Riwa DAOU <riwadaou@gmail.com>

Lebanon Brief ­ Issue February 2017 Week 1 ­ Lebanon’s Eurobonds Market:Negative Performance despite Political Breakthrough

BLOMINVEST Research Department <research@blominvestonline.com> Sat, Feb 4, 2017 at 10:40 AMReply­To: research@blominvestonline.comTo: riwadaou@gmail.com

LEBANON BRIEF

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Issue February 2017 ­ Week 1

Economic Digest

Lebanese Shift sal Holding Acquires 38.07% of Rymco’s Share Capitalat $9.6 million

February 3, 2017According to Beirut Stock Exchange (BSE), the Kuwaiti firm Mohamad Abed ElMohsen El Kharafi & Sons Co. for general contracting and industrial manufacturing,a corporate shareholder of Rasamny Younes Motor Co. (RYMCO), sold its stake of3.1 million shares at US$3.07/share, for a total deal value of $9.62 million. The saleprice is at a rough discount of 5.5% to Rymco’s current trading price of US$3.25.The acquirer, Shift SAL (Holding), now owns 38.07% of Rymco, with El Kharafiowning less than 0.001% (around 3000 shares).

Yearly Performance of Rymco Shares

Source: BSE

2016 Ends with an Improved Sentiment about Lebanon, Tourist ArrivalNumbers Climb 11.23% y­o­y

February 3, 2017According to the Ministry of Tourism, the number of tourist arrivals by the end of2016 rose by a yearly 11.23% to 1.69M by December. This rise was partly due tothe political breakthrough in Lebanon by the end of Q4 2016 and partly due to the

rise in the number of tourists from Europe, Arab countries, as well as America,which altogether add up to 82% of total tourists arriving to Lebanon. Europeanvisitors constituted 33.43%, the largest share of total visitors, rising by 11.72% y­o­yto 564,499 by December. Swedish tourists particularly rose by an annual 22.01% to34,622. Visitors from Turkey and Germany also increased in number by 21.21%and 17.03% to 25,487 and 87,567, respectively, by December 2016. Moreover,

despite the ban imposed during Q1 2016 by GCC governments discouraging nationals from visiting Lebanon in

fear of political instabilities, total tourist arrivals from the Arab countries picked up by the end of the year,recording a yearly 8.78% uptick to 522,922, which constituted 30.97% of total tourist arrivals in 2016. However, itis worthy to note that the number of tourists from the UAE, Kuwait, and Saudi Arabia were most inflicted by theban, registering yearly falls of 74.33%, 19.72%, and 15.55%, respectively, to stand at, 2,114 Emiratis, 25,653Kuwaitis, and 40,391 Saudis. Notably, Iraqis seeking refuge from their country’s political turmoil fled to Lebanonthis year, raising the number of Iraqi visitors to 236,013, up 23.19% compared to the same period last year. Intheir turn, visitors from the Americas constituted 17.58% of total tourist arrivals and increased by an annual12.42% to 296,831 by December 2016. This boost of visitors from the region was mainly driven by the number ofvisitors from Venezuela, the USA, and Brazil which rose by 24.92%, 13.63%, and 11.54% to 13,208, 154,095,and 17,661 respectively in 2016. In December alone, total number of tourist arrivals rose by an annual 14.52% y­o­y, to stand at 141,537. The larger number of tourists is mainly attributed to the Christmas and New YearHolidays, as well as the election of a president by November, all of which encouraged expatriates from Europeand the Arab Countries to visit their families and country. As such, the number of European visitors ranked first,growing by 21.74% to reach 46,407. Visitors from the Arab countries followed, increasing by 6.73% y­o­y tostand at 42,190 tourists, of which Kuwaiti visitors’ number notably increasing in December by 52.59% to 3,357. Monthly Number of Visitors from Arab Countries in 2016

Source: Ministry of Tourism

BLC’s 2016 Profits are Up by a Yearly 2.45% February 1, 2017

As per BLC’s consolidated financial statements, net income climbed by 2.45% yearon year (y­o­y) to stand at $45.2M in December 2016. In details, Net Fees &Commission Income, the bulk of BLC’s income from operations in Lebanon, rose by3.86% to $18.85M, while Net interest income stood at $120.19M, 4.54% lower thanits December 2015 level.

