The LEBANON WEEKLY MONITOR

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1 CONTACTS The LEBANON WEEKLY MONITOR Treasury & Capital Markets Bechara Serhal (961-1) Nadine Akkawi (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) Gerard Arabian (961-1) Farah Nahlawi (961-1) Nivine Turyaki (961-1) Economy p.2 WORLD BANK RECOMMENDS A STRUCTURAL REFORM PROGRAM THAT AIMS TO LOWER PUBLIC DEBT-TO-GDP In a report issued this week on Lebanon, the World Bank says a slowdown in economic activity, delay in government formation as well as global monetary conditions are increasing macro-financial risks, after having waned somewhat in the follow-up to the successful CEDRE conference in which the Government presented a Capital Investment Plan (CIP). Also in this issue p.3 Total number of passengers at the airport up by a yearly 7.1% in the first three quarters of 2018 p.4 Slowdown in the activity of the Port of Beirut in the first eight months of 2018 Surveys p.5 LEBANESE ECONOMY SUFFERING BUT MONETARY FINANCIAL RESILIENCE TO BE SUSTAINED, SAYS IIF According to the Institute of International Finance (IIF), the Lebanese economy is suffering from a protracted economic stagnation, as the lack of reforms and delay in the formation of the new Cabinet dampened private consumption and investment. The IIF yet foresees continued monetary banking resilience. Also in this issue p.6 Lebanon s twin imbalances remain elevated and fiscal discipline appears weak, as per BAML Corporate News p.7 BANKMED ASSETS TOTALED US$ 17.2 BILLION AT END-JUNE 2018 Bankmed registered net profits of US$ 40.1 million in the first half of 2018, down by 49.0% from US$ 78.7 million in the first half of 2017, as per Bankdata Financial Services. Also in this issue p.8 Net profits of Banque Libano-Française down to US$ 61.8 million in the first half of 2018 p.8 EDL launches tender to implement second phase of Beirut River Solar Snake project Markets In Brief p.9 LEBANON S CAPITAL MARKETS IMPROVE ON SIGNS OF CABINET BREAKTHROUGH Amid hopes to reach a near breakthrough in the cabinet formation deadlock, Lebanon s capital markets witnessed this week extended bond price recovery, first equity price gains in ten weeks, and balanced FX activity. In details, Lebanese Eurobonds extended their upward trajectory that has started mid last week. This was reflected by a 24 bps contraction in the weighted average yield to reach 9.77%. On the equity market, prices registered their first weekly gains following nine weeks of contractions. The BSE price index rose by 1.2%, driving down year-to-date price falls to 13%. The BSE total turnover surged by 59% week-on-week to reach US$ 7.6 million. This compared to an average weekly turnover of US$ 5.9 million since the beginning of the year On the FX market, activity was balanced with the LP/US$ interbank rate remaining quoted at LP 1,514-LP 1,514.50, while BDL s foreign assets reached US$ 43.5 billion at end-september LEBANON MARKETS: WEEK OF OCTOBER 01 - OCTOBER 07, 2018 Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box Lebanon - Tel: research@bankaudi.com.lb 1

2 ECONOMY _ WORLD BANK RECOMMENDS A STRUCTURAL REFORM PROGRAM THAT AIMS TO LOWER PUBLIC DEBT-TO-GDP In a report issued this week on Lebanon, the World Bank says a slowdown in economic activity, delay in government formation as well as global monetary conditions are increasing macro-financial risks, after having waned somewhat in the follow-up to the successful CEDRE conference in which the Government presented a Capital Investment Plan (CIP). The CIP won pledges of over US$ 11 billion from donors. Global emerging market strains are putting Lebanon s bank-dependent twin-deficit financing to severe test. In the meantime, a legacy of underinvestment and severe social strains from the refugee influx are compounding. The World Bank projection for 2018 real GDP growth is revised downwards to 1%, from a previous forecast of 2%. Indeed, high frequency indicators point to a deceleration in economic activity thus far in 2018 across all but the external sector, where a 7.3% year-on-year rise in merchandize exports over H neutralized higher imports to leave the trade deficit similar in absolute value (and lower as percentage of GDP). Meanwhile, tourist arrivals rose by 3.3% (yoy) in H1 2018, marking a deceleration compared to 14.2% growth in H Hence, whereas private consumption has traditionally led real GDP growth, net exports are expected to be the main driver in 2018 for the second year running as per the World Bank. On the other hand, real estate indicators point to a contraction in the sector, with cement deliveries down by 3.4% in H Structurally, the economy remains heavily based on services (especially real estate, retail and financial services) and oriented towards the region, rendering it vulnerable to volatility in growth and sizable macroeconomic imbalances. In 2018, the lack of an exceptional tax windfall (generated in 2017 from large banking sector profits reaped from financial engineering operations in 2016), are expected to be offset by the full impact of additional revenue measures introduced by the salary scale reforms. The latter will nonetheless increase current spending driving up the fiscal deficit from an exceptionally low 6.6% of GDP in 2017 to a projected 8.3% in Moreover, subdued GDP growth and high interest payments mean that the debt-to-gdp ratio is expected to reach 155% by end-2018 according to the World Bank projection. LEBANON / VOLATILE ECONOMIC ACTIVITY REFLECTS FREQUENT SHOCKS Sources: Lebanese authorities and WB staff calculations 2

