Fitch affirms Bank Audi at 'B-'; outlook stable

The Support Rating Floor is affirmed at 'CCC'.

The ratings reflect, and are constrained by, the ongoing weaknesses of the Lebanese operating environment and Audi's substantial exposure to the sovereign. The Individual Rating reflects Audi's strong franchise, competent management and resilient profitability. It also reflects Lebanon's ongoing political risks, although these have receded somewhat following the peaceful elections held in June 2009. The bank's Support Rating reflect Fitch's view that the Lebanese authorities would certainly try to support Audi if needed given its systemic importance; however, a low sovereign rating ('B-'/Outlook Stable) means the ability to provide such support cannot be relied upon.

Lebanese banks have so far shown great resilience to the effects of the slowdown in the MENA region and Audi continued to record solid profit growth in 2008 with net profit increasing by 19%. Core banking revenue benefited from a revival of economic growth in Lebanon and from growth - at least during the first nine months of the year - in the wider Mena region. Audi's Q109 profit continued to grow, although at a slower rate, with net profit increasing 12% yoy.

Audi has a strong funding franchise and non-equity funding consists almost entirely of customer deposits. Lebanon accounts for about three-quarters of the bank's deposit base with most of the remainder from the wider Mena region. Deposits increased 22% in 2008, well above the sector average of about 16%, with Audi benefiting from a flight to quality effect and also from its relatively wide domestic and international network. Deposits continued to increase during Q109 although at a slower rate.

Audi is Lebanon's largest bank by assets, accounting for about 22% of the system's total at end-2008. It offers a wide range of commercial and retail services in addition to investment and private banking. Audi is also expanding its regional activities and is one of the most internationally diversified of the Lebanese banks. It operates in eight markets in the Mena region including in Syria, Egypt, Jordan, Sudan, Saudi Arabia, and Qatar, and has a representative office in the UAE. The bank's international operations accounted for 27% of assets and about 22% of profits in 2008. Audi intends to have its foreign operations contribute half of both assets and profits by 2011, a diversification which Fitch on the whole views as a positive move. Bank Audi's shares are listed on the London and Beirut stock exchanges.