, with value traded sinking by 71.14% to around $49.00 million, from nearly $ million in October. Trades mainly consisted of banking stocks, which represented 81.72% of the total traded volume, followed, and at quite a distance, by real estate (16.14%) and industry & trading (2.14%) stocks. As far as market capitalization is concerned, the latter rose to about $11.95 billion at end of, from $11.87 billion in October and $11.19 billion in of the previous year. Said rise in market capitalization comes as a result of the listing of some 4,936,644 additional Bank Audi GDRs. Allocation of Traded Volume in 2016 Industry & Trading Sector, 2.14% Real Estate Sector, 16.14% Allocation of Traded Value in 2016 Industry & Trading Sector 4.24% Real Estate Sector 23.98% Banking Sector, 81.72% Banking Sector 71.77% On a cumulative basis, traded volume on the BSE soared by 45.66% y-o-y to million shares by the end of the first eleven months of 2016, with value traded rallying by 42.44% to just over $ million. As far as trading multiples are concerned, the weighted average Price to Earning (P/E) and Price to Book Value (P/BV) multiples of stocks listed on the BSE ended the month of lower at 7.523x and 0.891x respectively, compared to 7.864x and 0.894x in October, mainly dragged by the correction in the prices of Solidere A and B shares. Analysis of the BSE Activity For the Month of October For the Eleven-Month Period Ended Y-O-Y % Change Monthly % Change Traded Value ($ 000) 169,757 48, % 596, , % Traded Volume (000) 22,971 6, % 70, , % Market Capitalization ($ Million) 11,866 11, % 11,190 11, % Traded Value/Market Capitalization 1.43% 0.41% 5.33% 7.12% Turnover Ratio 1.30% 0.36% 4.04% 5.79% Source: BSE, Credit Libanais Economic Research Unit Beirut Bourse Cumulative Trading Activity 900, , , , , , , , , ,895 11,190 70,479 YTD Nov ,234 11, ,660 YTD Nov ,200 12,000 11,800 11,600 11,400 11,200 11,000 10,800 Traded Value ($ 000) Traded Volume (000) Market Capitalization ($ Million) Overall, trading activity remained rather thin as portrayed by the small turnover ratio (being the number of shares traded divided by total listed shares) of 0.36% in alone and 5.79% during the first eleven months of the year. SOURCE: BSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 16

20 CORPORATE NEWS BANK AUDI TO ISSUE NEW SERIES I PREFERRED SHARES According to the resolutions adopted by the Extraordinary General Meeting of Shareholders of Bank Audi S.A.L. convened on 29, 2016 that were circulated by the Beirut Stock Exchange (BSE) on 30, 2016, it was decided to increase the bank s capital by LBP 4.14 billion from around LBP billion to about LBP billion through the issuance of some 2.50 million new Series I Preferred Shares, LBP 1,656 par value each. In details, the new Preferred Shares will be non-cumulative, redeemable, convertible, and perpetual and will be integrated in Bank Audi s additional Tier I capital. Nevertheless, the decision to convert Series I Preferred Shares into common shares lies in the hands of the issuer and can be induced by the occurrence of certain predefined trigger events. Upon such an event, a conversion notice would be distributed to the holders of the concerned shares for information, and the conversion would occur at a ratio of 15 common shares for every Series I Preferred Shares. The shares will be issued by December 31, 2016 at an issue price of $100 per share (consisting of the LBP 1,656 nominal value plus a premium in US Dollars), and will carry an annual dividend yield of 7.0. The minimum subscription amount for Bank Audi s Series I Preferred Shares is fixed at $200 thousand, with any excess thereof being in multiples of $1 thousand. It is worth highlighting that existing holders of Preferred Shares Series F, G, and H will have a preemptive right to subscribe to the Series I Preferred Shares. It is also worth noting that the bank intends to list the aforementioned Preferred Shares on the Beirut Bourse in the future. SOURCE: BSE, BANK AUDI, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 17