3 Credit-default Swap (CDS) and EMBIG spreads, indicators of risk premium, are surpassing those registered in November This is being driven by foreign deleveraging from Lebanese assets due to political (lack of government), geopolitical (Iran, Syria tensions) and emerging market pressures. In response, BdL financial engineering continues, with the latest being a SWAP of Tbs held by BdL with newly MoF-issued Eurobonds in the amount of US$ 5.5 billion, around US$ 3 billion of which were subsequently sold (along with enticements) to banks. The main objective of this operation was to raise BdL s foreign exchange (forex) reserves, which reached around US$ 44 billion by end-june, equivalent to about 15 months of imports of goods and services, compared to US$ 42 billion at end Nonetheless, this primarily is driven by BdL s cache of government Eurobonds, which it began counting as part of its forex stock since November That is, while the stock of foreign currencies at BdL decreased by US$ 2.7 billion over H1 2018, its stock of foreign-denominated securities increased by US$ 4.8 billion as per the World Bank. The lack of obvious sources for an economic boost suggests Lebanon s medium-term economic prospects remain sluggish. On the fiscal side, a gradual rise in the fiscal deficit-to-gdp ratio is expected by the World Bank over the medium term, in light of rising debt service, while the government committed in Paris to an annual 1% decline in the fiscal deficit ratio over the next 5 years, along the lines of the recommendations of the IMF Article IV assessment. Externally, the current account deficit is expected to moderate somewhat due mainly to suppressed imports, as slow economic growth is weighed down by monetary tightening, itself partially driven by BdL s financial engineering. The World Bank says the follow-up to the Paris investor conference in April 2018 presents a unique opportunity for Lebanon to effect a sustained boost to the economy, attract much needed capital inflows, and catalyze job creation. The World Bank recommends that an essential component of this process is the adoption and implementation of a structural reform program, including a debt management strategy that aims to lower the public debt-to-gdp ratio toward a more sustainable trajectory. TOTAL NUMBER OF PASSENGERS AT THE AIRPORT UP BY A YEARLY 7.1% IN THE FIRST THREE QUARTERS OF 2018 Figures released by the Rafic Hariri International Airport revealed that the total number of passengers recorded a yearly 7.1% increase in the first three quarters of The number of aircraft rose by 3.5% year-on-year in the aforementioned period. In parallel, the total freight handled by the airport surged by 2.3% year-on-year during the same period. A detailed look at the activity shows that the number of incoming passengers rose by a yearly 7.8% and that of departing passengers by 6.4% to reach 3,435,366 and 3,412,900 respectively in the first three quarters of The number of transiting passengers declined by 14.9% year-on-year to attain 3,504 in the first three quarters of When including the latter mentioned category, the total number of passengers using the airport attained 6,851,775, i.e. 7.1% higher than the level seen in the first three quarters of Looking at the aircraft activity, landings and take-offs rose by an annual 3.5% each, with the former amounting to 28,262 planes and the latter reporting 28,265 in the first three quarters of Regarding the freight movement within the airport, a total of 42,334 thousand tons were imported and unloaded during the first three quarters of 2018, while 29,918 thousand tons were loaded and exported. The first mentioned activity posted an increase of 4.3% while the latter posted a 0.3% fall on a yearly basis in the first three quarters of

