Tourism and consumption driving economic rebound

N 37 October 2015 Page 3 Foreign markets lift bank profits as domestic activity slows Page 4 Currency and commodity trends favor Lebanese consumers Page 5 Real estate correction underway, prices still rigid Page 6 Economic growth to slow to 1.1% in 2015, may hit 3.5% in 2016 - IIF Page 7 Latest data for Lebanon s key economic sectors Page 8 Key trends in the Lebanese economy Tourism and consumption driving economic rebound A stronger tourism season and improved consumer purchasing power helped drive much of the economic rebound in the summer, while real estate, banking, and exports continued to disappoint. Lebanon s economy rebounded in July on the back of a stronger tourism season that brought in a record number of foreign visitors since violence erupted in Syria in 2011. Banque du Liban s coincident indicator, a composite measure of economic activity in the country, grew by 6.52% yoy in July after a rough start of the year. Tourist arrivals rose for the 16th straight month to 208,681 visitors in July, a 29.44% increase over July 2014. At 56%, occupancy rates at Beirut s 4 and 5-star hotels were 21% yoy higher, with Revenue per Available Room surging by 73.85% yoy to $113. A record 893,708 passengers travelled through Beirut s airport in August, indicating a higher number of tourists during the month as well. Meanwhile, consumption remains a key driver of growth despite signs of weak employment growth and business activity. Consumer confidence increased in each of the three months through August, an average growth of 22.22% yoy over the period. Rising confidence is partly emanating from improvement in consumers purchasing power as a result of lower gasoline prices and a stronger currency vis-à-vis virtually all other major global currencies. Retail gasoline prices in the local market have fallen 27% yoy on average in the first eight months of 2015. At the same time, a stronger dollar is enabling Lebanon, where imports represent a massive 45% of GDP, to buy more products from abroad while paying less. The volume of non-oil imports increased by 2.6% yoy to 4.7 million tons in the first seven months of 2015, but their value fell by 5.8% yoy to $8.6bn. Among the biggest beneficiaries of consumer trends are new passenger car dealers who saw their sales rebound by 7.46% yoy to 3,603 vehicles in August, and by 2.11% yoy to 25,891 vehicles in the first eight months. In particular, sales of Japanese and European brands rose over the period, while Chinese and Korean brands, whose home currencies were relatively unchanged over the past 12 months, witnessed a drop in sales volumes. Coincident Indicator (3m moving average, %yoy) Consumer Confidence Index (%yoy) 6% 4% 2% 2.7% 80% 60% 40% 20% 22% 0% -2% 0% -20% -40% For any enquiries please contact us at: Economic Research Department, Societe Generale de Banque au Liban sgbl.research@socgen.com +961-1-483001 Ext. 11458-4% Jul-12 Jul-13 Jul-14 Jul-15 Source: BdL, Economena, SGBL Research -60% Aug-12 Aug-13 Aug-14 Aug-15 Source: ARA, Economena, SGBL Research page 1

Higher disposable income, due to lower oil prices, will continue to promote modest real GDP growth of about 3% in 2015-2018, according to Standard and Poor s, as will BdL s stimulus package of $1 billion for 2015, which is aimed at supporting private-sector growth and small and midsize enterprises. Ironically, improving sentiment coincides with rising social unrest sparked by a trash collection and treatment crisis that left piles of garbage on the streets for months. However, public protests, which drew tens of thousands in recent weeks, are unlikely to lead to significant violence or to civil war as was the case in other regional countries, according to the Institute of International Finance, but may help build popular pressure against the current political establishment. Lebanese tourists in Turkey and Cyprus reached new records of 92,307 and 17,954 respectively in the first seven months of the year. Meanwhile, the trash crisis and stronger currency are pushing more Lebanese people outside the country during the summer. Lebanese tourists in Turkey and