21 MONETARY PERFORMANCE MONETARY AGGREGATES The overall money supply, M4, widened by LBP billion during the week of 24, 2016 to LBP 205,681 billion, noting that the non-banking sector Treasury bills portfolio rose by LBP 38 billion during the concerned week. On the other hand, Lebanese-pound denominated deposits and currency in circulation, M1, fell by LBP billion week-on-week to LBP 8,851 billion on the back of some LBP 97 billion drop in money in circulation, which outweighed the LBP 53 billion expansion in demand deposits. Local currency term deposits, M2, also shed some LBP billion on a weekly basis, yet registered a 3.49% year-on-year increase to LBP 80,700 billion. Consequently, private sector term and saving deposits denominated in LBP ( M2-M1 ) edged slightly lower to LBP 71,850 billion, while deposits denominated in foreign currencies ( M3-M2 ) firmed at LBP 114,087 billion. Money Supply LBP Billion 17, , 2016 % Change M1 8,895 8, % M2 80,891 80, % M3 194, , % M4 205, , % M2- M1 71,996 71, % M3-M2 113, , % Source: Banque Du Liban, Credit Libanais Economic Research Unit 86,000 66,000 46,000 26,000 6,000 Money Supply - LBP Billion - 205, , , ,787 17, , 2016 M4 M3 Source: BDL, Credit Libanais Economic Research Unit MONEY MARKETS The December 1 st Treasury bill auction raised LBP billion ($ million), compared to LBP billion ($ million) in the auction of the previous week. The majority of subscriptions (49.02%) was concentrated in the five-year to maturity T-bonds, followed by the one-year (27.85%) and three-month (23.13%) tenure bills. Consequently, the weighted average yield on Lebanese Pound Treasury bills stood at 5.82% in the auction of December 1. The yields on the three-month, one-year, and five-year to maturity Treasury securities remained flat at 4.44%, 5.35%, and 6.74% respectively. December 1, 2016 Lebanese Treasury Bills Yield (%) Face Value (in billions of LBP) % of Total Face Value 3 Months 4.44% % 12 Months 5.35% % 60 Months 6.74% % Total % Source: Reuters, Credit Libanais Economic Research Unit Lebanese Treasury Bills 3 Months 6 Months 12 Months 24 Months 36 Months 60 Months 84 Months 120 Months 180 Months Treasury Yield 4.44% 4.99% 5.35% 5.84% 6.50% 6.74% 7.08% 7.46% 7.90% 9.00% On The Run Yield Curve 8.00% 84 Months 120 Months 180 Months 7.00% 6.00% 24 Months 36 Months 60 Months 12 Months 5.00% 3 Months 6 Months 4.00% 3.00% SOURCE: BDL, REUTERS, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 18

22 LEBANESE EQUITIES LEBANESE EQUITIES Activity on the Beirut Stock Exchange was somewhat tamed after last week s exceptional hike, which was triggered by a sizeable block trade on Bank Audi listed shares involving nearly 9 million stocks. Trading activity remained, however, solid this week, with large traded chunks on Byblos Bank listed shares (3 million stocks on Tuesday alone). In fact, the number of shares changing hands fell to 4,207,083 shares, down from 10,568,377 shares last week, with value traded slipping to just below $14.92 million, from $75.03 million a week before. The contribution of banking sector stocks of