4 SLOWDOWN IN THE ACTIVITY OF THE PORT OF BEIRUT IN THE FIRST EIGHT MONTHS OF 2018 The latest statistics released by the Port of Beirut revealed a yearly 0.8% decrease in the Port s revenues in the first eight months of 2018 compared to the same period of the previous year. The Port s revenues actually reached US$ million in the first eight months of In parallel, the number of containers recorded an annual fall of 0.8% to attain a total of 580,997 in the first eight months of The number of ships posted a decline of 1.3% year-on-year to reach a total of 1,246 vessels in the first eight months of During the corresponding period of 2017, the former had registered an increase of 3.2% year-on-year and the latter decreased by 9.2%. The quantity of goods decreased by a yearly 7.4% to 5,322 thousand tons in the first eight months of 2018, following a fall of 3.1% reported in the first eight months of Transshipments rose by 9.4% year-on-year to attain 285,489 containers in the first eight months of 2018, following a rise of 28.9% in the corresponding period of ACTIVITY OF THE PORT OF BEIRUT (FIRST EIGHT MONTHS OF THE YEAR) Sources: Port of Beirut, Bank Audi's Group Research Department 4

5 SURVEYS LEBANESE ECONOMY SUFFERING BUT MONETARY FINANCIAL RESILIENCE TO BE SUSTAINED, SAYS IIF According to the Institute of International Finance (IIF), the Lebanese economy is suffering from a protracted economic stagnation, as the lack of reforms and delay in the formation of the new Cabinet dampened private consumption and investment. The delay in forming a new Cabinet is also standing in the way of the country s access to US$ 11 billion of concessional loans pledged in April by the international community. Several leading indicators registered declines in the first seven months of this year as compared with the same period of last year. The slow pace of recovery in tourism is partly due to the continued decline in visitors from Saudi Arabia and the UAE, who accounted for the biggest share of tourist spending before Therefore, the IIF have revised its 2018 growth forecast down to 1.3%. The Institute of International Finance expects the peg of the Lebanese pound to the US dollar to be maintained, supported by adequate foreign currency reserves of US$ 43.6 billion and gold reserves valued at US$ 11.1 billion in August. The peg provides a strong anchor and remains the basis of financial stability, as per the report. While the sizeable real effective exchange rate appreciation in recent years has weakened Lebanon s competitiveness, productivity gains from structural reforms could help close the competitiveness gap. It is worth noting that monetary policy needs to remain tight to reduce inflationary pressures, support the peg to the dollar, and help attract adequate nonresident deposits, as per the same source. Underlying large twin deficits pose a continuing threat to macroeconomic stability. The Institute of International Finance expects the fiscal deficit to widen to 9.7% of GDP in 2018, and the public debt-to- GDP ratio to increase from 148% in 2017 to 151% in The report added that the Lebanese banking sector, which is the backbone of the economy, has been relatively resilient to regional conflicts and political shocks. Liquidity buffers remain adequate, with Tier 1 capital ratio at 15.3% at end Funding risks remain low, on average, as banks have one of the highest deposit-to-loan ratios among emerging economies. Nonetheless, depositors commitment to Lebanon is conditional on stable political environment, including formation of a new unity government, and the stability of the peg regime. International markets have become more volatile and the risk premia for a broad range of emerging markets, including Lebanon, have increased. However, Lebanon is different from Turkey, as stated by the IIF. First, monetary policy has been and remains independent despite all the political bickering. Second, Lebanese corporates exposure to the international market is negligible as they cover their financing needs from the highly liquid local banks. Third, more than 80% of the funding of Lebanese banking sector comes from deposits, including nonresident deposits of the loyal Lebanese diaspora. 5