Cyprus reached new records of 92,307 and 17,954 respectively in the first seven months of the year. REAL ESTATE, BANKING, AND EXPORTS LAGGING BEHIND And while consumer confidence is getting a bump from cheaper gas, investor sentiment is struggling amid a protracted political standoff that has significantly impaired the proper functioning of the executive and legislative branches of government with little expected to change in the near-term. Political uncertainty in Lebanon and regional tensions will continue to weigh on economic growth in the medium term, according to S&P. Nevertheless, the outlook for 2016 is starting to look less gloomy amid rising hopes of a stabilization of the conflict in neighboring Syria. Economic growth is projected to accelerate by 3.5% with inflation regaining steam to reach 3%, according to the IIF. The real estate market specifically has been among the hardest hit by instability. Transactions fell by 13.74% yoy to $5.06bn in the first eight months of 2015, reflecting weakness in demand as well as the recent introduction of more stringent housing loan requirements by the Central Bank. Still, there is little evidence to indicate that prices have decreased significantly in recent months. The average transaction value fell by only 2% yoy to $127,190 in the first eight months of 2015, with much of the decrease likely explained by rising demand for smaller apartments at the expense of large luxury properties typically picked up by expatriates and foreigners. Banks brought in $4bn in private sector deposits in the first seven months of the year, down from $5.11bn and $6.18bn over the same periods in 2014 and 2013 respectively. Banking activity is also decelerating. Growth in private sector credit slowed to 5.42% yoy through July, down from 9.31% yoy the year before, a net production of only $1.15bn in the first seven months of the year. Claims on the resident private sector are projected by S&P to grow by an estimated 9% in 2015, and to slow further in the following three years, but even those forecasts now seem relatively optimistic. Deposit growth, a critical measure of the ability of banks to finance the state s deficit, fell behind in recent months. Banks brought in $4bn in private sector deposits in the first seven months of the year, down from $5.11bn and $6.18bn over the same periods in 2014 and 2013 respectively. The picture is even more dismal for industrial and agricultural industries where higher shipping costs, slowing demand from oil-exporting countries, and a stronger US Dollar have rolled back exports to levels not seen since 2007. The total value of exports decreased by 8.45% yoy to $1.77bn in the first seven months, including a severe 21.07% yoy drop to $218.03m in July. Economic growth forecasts (%) Unemployment rate (%) 9.2 10.1 8.5 8.0 8.0 5.7 Real GDP Real GDP per capita 12.8 13 13 13 13 13 13 12 0.9 2.8 3.0 2.0 2.0 2.5 2.8 3.0 0.5 0.7 1.0 9.5 10 10-2.2-1.0-0.7-1.0-1.9 2008 2010 2012 2014 2016f 2018f Source: S&P, Economena, SGBL Research 2008 2010 2012 2014 2016f 2018f Source: S&P, Economena, SGBL Research page 2

BANKING Foreign markets lift bank profits as domestic activity slows Consolidated profits at Lebanon s 14 largest banks grew 9.04% yoy to $993.75bn in the first half of 2015, even as a protracted domestic political crisis continues to weigh on domestic banking and business activity. Profits hit an all-time high driven largely by improvement at foreign operations and subsidiaries, while domestic performance remained lackluster. Domestic profits inched up by only 1.37% yoy to $777.39m in the first half, as general business activity slowed, compared with a 49.78% yoy surge in foreign profits to $216.36m over the same period. As the local market looks increasingly risky, the country s largest banks are placing more of their eggs abroad. The 14 Alpha Group banks, those with deposits in excess of $2bn, added 14 new branches outside Lebanon in the first half of the year, and only three new ones in their home market. Geographic diversification is helping banks mitigate the impact from weak credit demand in the local market. Growth in private sector credit