total weekly traded volume stood at 96.93%. In parallel, the average daily trading volume plunged to 841,417 shares this week, from 2,113,675 shares last week. Similarly, the average daily trading value narrowed to $2.98 million, from around $15.01 million a week earlier. Seven gainers and four losers were screened this week, lifting the BSE s market capitalization up by 0.20% week-on-week to $11.98 billion and the Credit Libanais Aggregate Stock Index ( CLASI ) higher by 0.13% to 1, In the real estate sector, trades mainly consisted of Solidere A and B shares (3.04% of total traded volume), with the price of Solidere A shedding 1.34% to $11.01 and that of Solidere B increasing by 0.36% to $ Consequently, the Credit Libanais Construction Sector Stock Index ( CLCI ) ended its week 0.75% lower at In the banking sector, Byblos Bank listed shares amassed the highest concentration of trades (81.42% of total traded volume) on a thin turnover ratio of 0.61%. The Credit Libanais Financial Sector Stock Index ( CLFI ) inched 0.37% higher this week to 1, amid the 0.90% appreciation in the price of Bank Audi listed shares to $6.76, accompanied by some 0.58% increase in the price of BLOM Bank listed shares to $10.36 and a 1.83% hike in the price of BLOM Bank GDRs to $11.10, which altogether outweighed the 1.32% drop in the price of Bank Audi GDRs to $6.75 and the 1.18% contraction in the price of Byblos Bank listed shares to $1.67. Credit Libanais Week of Week of Weekly YTD Indices 2-Dec-16 9-Dec-16 % Change % Change Credit Libanais Aggregate Stock Index <.CLASI> Credit Libanais Financial Sector Stock Index <.CLFI> Credit Libanais Construction Sector Stock Index <.CLCI> Index Value.CLASI 1,200 1,180 1,160 1,140 1,120 1,100 1,080 1,060 1,040 1,020 1, Dec Jan-16 1, , % 9.25% 1, , % 10.13% % 6.15% Credit Libanais Aggregate Stock Index Weekly Performance CLASI 22-Mar-16 CLASI 0.13% Credit Libanais Aggregate Stock Index Friday, December 09, 2016 Value Daily % Chng Daily Net Chng 1, % Yr.High Year Hi.Date Yr.Low Year.Lo.Date 1, Nov-16 1, Mar-16 Life High Life Hi.Date Life Low Life.Lo.Date 1, Jul Mar May Jul Aug Oct Dec-16 Credit Libanais Financial Sector Stock Index Weekly Performance CLFI Credit Libanais Construction Sector Stock Index Weekly Performance CLCI 1, , Index Value 1,450 1,400 Index Value ,350 1,300 CLFI 0.37% 500 CLCI 0.75% 09-Dec Jan Mar May Jul Aug Oct Dec Dec Jan Mar May Jul Aug Oct Dec-16 SOURCE: BSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 19

23 LEBANESE EQUITIES BEIRUT STOCK EXCHANGE Closing Weekly %Change Weekly Volume Traded % of Weekly Volume Traded Lebanese Equities Weekly Value Traded Total Listed Shares Market Capitalisation ($000) Solidere A $ % 96, % $1,075, % 100,000,000 $1,101, % 2.04% 1.94% 1.49% Solidere B $ % 31, % $350, % 65,000,000 $724, % 2.02% 1.92% 2.55% BLC Bank $ % ,033,333 $70, % 26.26% 24.95% % BLC Bank Preferred Class "B" $ % ,000 $55,000 n.a n.a -2.44% 6.65% 6.32% 3.88% BLC Bank Preferred Class "C" $ % ,000 $35,000 n.a n.a -0.99% 6.41% 6.09% 5.10% BLC Bank Preferred Class "D" $ % ,000 $75,000 n.a n.a 0.00% Bank Audi - Listed Shares $ % 3, % $23, % 399,749,204 $2,702, % 5.92% 5.62% 17.36% Bank Audi GDR $ % 63, % $429, % 119,924,761 $809, % 5.93% 5.63% 18.13% Bank Audi Preferred "F" $ % 1, % $188, % 1,500,000 $154,500 n.a n.a 1.28% 5.83% 5.53% 6.81% Bank Audi Preferred "G" $ % 4, % $409, % 1,500,000 $153,000 n.a n.a 0.99% 5.88% 5.59% 6.58% Bank Audi Preferred "H" $ % 2, % $253, % 750,000 $76,125 n.a n.a 0.00% 6.40% 6.08% 6.08% Bank Of Beirut - Listed Shares $ % ,746,417 $333, % 3.18% 