6 _ LEBANON S TWIN IMBALANCES REMAIN ELEVATED AND FISCAL DISCIPLINE APPEARS WEAK, AS PER BAML According to a recent report by Bank of America Merrill Lynch (BAML), Lebanon s twin imbalances remain elevated and fiscal discipline appears weak. The financial system appears to be losing some steam with deposit growth around circa 5%, while financial engineering operations erode the Banque du Liban (BdL) balance sheet strength. Nonetheless, a prompt Cabinet formation is likely to be needed as a positive catalyst to restore confidence, policymaking capacity and coordinate CEDRE reforms and associated donor disbursements. This could in turn lead to a squeeze in credit markets, especially if BdL incentivizes local banks to purchase back Eurobonds. In this scenario, this may in turn provide an opportunistic room for the MoF to tap markets. A prolonged delay to Cabinet formation could lead to further financial engineering operations, with negative side effects on Eurobonds, as per BAML. The report added that the structure of the Eurobond sale in May 2018 by the BdL did not erode BdL or local banks profitability. Should market access remains challenging, this sale could thus be repeated in the future, most likely in Q1 19 prior to the US$ 0.5 billion May 2019 Eurobond. As local banks acquired the Eurobonds from the BdL at a yield circa one percentage point below prevailing market rates at the time, they are unlikely to sell them to market for now and are likely to hold them instead at amortized cost in their hold-to-maturity books. Eurobonds technicals are likely to improve near-term as the BdL also said it would pay 2018 foreign currency debt service. Still, the sale did not bring in new FX inflows as banks swapped existing FX denominated assets for the new Eurobonds without tapping offshore foreign currency liquidity. As such, continued growth in non-resident deposits is necessary to fund twin imbalances. The 2018 BdL financial engineering operations likely cover the government's dollar funding needs through end This leaves Q1 19 as a crucial period for the government to prepare to rollover or repay eurobond maturities in May and onwards. BAML does not exclude further BdL operations then. Bank of America Merrill Lynch understands the squeeze in external debt markets may be due to the BdL providing local banks with the same financial incentives as per the June 2018 financial engineering operation. BAML are less comforted on the strict commitment to fiscal reforms as per the CEDRE donor conference. That being said, CEDRE projects in specific sectors where reforms are more structural or sectoral in nature (linked to US$ 15 billion in donor-funded projects in water and transport sectors) could proceed forward and obtain donor funding. Electricity sector reforms (linked to US$ 5.6 billion in electricity donorfunded projects) are crucial to alleviating fiscal imbalances but unlikely to be approved or executed in short-order. Bank of America Merrill Lynch did not get the impression that major fiscal consolidation is planned for 2019, as per the report. The report estimates the government gross financing needs remain elevated at circa US$ 17.5 billion or 32.6% of GDP in These would consist of a likely fiscal deficit of US$ 4.8 billion (assuming budget target is met), US$ 2.6 billion in foreign currency debt amortizations and US$ 10.0 billion in domestic debt amortizations. Last but not least, external financing needs remain also large and partly depend on rollover and growth in non-resident deposits. As a very rough estimate, gross external financing needs could stand at circa 137% of GDP for This would include a current account deficit of 25.8% of GDP, government medium-term external debt amortization of 1.4% of GDP, and an assumed 110% of GDP of short-term non-resident deposits, as per the report. 6

7 CORPORATE NEWS BANKMED ASSETS TOTALED US$ 17.2 BILLION AT END-JUNE 2018 Bankmed registered net profits of US$ 40.1 million in the first half of 2018, down by 49.0% from US$ 78.7 million in the first half of 2017, as per Bankdata Financial Services. Net interest income amounted to US$ million in the first half of 2018, up by 2.0% from US$ million recorded in the same half of Net fee and commission income decreased by 9.3% year-on-year from US$ 35.8 million in the first half of 2017 to US$ 32.5 million in the same half of Net provisions for credit losses declined by 27.3% year-on-year to US$ 6.0 million in the first half of Net operating income fell by 34.1% to attain US$ million in the first half of Total operating expenses declined by 16.2% year-on-year to US$ million in the first half of Among the latter, staff expenses reached US$ 75.7 million in the first six months of this year, 12.8% lower than those reported in the same period of the previous year, and administrative and other operating expenses recorded US$ 50.7 million, 22.3% lower than those in the same period of last year. The cost-to-income ratio rose from 60.5% in the first half of 2017 to 76.4% in the same period of Bankmed s assets totaled US$ 17.2 billion at end-june 2018, up by 3.3% from end Net loans and advances stood at US$ 3.9 billion at end-june 2018, down by 11.8% from end Customers deposits amounted to US$ 12.9 billion at end-june 2018, down by 1.1% from end SELECTED BANKMED INCOME STATEMENT INDICATORS (US$ MILLION) Sources: Bankdata Financial Services, Bank Audi's Group Research Department 7

8 NET PROFITS OF BANQUE LIBANO-FRANÇAISE DOWN TO US$ 61.8 MILLION IN THE FIRST HALF OF 2018 The net profits of Banque Libano-Française stood at US$ 61.8 million in the first half of 2018, falling from US$ 64.2 million in the same period of the previous year, as per Bankdata Financial Services. The bank s net interest income attained US$ million in the first half of 2018, improving by 34.8% from US$ 92.8 million in the same period of Net fee and commission income rose by 3.2%, from US$ 19.0 million in the first half of 2017 to US$ 19.6 million in the corresponding period of Total operating income expanded by 5.8% to reach US$ million in the first half of This was accompanied by a 2.5% yearly rise in total operating expenses, which amounted to US$ 65.1 million in the first half of 2018, up from US$ 63.5 million in the same period of Among the latter category, staff expenses improved by 2.9% year-on-year to reach US$ 42.3 million in the first half of 2018, and administrative and other operating expenses edged up by 1.5% from US$ 18.2 million in the first half of 2017 to US$ 18.5 million in the first half of Operating profits rose by 7.7% year-on-year to US$ 72.1 million in the first half of The net loss from the sail or disposal of other assets category reported a negative figure of US$ 0.79 million. The bank s total assets amounted to US$ 14.5 billion at end-june 2018, up by 6.2% from US$ 13.6 billion at end Deposits from customers stood at US$ 10.9 billion at end-june 2018, down by 0.7% from end Loans to customers registered US$ 4.2 billion at end-june 2018, down by 2.9% from end The gross doubtful loans to gross loans ratio stood at 9.7% at end-june 2018 up from 9.4% at end The loan loss reserves on doubtful loans to doubtful loans ratio fell from 85.6% at end-2017 to 84.8% at end-june Shareholders equity totaled US$ 1.3 billion at end-june 2018, nearly unchanged from end EDL LAUNCHES TENDER TO IMPLEMENT SECOND PHASE OF BEIRUT RIVER SOLAR SNAKE PROJECT Electricité du Liban (EDL) launched the tender to implement the second phase of the Beirut River Solar Snake (BRSS) project, which is expected to generate seven megawatts (MW) of electricity. The BRSS aims to build a solar energy farm on top of the Beirut River by covering it with photovoltaic panels. The second phase will see the installation of solar panels across 2,100 meters over the river's bed. EDL commissioned the first phase of the BRSS in Twenty-five international and local companies bid on the project. The US$ 3.4 million contract was awarded to a joint venture between local firms Asaco and Phoenix. The first phase produces one MW. Panels will be linked to the national power grid run by the EDL. Once complete, the BRSS will provide 10,000 households with electricity. 8

9 CAPITAL MARKETS MONEY MARKET: WEEKLY CONTRACTION IN TOTAL LP RESIDENTS DEPOSITS The overnight rate reached 10% on Friday after being quoted at 5.0% in the previous few days, noting that the rise was mainly attributed to technical reasons related to CNSS deposits. As to LP Certificates of Deposits, no subscriptions were made in shorter-term 45-day and 60-day categories. Total resident banking deposits contracted by LP 179 billion during the week ending 20th of September 2018, as per the latest monetary aggregates released by the Central Bank of Lebanon. This was mainly driven by a LP 284 billion fall in total LP resident deposits amid a LP 206 billion drop in LP demand deposits and a LP 78 billion decline in LP saving deposits, while foreign currency deposits expanded by LP 105 billion (the equivalent of US$ 70 million). These weekly variations compare to an average weekly rise of LP 25 billion for total LP deposits and a similar average weekly growth of US$ 70 million for foreign currency deposits since the beginning of the year Within this context, the total money supply in its largest sense (M4) contracted by LP 356 billion over the covered week, amid a LP 143 billion decrease in the currency in circulation and a LP 34 billion retreat in the non-banking sector Treasury bills portfolio. INTEREST RATES Source: Bloomberg _ TREASURY BILLS MARKET: NOMINAL WEEKLY DEFICIT OF LP 139 BILLION The latest Tbs auction results for value date 4th of October 2018 showed that the three-month, oneyear and five-year categories had full allocations. In parallel, the auction results for value date 27th of September 2018 showed that total subscriptions reached LP 126 billion and were allocated as follows: LP 26 billion in the six-month category, LP 50 billion in the two-year category, and LP 50 billion in the tenyear category. In parallel, total maturities reached LP 265 billion, resulting into a weekly nominal deficit of LP 139 billion. On a cumulative basis, total subscriptions amounted to LP 21,419 billion during the first nine months of The five-year category captured 22% of the total (the equivalent of LP 4,805 billion including LP 2,000 billion subscribed by BDL mid-august 2018 at a yield of 1% ), followed by the three-year category with 19% (the equivalent of LP 4,094 billion including LP 2,000 billion subscribed by BDL mid-june 2018 at a yield of 1%), the seven-year category with 18% (the equivalent of LP 3,943 billion including LP 2,000 billion subscribed by BDL early-september 2018 at a yield of 1%), the ten-year category with 11% (the equivalent of LP 2,378 billion), the two-year category with 10% (the equivalent of LP 2,217 billion), while the three-month, six-month and one-year categories accounted for the remaining 19% (the equivalent of LP 3,982 billion). In parallel, total maturities reached LP 14,456 billion, resulting into a nominal surplus of LP 6,963 billion during the first nine months of

10 TREASURY BILLS Sources: Central Bank of Lebanon, Bloomberg FOREIGN EXCHANGE MARKET: GROWTH IN BDL S FOREIGN ASSETS DESPITE RUMORS AND POLITICAL STALEMATE The FX market maintained its balanced activity this week. Some market players converted their FC holdings into LP holdings to benefit from lucrative LP rates, while some others showed bid for the US dollar for commercial reasons. Within this context, the LP/US$ interbank rate remained stable at LP 1,514- LP 1, On the other hand, it is worth mentioning that the prolonged cabinet formation stalemate and the spread of unfounded rumors left no impact on the Central Bank of Lebanon s foreign assets, which grew by US$ 196 million during the second half of September 2018 to reach one of their highest levels of US$ 43.5 billion at the end of the month, as per BDL s latest bi-monthly balance sheet. Accordingly, BDL s foreign assets covered 81.8% of LP money supply at end-september Within this context, the Central Bank governor reiterated that the Lebanese Pound is stable and that BDL has all the means to maintain the peg. EXCHANGE RATES Source: Bank Audi s Group Research Department STOCK MARKET: FIRST WEEKLY INCREASE IN EQUITY PRICES IN TEN WEEKS Lebanese equities registered their first weekly price gains in ten weeks, mainly supported by signs of cabinet breakthrough. The BSE price index increased by 1.2% to reach 85.46, driving down year-to-date declines to 13%. Nine out of 16 traded stocks registered price increases, while four stocks posted price drops and three stocks saw no price change week-on-week. RYMCO shares led the advance, posting a 9.9% surge in its prices to reach US$ 3.01, followed by BLOM s GDRs with +8.6% to US$ 10.0, Bank Audi s 10

11 GDRs with +3.0% to US$ 5.15, BLOM s listed shares with +2.2% to US$ 9.40, Solidere B shares with +0.8% to US$ 6.03, and Solidere A shares with +0.2% to US$ As to trading volumes, the BSE total turnover surged by 59.2% week-on-week to reach US$ 7.6 million. This compared to an average weekly trading value of US$ 5.9 million since the beginning of the year Banking shares accounted for 51.4% of activity, followed by Solidere shares with 48.5%, and the trading & industrial shares with 0.1%. On a cumulative basis, the BSE total trading value amounted to US$ 229 million during the first nine months of 2018 as compared to US$ 482 million a year earlier, moving down by 52.5%. Accordingly, the total turnover ratio, measured by the annualized trading value to market capitalization, fell from 6.1% during the first nine months of 2017 to 3.4% during the first nine months of 2018, which spots light on the lack of liquidity on the Beirut Stock Exchange. AUDI INDICES FOR BSE Sources: Beirut Stock Exchange, Bank Audi s Group Research Department BOND MARKET: EXTENDED BOND PRICE RECOVERY AMID HOPES OF CABINET BREAKTHROUGH Lebanese bonds pursued this week the upward trajectory that has started mid last week, amid optimism about a near breakthrough in the cabinet formation gridlock, and driven by the attractiveness of Lebanese sovereigns relative to other bonds in similarly rated countries. Within this context, international institutional investors were net buyers this week, mainly showing demand for sovereigns maturing in 2019 and 2020, and papers maturing between 2026 and This triggered a 24 bps contraction in the weighted average yield, moving from 10.01% last week to 9.77% this week. Also, the weighted average bid Z-spread tightened by 32 bps week-on-week to reach 729 bps amid increases in US Treasuries yields. As to the cost of insuring debt, Lebanon s five-year CDS spreads remained stable at 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 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