slowed to 5.42% yoy through July, from 9.31% yoy the year before, a net production of only $1.15bn in the first seven months of the year. Claims on the resident private sector are projected by S&P to grow by an estimated 9% in 2015, and to slow gradually in the following three years, but those forecasts seem relatively optimistic. Claims on the resident private sector are projected by Standard & Poor s to grow by an estimated 9% in 2015. Deposit growth, a critical measure of the ability of banks to finance the public deficit, has also slowed considerably in recent months. Banks brought in $4bn in private sector deposits in the first seven months of the year, down from $5.11bn and $6.18bn over the same periods in 2014 and 2013 respectively. Private deposits grew by 5.01% yoy by the end of July, their slowest pace since 2007, with those of residents accounting for much of the slowdown. Although slower, the banking system's deposit inflows continue to support the government's debt servicing capacity, complemented by the central bank's ample foreign exchange reserves, stated S&P in a note published in September. Claims on the public sector rose by 1.4% in the first seven months to $37.88bn at the end of July, and are poised to increase further during the remaining months of the year following the planned issuance of around $1.3bn in new Eurobonds. Slowing banking activity indicators, however, have had a minimal impact on the sector s stability, according to S&P. Confidence in Lebanon's financial system remains strong, supported by the BdL's policy of maintaining high foreign currency reserves that cover about 80% of the local currency money supply, as well as a favorable interest rate differential versus the U.S. In particular, S&P highlighted the banking system's funding structure which features a high proportion of retail deposits that have shown resilience through various crises. The credit agency projected a growth rate of 6% in resident and nonresident private-sector deposits in 2015, which, according to S&P, should be sufficient to enable Lebanon's financial sector to fund the large government deficit and meet the demand for private sector credit. Alpha Group, H1 2015 Assets ($bn) Net Profit ($m) Bank Audi 42.31 202.09 BLOM Bank 28.62 190.35 Byblos Bank 19.17 70.10 Fransabank 19.10 86.09 BankMed 16.10 75.53 SGBL 15.41 81.39 Bank of Beirut 15.39 88.64 BLF 11.31 55.47 Credit Libanais 9.55 35.39 BBAC 5.58 27.65 IBL Bank 5.33 34.68 First National Bank 3.94 13.89 Lebanon and Gulf Bank 3.44 15.74 Creditbank 3.13 16.73 Alpha Group 198.37 993.75 Source: Bankdata Financial Services, Economena, SGBL Research Alpha Group net profit ($m) Private sector loans and deposits (%yoy) 993.75 911.33 844.11 868.64 776.94 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 Source: Bankdata Financial Services, Economena, SGBL Research 18% 14% 10% Deposits Loans 5.4% 6% 5.0% 2% Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Source: BdL, Economena, SGBL Research page 3

CURRENCIES Currency and commodity trends favor Lebanese consumers The depreciation of several major currencies against the United States Dollar is bringing much-needed relief to Lebanese consumers despite sluggish economic activity. The Lebanese Pound has been pegged to the US Dollar for almost two decades, with the peg widely considered a source of stability for financial markets and for the economy, particularly in times of crisis. Since 2014, however, consumers have also been reaping the benefits of the peg in the form of improved purchasing power as major currencies, including the Euro, Japanese Yen, Russian Rouble, Turkish Lira, Indian Rupee, British Pound, Canadian dollar, Australian Dollar, and the Brazilian Real falter. A stronger dollar is enabling Lebanon, where imports represent a massive 45% of GDP, to import more products from abroad while paying less. The volume of non-oil imports increased by 2.6% yoy to 4.7 million tons in the first seven months of 2015, but their value fell by 5.8% yoy to $8.6bn. In particular, the Euro has lost 18% of its value against the Lebanese Pound over the past 12 months, buoying imports from the Euro area. The volume of imports from the area rose 3.98% yoy to 2.78 million tons in the first seven months of 2015, while the cost fell by 15.91% yoy to $3.39bn. Similarly, Lebanon has more than doubled its imports from the Russian Federation in the first seven months of 2015 to 1.1 million tons worth $537m, up from 0.66 million tons over the same period in 2014. The Rouble slumped 70% yoy through September 25, 2015 on the back of scarring Western sanctions and low oil prices. Imports from Japan, where the Yen is down 9.6% yoy, also rose 11.57% yoy to 30.6 thousand tons through July. Strength in the new car market in Lebanon so far in 2015 reflects primarily the ability of local dealers to leverage the dollar s strength. Sales of Japanese and European brands rose in the first eight months of the year, while Chinese and Korean brands, whose home currencies were relatively unchanged over the past 12 months, saw their sales slide. USD against selected currencies (%yoy) CHY CHF GBP INR JPY SKW EUR CAD AUD TRL BRL RUB 4% 4% 7% 9% 11% 14% 15% 22% 27% 36% 68% 70% Source: Bloomberg, Economena, SGBL Research *As of September 25th In addition, a slowing Chinese economy is also reducing demand for commodities and placing downward pressure on the prices of crude oil, also contributing to improvement in the purchasing power for Lebanese consumers. Retail gasoline prices in the local market have fallen 27% yoy on average in the first eight months of 2015. A FAVORABLE ENVIRONMENT AHEAD The upward trend of the US Dollar is likely to continue in coming years supported by the Federal Reserve s plans to raise interest rates in the near-term, which typically results in higher demand for dollar deposits. Brent crude oil prices are also expected to rise by only 8.3% to an average of $58.57 per barrel in 2016, giving Lebanese consumer an extended period of savings on fuel purchases and private generators among others. Brent crude oil prices are also expected to rise by only 8.3% to an average of $58.57 per barrel in 2016. At the same time, sluggish economic activity and rising competition for business at several export-oriented economies may improve Lebanese wholesale retailers bargaining power, leading to either wider profit margins or more competitively priced products for consumers. Fuel prices: lead-free oil 95 octane (LBP / 20 litres) Non-oil imports volume vs. value (Jan Jul) 38,000 Volume (million Tons) Value ($bn) 32,000 8.82 8.90 9.46 9.12 8.59 26,000 23,800 20,000 Aug-12 Aug-13 Aug-14 Aug-15 Source: MoEW, Economena, SGBL Research 4.42 4.50 4.65 4.77 4.14 2011 2012 2013 2014 2015 Source: Customs, Economena, SGBL Research page 4

REAL ESTATE Real estate correction underway, prices remain rigid Real estate activity slowed considerably in recent months, but prices do not appear to have adjusted meaningfully to the difficult operating environment. Real estate transactions fell by 13.74% yoy to $5.06bn in the first eight months of 2015, reflecting weakness in demand as well as the recent introduction of more stringent housing loan requirements by the Central Bank. The number of transactions fell in tandem by 12% yoy to 39,783 sales as developers found fewer buyers over the same period. In October 2014, the Central Bank introduced a ceiling of 45% of personal income on household retail loan payments, including housing loans, in a bid to reduce potential risks of a credit bubble. In particular, the new circular restricts borrowers home financing to no more than 75% of the property s value. Household indebtedness had risen to an estimated 50% before the new ceiling came into effect, a ratio considered to be relatively high amid slowing economic growth in Lebanon, according to Central Bank Governor Riad Salameh. Cement deliveries (Jan-Jul, Tons) 2.89 3.08 2.68 Demand for housing loans, however, remains supported by a $1bn Central Bank stimulus package for 2015, with a maximum of $600m allocated to stimulating housing loan growth. The stimulus package, however, is unlikely to be a game changer given strong economic headwinds from dysfunctional government and the Syrian conflict. Even if fully utilized, the package would represent no more than 8% of registered property market transactions. PRICES ARE STILL RIGID Despite the slowdown in activity, there is little evidence to indicate that prices have decreased significantly in recent months. The average transaction value fell by only 2% yoy to $127,190 in the first eight months of 2015, with much of the decrease likely explained by rising demand for smaller apartments at the expense of large luxury properties typically picked up by expatriates and foreigners. 1.98 2006 2009 2012 2015 Source: BdL, Economena, SGBL Research Determining price trends in a credible and consistent way is complicated further by developers recent structural shift towards smaller units and geographic shift outside Beirut in an attempt to create more affordable properties for local buyers. Construction execution orders issued by the Order of Engineers in Tripoli rose by 13.66% yoy to 1.26 million square meters through August, while those issued by the Beirut order have been falling consistently in recent years. Even with spotty growth outside Beirut, overall construction activity has come down significantly, promising fewer new units in the market in the short-term than in recent years. Cement deliveries, a proxy for construction activity, slumped 16.66% yoy to 2.68 million tons in the first seven months of the year. Construction execution orders issued by the Order of Engineers in Tripoli rose by 13.66% yoy to 1.26 million square meters through August. Longer-term, developers have also fine tuned their pipelines to new market conditions, with a smaller new supply expected in the next few years than in previous ones. Construction permits, a leading indicator of future construction activity, fell by 18.61% yoy to 6.9 million square meters through July, their lowest level in six years. Price per transaction ('000 $, 3m moving average) Construction permits (million sqm, 12m moving sum) 145 2.5 140 135 2.0 Beirut Nabatieh 130 125 129.2 1.5 1.0 1.06 120 115 0.5 0.59 110 Aug-12 Aug-13 Aug-14 Aug-15 Source: Cadastre, Economena, SGBL Research 0.0 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Source: OEB, Economena, SGBL Research page 5

IN FOCUS Economic growth to slow to 1.1% in 2015, may hit 3.5% in 2016 - IIF Lebanon s economic growth may slow to 1.1% in 2015 as rising regional insecurity and a domestic political crisis weigh on activity, according to the Institute of International Finance (IIF). However, the outlook for 2016 is starting to look less gloomy amid rising hopes of a stabilization of the conflict in neighboring Syria. Economic growth is projected by the IIF to accelerate to 3.5% with inflation regaining steam to reach 3%. In the meantime, the country is witnessing growing social unrest sparked by a trash collection and treatment crisis that started in August, although public protests, which drew tens of thousands in recent weeks, are unlikely to lead to significant violence or to civil war as was the case in other regional countries, stated the IIF. Instead, if they remain peaceful, such protests may help build popular pressure against the current political establishment. The IIF attributed the lack of improvement in public services, including trash, electricity, and water, to political bickering and corruption. Successive governments have failed to develop the country s infrastructure, leading to chronic power outages and water shortages. The Lebanese state s capital expenditure was less than 2% of GDP in the 10 years through 2014, well below regional peers, including Turkey, Egypt, and Jordan where infrastructure investment reached 6% of GDP over the period, according to the IIF. The Cabinet approved in 2010 an electricity strategy that would provide round the clock power by 2015, but most of the points in the plan have yet to be implemented, especially the development of a large power plant under a Public Private Partnership model. Construction of a ~550MW power plant in Deir Ammar near Tripoli has also yet to start by Greek-Cypriot firm J&P-AVAX amid political wrangling over the deal. Other parts of the plan, however, have moved forward albeit with interruptions. In particular, the state-owned electricity company (EdL) has already handed over bill collections and minor transmission line maintenance across the country to three different private companies. Lebanon: selected economic indicators 2012 2013 2014 2015f 2016f Nominal GDP, $ billion 43.7 46.1 48.2 49.7 53.0 Real GDP, % change 1.4 1.4 1.7 1.1 3.5 CPI inflation, %average 5.0 3.2 1.9-2.9 3.0 GDP deflation, % change 5.5 4.1 2.8 2.1 3.0 Current account balance, % GDP -22.5-25.5-21.6-15.5-13.7 Official reserves, $ billion 37.2 36.7 39.5 40.2 41.1 Months of imports 13.2 12.3 13.6 15.1 14.8 Budget balance, % GDP -9.2-9.2-6.4-8.1-8.2 Government debt, % GDP 134.6 137.7 138.1 140.7 140.2 Works on two small power plants in Zouk and Jieh with an estimated capacity of ~270MW each have restarted following the release of funds by the state, which may add an estimated three hours of power supply to the country within months, according to the Ministry of Energy and Water. At the same time, the drop in oil prices is helping reduce operating costs for EdL, requiring less support from the state, and helping free up some public funds for investment. Public transfers to EdL fell by 39.55% yoy to $627.6m in the first half of 2015 and more savings are expected in the second half of the year. The current account deficit is projected to narrow by 6% to 15.5% of GDP in 2015, its lowest level in years, on cheaper global oil prices and weaker demand for foreign goods. The fiscal deficit, on the other hand, is expected to widen to 8.1% of GDP during the year, up from 6.4% in 2014, and may grow even further to 8.2% in 2016, stated the IIF. As a result, gross public debt is seen increasing to 140.7% of GDP by the end of 2015, from 138.1% in 2014. Rising security threats in recent years resulting from the Syrian conflict and terrorist organizations prompted the government to add 10,000 security personnel over the past 18 months, a move that will likely increase spending on salaries at the expense of capital investment. The government has so far borrowed an additional $2.6bn in 2015 through July to finance its deficit, mainly through a $2.2bn Eurobond issue in February, lifting the gross debt to $69.2bn. The latter will likely accelerate in the final quarter of the year with the government planning a new $1.3bn Eurobond issue along with a voluntary exchange of a $750m bond that matures in January 2016. Electricity production and cost 6.01 0.56 Electricity Production (billion KwH) Transfers to EDL ($bn) 6.25 6.11 0.68 0.98 5.59 0.94 5.52 1.04 6.18 0.63 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 Source: MoF, MoEW, Economena, SGBL Research Source: IIF, SGBL Research page 6

LATEST DATA Key indicators Unit 2014 Jun-15 Jul-15 Aug-15 %Y/Y YTD PYTD Cleared cheques $bn 74.27 6.10 5.56 n.a. -5.39 40.33 42.93 Real estate transactions $bn 8.95 0.68 0.79 0.69-9.84 5.06 5.87 Construction permits Sqm, m 13.55 1.08 0.96 n.a. -15.50 6.90 8.48 Cement deliveries Tons, m 5.52 0.47 0.41 n.a. -3.14 2.68 3.22 Tourist arrivals m 1.35 0.15 0.21 n.a. 29.44 0.88 0.75 Airport traffic m 6.57 0.59 0.79 0.89 9.68 4.80 4.38 Balance of payments $bn -1.41-0.79 0.00 n.a. - -1.32 0.13 Money supply: M3 $bn 117.68 120.44 120.82 n.a. 4.53 120.82 115.58 BSE volumes m 96.79 5.44 3.37 2.76-60.26 50.92 40.40 Passenger car sales 37,816 3,825 4,241 3,603 7.46 25,891 25,357 Hotel occupancy (average) % 52.00 57.00 56.00 n.a 21 55.57 48.00 Indices 2014 Jun-15 Jul-15 Aug-15 %Y/Y %YTD Consumer confidence index - ARA 80.58 114.00 89.00 94.00 22.08 11.90 Consumer Price Index 100.81 97.22 96.89 96.37-4.60-2.94 Purchasing Managers' Index 47.55 49.30 49.30 47.80 5.05-3.04 BdL Coincident Indicator 273.18 277.70 264.60 n.a 6.52-9.54 Trade Unit 2014 May-15 Jun-15 Jul-15 %Y/Y YTD PYTD Imports $bn 20.49 1.49 1.69 1.53-7.86 10.32 11.94 Exports $bn 3.31 0.29 0.28 0.22-21.07 1.77 1.93 Trade balance $bn -17.18-1.19-1.41-1.31-5.21-8.55-10.00 Port of Beirut volumes TEUs, m 1.21 0.10 0.11 0.11-0.90 0.67 0.72 Financial and monetary Unit 2014 May-15 Jun-15 Jul-15 %Y/Y YTD %YTD Commercial bank assets $bn 175.70 179.03 180.08 179.91 5.99 4.21 2.40 Claims on the resident private sector $bn 45.37 46.05 46.29 46.54 6.18 1.18 2.59 Claims on the non-resident private sector $bn 5.53 5.32 5.45 5.51-0.58-0.02-0.32 Claims on the public sector $bn 37.35 38.17 37.95 37.88 0.43 0.52 1.40 Resident private sector deposits $bn 114.12 116.53 116.90 117.23 4.57 3.11 2.72 Dollarization rate (average) % 60.13 59.40 59.26 59.30-1.13 59.46-0.68 Non-resident private sector deposits $bn 30.30 31.36 31.68 31.16 6.67 0.86 2.83 Dollarization rate (average) % 87.54 86.55 86.54 86.12-1.59 86.77-1.15 Private sector deposits with commercial banks $bn 144.43 147.89 148.58 148.38 5.00 3.96 2.74 Private loans / deposits % 39.08 39.51 39.60 39.70 0.60 39.67-0.05 Public sector deposits $bn 9.26 10.10 9.56 9.62-7.89 0.36 3.89 BdL foreign assets $bn 37.86 39.34 38.86 38.81 2.77 0.95 2.51 BSE market capitalization $bn 11.22 11.57 11.56 11.44 4.58 0.22 1.94 Gross public debt $bn 66.58 69.38 69.02 69.19 5.44 2.61 3.92 Public finance Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD PYTD Revenues $bn 10.88 1.06 0.89 0.97-1.20 5.01 5.24 Value Added Tax $bn 2.19 0.30 0.11 0.13 8.99 1.03 1.09 Telecommunications $bn 2.01 0.10 0.10 0.10-0.55 0.62 Income taxes $bn 1.85 0.19 0.34 0.38-17.46 1.31 1.30 Customs $m 508.04 43.03 42.51 44.10 2.98 238.78 250.82 Expenditures $bn 13.95 1.49 1.12 1.04-11.50 6.79 6.82 Transfers to EdL $bn 2.04 0.07 0.09 0.16-52.94 0.63 1.04 Debt service $bn 4.19 0.46 0.46 0.33 7.78 2.15 2.08 Primary balance $bn 1.31 0.04 0.28 0.29 116.04 0.48 0.58 Fiscal balance $bn -3.07-0.43-0.23-0.06-65.54-1.78-1.58 YTD: year-to-date, PYTD: previous year-to-date. Source: MoF, BdL, BSE, ARA, Customs, Markit, EY, RHIA, CAS, Economena, SGBL Research page 7

KEY TRENDS Lebanese tourists in Turkey (Jan-Jul) Lebanon is welcoming a growing number of foreign visitors, but Lebanese tourist themselves have been increasingly seeking holiday escapes outside their home country. The number of Lebanese visiting Turkey hit a record 92,307 visitors in the first seven months of 2015. Electricity rationing outside Beirut (hours per day) Electricite du Liban is struggling to meet local demand even after leasing two Turkish power ships in 2013. Still, power outages outside Beirut decreased by 2.72% yoy to an average of 12.52 hours per day in August, according to the Ministry of Energy and Water. 79,503 71,305 69,785 72,923 62,998 92,307 13.32 12.87 12.52 36,404 22,534 26,499 9.68 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Turkish Ministry of Culture and Tourism, Economena, SGBL Research Aug-12 Aug-13 Aug -14 Aug-15 Source: Ministry of Energy and Water, Economena, SGBL Research Treasury bills holdings (% yoy) Lebanese banks have been decreasing their purchases of Treasury bills, with the Central Bank covering the shortfall. In the 12 months through July 2015, banks decreased their T-bill holdings by $267m, while BDL increased its holdings by $3bn. Lebanese exports (Jan-Jul) Saudi Arabia, UAE, and Iraq topped Lebanon s export destinations in the first seven month of 2015. The combined value of exports to the three countries reached $541m, equivalent to 30.6% of the total during the period, compared with 28% in the first seven months of 2014. 120% 100% Commercial Banks BDL 80% 60% 40% 25.6% 20% 0% -20% -1.3% -40% Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Source: BdL, Economena, SGBL Research Egypt 3% Others 44% Turkey 3% KSA 13% Jordan Qatar 3% 3% UAE 10% Iraq 7% Syria 7% South Africa 7% Source: Customs, Economena, SGBL Research This report is provided for information purposes and is not intended for investment and/or trading and/or any other purposes. This report may include certain information provided as is gathered from various sources considered to be reliable. Societe Generale de Banque au Liban s.a.l makes no warranty of any kind, express or implied, as to the accuracy and/or completeness of its content, merchantability or fitness for a particular purpose. None of the information contained in this report constitutes a solicitation, offer, opinion, or recommendation by Societe Generale de Banque au Liban s.a.l to buy and/or sell any itme and/or to provide any investment advice whatsoever. 2015 Societe Generale de Banque au Liban s.a.l. page 8