3.02% 3.02% Bank Of Beirut Priority Shares 2014 $ % ,762,000 $100, % 4.00% 3.80% 3.80% Bank Of Beirut Preferred "H" $ % ,400,000 $141,750 n.a n.a -0.94% 6.67% 6.33% 5.39% Bank Of Beirut Preferred "I" $ % ,000,000 $131,250 n.a n.a -0.94% 6.43% 6.11% 5.16% Bank Of Beirut Preferred "J" $ % ,000,000 $78,000 n.a n.a 0.97% 6.25% 5.94% 6.91% Bank Of Beirut Preferred "K" $ % ,000,000 $101,000 n.a n.a 1.00% Byblos Bank - Listed Shares $ % 3,425, % $5,819, % 565,515,040 $944, % 7.94% 7.55% 11.27% Byblos Bank Preferred Class 2008 $ % ,000,000 $204,000 n.a n.a 0.79% 7.84% 7.45% 8.24% Byblos Bank Preferred Class 2009 $ % 3, % $353, % 2,000,000 $209,000 n.a n.a 3.88% 7.66% 7.27% 11.15% Byblos Bank GDR $ % ,309,078 $104, % 8.29% 7.87% 7.93% BEMO Bank - Listed Shares $ % ,400,000 $82, % 2.36% 2.25% % BEMO Bank Preferred Class 2013 $ % ,000 $35,000 n.a n.a 0.00% 7.00% 6.65% 6.65% BLOM Bank GDR $ % 102, % $1,121, % 73,896,010 $820, % 7.47% 7.10% 20.94% BLOM Bank Listed Shares $ % 471, % $4,877, % 215,000,000 $2,227, % 8.00% 7.60% 17.82% BLOM Bank Preferred Class 2011 $ % ,000,000 $200,000 n.a n.a -1.48% 7.00% 6.65% 5.17% RYMCO Class "B" $ % ,920,000 $35, % 3.37% 3.20% 3.82% Holcim Liban $ % 1, % $15, % 19,516,040 $255, % 6.19% 5.88% -4.11% Ciment Blancs Bearer $ % ,000,000 $16, % 10.56% 10.03% % Ciment Blancs Nominal $ % ,000,000 $4, % 18.29% 17.38% % Note: n.a stands for not applicable Source: Beirut Stock Exchange, Credit Libanais Economic Research Unit % of Weekly Value Traded P/E P/BV YTD Price Perf. Gross Dividend Yield Net Dividend Yield YTD Total Net Return Activity Analysis Previous Last % Change Value Traded ($) 75,031,059 14,919, % Volume Traded 10,568,377 4,207, % Average Daily Trading Value ($) 15,006,212 2,983, % Average Daily Trading Volume 2,113, , % Market Cap - BSE ($) 11,956,613,822 11,980,161, % Weighted Average P/E % Weighted Average P/BV % Source: Beirut Stock Exchange, Credit Libanais Economic Research Unit Evolution of Beirut Bourse Comparable Benchmarks Dec 2, 2016 Dec 9, 2016 P/E P/BV Source: BSE, Credit Libanais Economic Research Unit The weighted average price to earnings (P/E) multiple of listed stocks ended Friday s session lower at 7.523x, while the price to book (P/BV) metric firmed at 0.893x. SOURCE: BSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 20

24 LEBANON S MAIN INDICATORS Recap of Lebanon's Major Indicators MACROECONOMIC INDICATORS GDP ($ Billion) * 51.17* 52.80* Real GDP Growth Rate 10.30% 8.00% 0.90% 2.80% 2.50% 2.00%* 1.00%* 1.00%* GDP Per Capita ($) 8,274 8,756 9,144 9,966 10,655 11,073* 11,237* 11,484* Net Foreign Direct Investment ($ Billion) FDI/GDP Ratio 13.77% 13.05% 11.79% 7.86% 12.71% INDUSTRY Industrial Exports ($ Million) 2,595 3,291 3,530 2,952 3,076 3,150 2,956 1,897 (5) Import of Industrial Machinery ($ Million) (5) TOURISM Total Number of Tourists 1,851,081 2,167,989 1,655,051 1,365,845 1,274,362 1,354,647 1,517,927 1,302,655 (5) Growth in Tax-Free Spending 13% 21% 10% -6% 4% 8% 2% -10% (5) REAL ESTATE Value of Real Estate Transactions ($ Million) 6,958 9,479 8,841 9,175 8,708 8,952 8,006 6,729 (6) Number of Real Estate Sales Transactions 83,465 94,202 82,984 74,569 69,198 70,721 63,386 51,707 (6) Construction Permits (000 sqm) 11,509 15,187 13,980 12,362 10,527 11,164 10,294 8,359 (6) Cement Delivery (000 tons) 4,897 5,227 5,550 5,309 5,831 5,517 5,043 3,893 (5) TRANSPORTATION Beirut Port: Freight Activity (000 Tons) 5,769 6,469 6,677 7,225 8,268 8,281 7,240 7,343 (6) Beirut Airport: Number of Passengers (million) (6) FOREIGN TRADE Imports ($ Million) 16,242 17,964 20,158 