FFA Private Bank updates its equity research coverage on Bank Audi, Blom Bank and Byblos Bank

Target prices on Bank Audi, Blom Bank and Byblos Bank were lowered to $7.00, $10.00 and $1.60 respectively from $7.50, $11.00 and $1.80 previously.

Ratings were kept unchanged for the three banks at Overweight on Blom Bank and Marketweight on Bank Audi and Byblos Bank. Although lower share prices have brought bank shares to more attractive valuation levels, the report notes no catalyst that could drive shares materially higher in the short term. Earnings are expected to remain lackluster amidst weakened investor appetite, challenging operating conditions, continuous pressures on margins, and higher provisions as measures facing developments in Syria and slowing fees and commissions; while cost-efficiencies improvement and gains from financial operations help alleviate income headwinds.

The analysis recognizes Lebanese banks' ability in reporting moderate balance sheet growth within less favorable geopolitical and macro dynamics, as well as their capacity in coping with income pressures while adopting prudent provisioning measures which could translate into bottom line improvement once deterioration in non-performing loans (NPLs) peaks.

It also highlights the soundness of their asset quality in their domestic market as well as the moderate impact from NPLs deterioration in Syria due to the shrinking size of Syrian loan books from active downsizing and Syrian currency devaluation.

Healthy liquidity and comfortable capitalization levels should continue to buffer the banking system and the capitalization for Lebanese banks under coverage which are capable of more stringent regulatory requirements in light of the new Basel III capital, liquidity and funding requirements.