On the balance sheet, Net Loans and Advances to customers declined by 3.09% to$1.85B, as BLC announced the redemption of several special loans throughout theyear. In addition, according to BLC’s statement, although the devaluation of the

euro/dollar exchange rate had a negative impact on consolidation, BLC’s Total Assets remained unchanged, at$5.75B as of December 31, 2016. As for liabilities, Customers’ Deposits at BLC registered a 2.36% y­o­y growthto $4.7B, while Shareholders’ Equity improved by 13.89% to stand at $575.41M by Dec. 2016.

Financial Highlights of BLC ($B)

Dec­16 Dec­15 % change

Net Profits ($M) 45.2 44.1 2.45%

Total Assets 5.75 5.74 0.10%

Customers' Deposits 4.7 4.58 2.36%

Shareholders' Equity 0.575 0.505 13.89%

Net Loans and Advances toCustomers 1.85 1.91 ­3.09%

Source: Beirut Stock Exchange (BSE)

Bank of Beirut’s Profits Rise by a Yearly 6.42% in 2016 February 1, 2017

As per Bank of Beirut’s (BOB) consolidated income statement, BOB’s net incomeclimbed by 6.42% year on year (y­o­y) to $198.62M in December 2016. The higherprofit is mainly attributed to the 10.83% increase in Net interest income, which stoodat $253.52M compared to $228.74M in December 2015. Net fees & CommissionIncome also rose by 2.21% to $80.98M.

On BOB’s balance sheet, total assets recorded a 6.55% year­on­year (y­o­y) uptickto stand at $17.21B, as of December 31, 2016. Particularly, Net Loans andAdvances to customers rose by12.24% to $4.7B.

As for the liabilities, Customers’ Deposits registered a 2.93% y­o­y growth to $12.31B, while Shareholders’Equity increased by 15.99% to stand at $2.31B by Dec. 2016.

Bank of Beirut Bank Financial Highlights ($B)

Dec­16 Dec­15 % change

Net Profits ($M) 198.62 186.63 6.42%

Total Assets 17.21 16.15 6.55%

Customers' Deposits 12.31 11.96 2.93%

Shareholders' Equity 2.31 1.99 15.99%

Net Loans and Advances toCustomers 4.7 4.19 12.24%

Source: Beirut Stock Exchange (BSE)

BEMO Bank’s Financials Reveal a 21.77% y­o­y Rise in 2016’s Profits February 1, 2017

BEMO Bank recorded a notable growth of 21.77% in its consolidated net income to$15.75M in December 2016, when compared to the same period last year. Theboost in profits was triggered by the 5.85% and 7.58% increases in Net interestincome and Net fees & Commission Income to $24.89M and $5.55M, respectively.

On the balance sheet, total assets witnessed a growth of 8.5% year­on­year (y­o­y)to settle at $1.76B, as of December 31, 2016. In details, Net Loans and Advances tocustomers increased by 2.26% to reach $689.38M.

On the liabilities side, Customers’ Deposits climbed by 6.99% y­o­y to $1.38B in December 2016. As for theShareholders’ Equity, it grew by 7.19% to $144.26M by Dec. 2016.

BEMO Bank Financial Highlights ($B)

Dec­16 Dec­15 % change

Net Profits ($M) 15.75 12.94 21.77%

Total Assets 1.76 1.62 8.50%

Customers' Deposits 1.38 1.3 6.99%

Shareholders' Equity 0.144 0.134 7.19%

Net Loans and Advances toCustomers 0.689 0.674 2.26%

Source: Beirut Stock Exchange (BSE)

Value of Cleared Checks Ends 2016 with a 5.54% y­o­y Contraction February 1, 2017

According to the Association of Banks in Lebanon (ABL), the value of clearedchecks declined by 5.54% year on year (y­o­y) by December 2016, whereby thenumber of checks cleared reached 12.32M worth $68.04B, compared to 12.51Mchecks worth $72.03B in the same period of 2015.

The number and value of checks cleared in Lebanese Pounds (LBP) respectivelyrose by 4.09% and 5.23% y­o­y to 4.29M and $19.9B by Dec.2016; However, thenumber and value of cleared checks in foreign currency respectively fell by yearly4.28% and 9.37% to 8.03M and $48.14B by December 2016.

As such, the dollarization rate of cleared checks declined in volume and value terms from 67.09% and 73.75%by Dec.2015 to 65.21% and 70.76%, respectively in the same period of 2016.

It is worthy to mention that the value of returned checks registered a 4.5% uptick to $1.6M over the period whiletheir volume dropped by an annual 2.97% to 227,766.

On a monthly basis, the number and value of cleared checks in December 2016 fell by yearly 6.25% and 3.58%to 1.03M and $5.76B. In details, the volume and value of December’s cleared LBP­checks respectively rose by2.54% and 9.95% to reach 376,518 and $1.88B, whereas the volume and value of foreign currency checks fellby 10.69% and 9.01% to 648,908 and $3.88B, respectively.

Value of Cleared Checks by December ($M)

Source: Association of Banks in Lebanon (ABL)

BLOM Bank’s Financial Results for 2016: Steady and HighestProfitability Ratios Among Listed Banks

January 31, 2017

BLOM Bank announced today its un­audited financial results for the year 2016. Theresults continue to show the Bank’s solid performance despite the ongoingturbulence in the region. Net profit reached $463 million, higher by $59 million fromlast year. As impressive, the Bank recorded the highest profitability ratios amonglisted banks, with the rate of return on average common equity standing at 17.4%.The Bank’s performance was driven by its excellent managerial and operationalefficiency, attaining a cost­to­income ratio of 35.8%, also the lowest among listedbanks.

The Bank’s balance sheet in turn witnessed reasonable expansion. Assets stood at $29.5 billion, higher by $431million from year 2015; and Tier 1 shareholders’ equity rose to $2.9 billion, up by $225 million.

The Bank’s profitability was achieved while maintaining very strong financial indicators. The capital adequacyratio reached 19%, against a required ratio of 14%; primary liquidity stood at 72.7%; and coverage of non­performing loans (including collective provisions and real guarantees) was 161%.

The 2016 financial results highlight once again BLOM bank’s successful strategy of attaining balanced growth bygiving priority to risk and cost control.

Bank Audi’s Net Profit Rose by a yearly 16.61% in 2016 January 31, 2017

According to Bank Audi’s newly released financial statements, the bank’s consolidated net profit surged 16.61%year­on­year (y­o­y) to stand at $470.11M in 2016 despite the negative developments in Turkey and Egypt,

where Audi also operates. According to the bank’s statement, Turkey and Egyptrecorded depreciations of their currencies of 18% and 58%, respectively in 2016.

As for Bank Audi’s consolidated balance sheet, it showed a 5.19% y­o­y growth intotal assets, which stood at $44.4B, as at December 31, 2016. The loan and depositgrowths were however impacted by the depreciation of the Egyptian Pound and theTurkish Lira.

The balance sheet shows a yearly decline of 2.94% in net loans and advances tocustomers at amortized cost to $17.3 billion which “on the basis of a constant exchange rate as at end­December2015 would have increased by $1.7B or 10%, driven primarily by an increase in loans in entities operating inLebanon, Turkey and Egypt”, the statement clarifies.

The balance sheet also reveals a modest annual increment of 0.75% in customer deposits to $35.42B in 2016.The statement also highlights that on a constant exchange basis at end­December 2015, the deposit growthwould have been equal to 10% mainly on account of deposits in entities operating in Lebanon.

Shareholders’ Equity recorded a notable growth of 15.25% and stood at $3.79B by Dec. 2016.

Regarding Bank Audi’s participation in the swap operation engineered by the Central Bank of Lebanon, thebank announced it achieved around $1B in exceptional non­recurring revenues. The Bank also assured thatthose revenues will be allocated in accordance with the Central Bank’s instructions cited in Intermediate Circular#446.

Bank Audi: Financial Highlights ($B)

Dec­16 Dec­15 % change

Net Profits ($M) 470.11 403.14 16.61%

Total Assets 44.4 42.2 5.19%

Customers' Deposits 35.42 35.15 0.75%

Shareholders' Equity 3.79 3.29 15.25%

Net Loans and Advances toCustomers 17.3 17.72 ­2.94%

Source: Beirut Stock Exchange (BSE), Bank Audi

Number of Construction Permits Rose by 13.29% y­o­y in 2016 January 30, 2017

Construction activity showed a recovery by the end of 2016 to settle near 2012’slevel. As revealed by data from the Orders of Engineers in Beirut and the North, thetotal number of permits rose by 13.29% year­on­year (y­o­y) to 17,097 permits byDec. 2016, compared to 15,092 during the same period in 2015. The positivesentiment created by the recent election of a president and the formation of cabinetafter 2.5 years of political deadlock could extend the progress in constructionactivity in 2017.

Noting that permits are usually issued at least 6 months after applications are filed,the number of construction permits in Beirut rose by 5.52% y­o­y to stand at 14,193 permits. The number of

construction permits in the North also increased from 1,642 in 2015 to 2,904 permits by Dec.2016.

On a different note, data also revealed investors’ preference for smaller construction areas for their projects,where the construction area authorized by permits (CAP) dropped by 15.08% to stand at 10.29M sqm byDecember 2016. Thus, the average area per transaction fell from 802.78sqm/permit by December 2015 to601.77sqm/permit over the same period in 2016.

44% of total construction permits were issued in Mount Lebanon, while 22.74% were issued in South Lebanon,followed by 18% in North Lebanon.

Number of Construction Permits by December

Source: Orders of Engineers in Beirut & Tripoli

Financial Markets

Safety Bids Up on Trump Policies and Dovish Fed February 3, 2017

The BLOM Bond Index (BBI) rose by a weekly 0.44% to reach 104.13 points asdemand for medium and long term Lebanese Eurobonds increased. The Lebaneseindex was outpaced by the JP Morgan Emerging Markets’ Bond Index whichincreased by a weekly 0.69% to 752.93 points. The yields on the LebaneseEurobonds maturing in 5 years and 10 years, which have an inverse relationshipwith prices, respectively declined from last week’s 6.18% and 6.86% to 6.10% and6.84%, this week. Demand for US treasuries was also more pronounced in the USwith the yields on the 5 Year and 10 Year treasuries sliding from 1.95% and 2.51%last week to 1.92% and 2.48% this week, respectively. Demand for safe­haven

assets unsurprisingly went up after the Federal Reserve kept rates unchanged on Wednesday and afterPresident Trump’s new policies sent shock waves within and beyond the US borders. The spread between the 5yield on Lebanese Eurobonds and that on US treasuries narrowed by 5 basis points (bps) to 418 bps while the10 Year spread was up by 1 bp to 436 bps.

5 Year Credit Default Swaps, Mid­Prices (in basis points)

5Y CDS 02/02/2017 26/01/2017

Lebanon 447 447

KSA 113 112

Dubai 136 140

Brazil 243 273

Turkey 259 253

Beirut Stock Exchange Boosted by Strong Bank Results February 3, 2017

The BLOM Stock Index (BSI) ended the week with a 1.81% rise to stand at 1,238.28points. With that, the Lebanese index would have outpaced all three of its regionalpeers, the S&P Pan Arab Composite LargeMidCap, the MSCI Emerging MarketsIndex and the S&P AFE40 which respectively declined by 1.61%, 0.08% and 2.20%over the past week. On the Beirut Stock Exchange (BSE), the market capitalizationrose from $10.23B last week to $10.67B this week.

The average traded volume and value on the Beirut Stock Exchange (BSE)however declined from last week’s 461,677 and $4.39M to 188,263 and $1.98M

this week, respectively.Regionally, Egypt was the sole gaining bourse with a 1.76% weekly increase whereasthe most notable declines were registered on the Dubai Financial Markets with a drop of 0.82%, on the Kuwaitibourse with a 0.66% decline and on the Qatari stock exchange with a 0.24% fall.

In Lebanon, the banking sector accounted for 72.6% of the traded value during the period with banking stocksrising on account of the positive end of year financial results.

BLOM Bank’s GDR and listed shares grew by a weekly 4.43% and 4.63% to close at $12.01 and $11.30,respectively. Earlier this week, BLOM had posted profits of $463M in 2016. BLOM Bank's GDRs reached theirhighest level since early October 2010.

Bank Audi’s GDR and listed shares also increased over the past week by 0.88% and 3.41% to reach $6.88 and$6.97, respectively. Audi’s booked profits of $470M in 2016 was positively received by shareholders.

Bank Byblos’ listed shares added a weekly 1.17% to close at $1.73.

As for the BLOM Preferred Shares Index (BPSI), it witnessed a weekly uptick of 0.01% to 105.61 points. Thenewly listed Audi Preferred I shares rose by a weekly 0.5% to $100.5, BLOM’s Preferred 2011 shares grew by3.96% to $10.50 this past week while Byblos Bank’s preferred 2008 shares slid by a weekly 0.10% to $102.10.

As for the real estate sector, which accounted for 27% of this week’s traded value, it witnessed an upturn of1.17% in the price of Solidere A shares to $10.37 and a 0.20% drop in the price of Solidere B shares to $9.82.

In the manufacturing sector, which represented 0.47% of this week’s traded value, it saw a 9.82% fall in the priceof HOLCIM’s listed shares to $10.28 and a 9.92% increase in the price of Ciments Blanc’s Bearer shares to$2.66.

On the London Stock Exchange (LSE), BLOM Bank’s GDR shares rose by a weekly 6.52% to $12.25 while BankAudi’s GDR shares slid by 0.29% to end the week at $6.88.

The expected pick­up in activity following the release of the listed banks’ 2016 financial statement materializedover the past week. In the near future, a political consensus over an election law is likely to offer another boost tomarket sentiment.

Broad Money M3 Contracts Over the Week Jan.12th to 19th February 3, 2017

During the week ending January 19, Broad Money M3 contracted by a weeklyLBP139B ($90M) to reach LBP 199,348B ($132.24B). However, M3 recorded a7.16% annual increase and a 0.15% rise since the start of the year. M1 decreasedby LBP 218B ($144M) over the same period to LBP 9,256B ($6.14B). This decreaseis mainly attributed to the LBP 174B ($115.42M) drop in money in circulation andthe drop by LBP 44B ($29.19M) in demand deposits. Total deposits (excludingdemand deposits) rose by LBP78.4B ($52M) during the week, as term and savingsdeposits denominated in local currency registered a large increase of LBP 133B($88.23M), while deposits denominated in foreign currencies went down by $36M.

Over the above mentioned period, the broad money dollarization rate remained relatively unchanged from

58.99% on January 12th to 59% on January 19th. According to the Central Bank, the overnight interbank rate

remained stable at 3% between October and November 2016. In the Treasury Bills auction held on January 19th,2017, the Ministry of Finance (MoF) raised LBP 394B ($261M), through the issuance of bills maturing in 6months (6M) and notes maturing in 24M and 120M. The highest demand was achieved on the 24M notes, whichheld a 51.17% share of total subscriptions, while the 6M bills and 120M notes accounted for the remainingshares of 10.47% and 38.36%, respectively. The discount rate on the 6M bills stood at 4.87% while the couponrate on the 24M and 120M notes registered 5.84% and 7.46%, respectively. New subscriptions exceededexisting maturities by LBP 186B ($123M).

Dollar Decreases as the Fed Maintains Rates and Inflation Eases inEurope

February 3, 2017Lebanese Forex Market Demand for the dollar on the Lebanese forex market increased over the past week,

going from $/LP 1,514 within the range $/LP 1,513.75 ­ 1,514.25 on January 24th toa mid­price of $/LP 1,514.25 within the range $/LP 1,514 ­ 1,514. 5 on Friday. Foreign assets (excluding gold) at the Central Bank increased 9.75% since thebeginning of the year to $40.71B by December 2016, boosted by the June 2016Swap Operation coordinated by BDL with the MoF and the Lebanese commercialbanks. The dollarization ratio of private sector deposits slightly hiked from 64.88%

in Dec.2015 to 65.30% in Nov.2016. By Friday February 3, 2017, the euro appreciated against the dollar­pegged LP over the last week, going from €/LBP 1,612.12 on January 27 to €/LBP 1,619.36 on February 3. As forthe Nominal Effective Exchange Rate (NEER) of the LBP, it decreased by 0.18% over the past week to stand at117.51 points. International Forex Market: The dollar depreciated against the euro this week, as traders were unnerved by Trump’s comments on theEurozone’s “grossly undervalued” currency and the Fed’s meeting Tuesday this week refrained from hiking

interest rates, which was expected to strengthen the dollar. Europe’s key economic statistics also out on Tuesdaycarried optimism, announcing a higher than projected inflation, lower unemployment, and accelerated growth.Hence, the dollar fell from €/$ 1.0694 in the last week to €/$1.0742 this week. Commodities: Over the week, gold prices increased from $1,185/ounce on January 27 to $1,211.59/ounce this week, at 2:30Beirut time.

PMI Reports

BLOM PMI at 47.7 points, Its Slowest Recorded Contraction in a Year February 2, 2017

BLOM PMI rose again in the first month of 2017, reflecting the slowest pace ineconomic contraction seen in a year. “This is good news, albeit the BLOM LebanonPMI is taking its time to reach 50 and above. The January 2017 PMI stood at 47.7,up from December’s 2016 level of 47 and well above the 45.7 average for entire2016. Most the survey’s main sub­indices witnessed slower falls: output, prices,new orders, and exports”, commented Dr Ali Bolbol, Economic Advisor atBLOMINVEST Bank. However, amid an increased level of pessimism amongstLebanese companies towards output prospects, Dr. Bolbol said “To reverse thesetrends, the economy is still waiting for the positive jolt that the election of the new

president and the formation of the government are supposed to bring. As a result, this calls for more urgent andconcrete reforms and actions by the new government to ignite more optimism, especially in an environment ofcontinuing regional and possible global instability.”

Full details about January's results are available below: LB_PMI_ENG_Press Release LB_PMI_ENG_Report

Spotlights on Lebanon

Lebanon’s Eurobonds Market: Negative Performance despite PoliticalBreakthrough

February 3, 2017

Global bond markets fluctuated significantly during the year as a result of majorinternational developments on both the political and economic front. As such, the Brexitvote, the U.S. presidential election and record low/negative yields in sovereign andcorporate bonds have all influenced the world with considerable implications on bondmarket.

For more details, click on the link below: Lebanon’s Eurobonds Market NegativePerformance despite Political Breakthrough

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Best Regards,

Economic Research DepartmentBlominvest Bank salT 01 991 784F 01 983 241www.blominvestbank.com