21,280 21,228 20,494 18,069 15,719 (6) Exports ($ Million) 3,484 4,253 4,265 4,483 3,936 3,313 2,952 2,485 (6) Trade Balance ($ Million) (12,758) (13,711) (15,893) (16,797) (17,292) (17,181) (15,117) (13,234) (6) BALANCE OF PAYMENTS Net Foreign Assets at the Financial Sector ($ Million) 7,899 3,325 (1,996) (1,537) (1,127) (1,407) (3,354) 555 (5) Foreign Assets ($ Billion) (8) PUBLIC FINANCE Government Expenditures ($ Million) 11,388 11,336 11,675 13,321 13,640 13,952 13,528 9,404 (4) Government Revenues ($ Million) 8,428 8,414 9,333 9,396 9,420 10,879 9,576 6,876 (4) Budget Primary Deficit / Surplus ($ Million) 3,380 1,203 1,662 (110) (240) 1, (4) Total Deficit ($ Million) (2,960) (2,894) (2,342) (3,925) (4,220) (3,073) (3,952) (2,528) (4) Deficit / GDP Ratio 8.42% 7.61% 5.84% 8.90% 8.87% 6.14% 7.26% Debt Service / GDP Ratio 11.49% 10.85% 9.99% 8.21% 7.96% 8.75% 8.60% Net Public Debt ($ Billion) (6) Gross Public Debt/GDP Ratio % % % % % % % MONETARY AGGREGATES & INFLATION M4 ($ Billion) (7) (M2- M1) ($ Billion) (7) Monetization Level (M2/GDP Ratio) 97.35% % 99.32% 99.44% 95.68% 97.34% % Change in CPI (%) 4.20% 6.19% 4.27% 4.68% 2.05% -1.66% -3.40% 1.13% (6) BANKING SYSTEM Number of Commercial Banks (1) Number of Branches ,020 1,039 1,039 (1) Total Assets ($ Million) 115, , , , , , , ,672 (6) Total Deposits ($ Million) 96, , , , , , , ,397 (6) Loans to the Private Sector ($ Million) 28,374 34,929 39,375 43,452 47,381 50,899 54,224 56,685 (6) Customer Loans/ Deposits 29.31% 32.16% 33.45% 34.04% 34.05% 34.48% 34.99% 35.12% (6) Dollarization Rate 64.46% 63.24% 65.92% 64.82% 66.10% 65.71% 64.88% 65.10% (6) Net Profit - After Tax ($ Million) 1,429 1,838 1,743 1,620 Exchange Rate (LBP to USD) 1, , , , , , , , * Figures Reflect IM F Estimates (1) As at M arch, 2016, (2) A s at End o f June, 2016, (3) As at July, 2016, (4) As at August, 2016, (5) As at September, 2016, (6) As at October, 2016, (7) As at 24, 2016 (8) As at, 2016 SOURCE: BDL, ABL, MOF, IMF, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 21

25 LEBANON S RATINGS Republic Of Lebanon Sovereign Ratings Rating Agency Tenor Rating Standard & Poor's Global Ratings Long- Term B- Short- Term B Moody's Investors Service Long- Term B2 Fitch Ratings Long- Term B- Short- Term B- Source: S&P Global Ratings, M oody's Investors Service, Fitch Ratings Outlook Stable Negative Stable Lebanese Banks' Latest Ratings Rated Banks Moody's Investors Service Fitch Ratings S&P Global Ratings Long Term Foreign Currency Financial Strength Outlook Long Term IDR Outlook Long-Term Counterparty Credit Rating Short-Term Counterparty Credit Rating Outlook Bank Audi B2 E+ Negative B- Stable B- C Stable BLOM Bank B2 E+ Negative - - B- - Stable Credit Libanais Byblos Bank B2 E+ Negative B- Stable BBAC Fransabank BankMed B- C Stable Sources: Moody's Investors Service, Fitch Ratings, S&P Global Ratings SOURCE: S&P, MOODY S, FITCH, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 22

26 CONTACTS RESEARCH Fadlo I. Choueiri, CFA EXT: 1280 Jad Abi Haidar, CFA EXT Joelle Samaha EXT Mayda Zaarour EXT Nagham Abdel Ahad EXT MONEY MARKETS DESK Robert Araman EXT This document is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This document does not constitute an offer or invitation to subscribe to or purchase any security, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. Reasonable care has been taken to ensure that the facts stated herein are accurate and the estimates, opinions and expectations contained herein are fair and reliable. ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: FAX: