Your Investment Reference

THE
LEBANON BRIEF


ISSUE 803
Week of 24 Dec 2012 – 05 January, 2012



ECONOMIC RESEARCH DEPARTMENT
Rashid Karame Street, Verdun Area
P.O.Box 11-1540 Beirut, Lebanon
T (01) 991784/7 F (+961) 1 991732
research@blominvestbank.com
www.blom.com.lb

S A L
The Lebanon Brief Table Of Contents Page 2 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L
TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS


FINANCIAL MARKETS FINANCIAL MARKETS FINANCIAL MARKETS FINANCIAL MARKETS 3 33 3
Equity Market 3
Foreign Exchange Market 5
Money & Treasury Bills Markets 5
Eurobond Market 6

ECONOMIC ECONOMIC ECONOMIC ECONOMIC AND FINANCIAL NEWS AND FINANCIAL NEWS AND FINANCIAL NEWS AND FINANCIAL NEWS 7 77 7
BdL Foreign Assets Grow 10.86% to $35.74B In 2012 7
Commercial Banks’ Assets Rise 7% To $150.38B Since Year Start To November 7
BoP Deficit Contracts To $1,849 Million By November 8
Budget Deficit Widens To $1,489 Million By August 8
Trade Deficit Expands To $15.3B By November 9
Import & Export L/Cs Decline During October 9
Inflation Falls By 0.38% In November 10

CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS 11 11 11 11
S&P Maintains a BB- Rating For Lebanon’s Banking Sector 11

FOCUS IN BRIEF FOCUS IN BRIEF FOCUS IN BRIEF FOCUS IN BRIEF 12 12 12 12
2013: A Difficult and Challenging Year 12







This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be
reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a
solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken
on the basis of information contained herein are solely the responsibility of the recipient.
The Lebanon Brief Economic and Financial News Page 3 of 14


FINANCIAL MARKETS FINANCIAL MARKETS FINANCIAL MARKETS FINANCIAL MARKETS
Equity Market
Stock Market

4/1/2013 21/12/2012 % Change
BLOM Stock Index* 1,170.64 1,160.30 0.89%
Average Traded Volume 341,511 173,718 96.59%
Average Traded Value 1,505,022 1,550,473 -2.93%
*22 January 1996 = 1000





The Beirut Stock Exchange corrected upwards
during the first week of 2013 recovering from the
profit taking opportunities in the previous week. This
led the BLOM Stock Index (BSI) to increase by
0.89% and close at 1,170.6 points, registering a
0.13% gain since year start. The market witnessed
daily average trade volumes of 341,511 shares
worth $1,505,022 in the previous two weeks.
Market capitalization decreased by $33.7 million
over the last two weeks to reach $9.14 billion as a
result of the redemption and delisting of Bank of
Beirut Preferred D shares.


The Lebanese Index outperformed its comparative
benchmark indices for the two week period, with
the exception of the MSCI Emerging Markets index
which added 2.85% to close at 1,082.68 points. The
S&P Pan Arab Composite LargeMidCap Index gained
0.58% to reach 111.96 points, and the S&P AFE40
Index increased by 0.60% to 55.18 points this
Friday.


Regionally, Egypt’s Stock Exchange was the best
performer gaining 5.35%, followed by Dubai’s Stock
Exchange earning 5.02%. While none of the
exchanges witnessed losses, Kuwait’s and Saudi
Arabia’s stock exchange’s realized the least growth
of 0.36% and 0.75% respectively.


On the Beirut Stock exchange, the banking sector
dominated capturing 53% of total traded value.
BLOM listed as well as BLOM GDR shares
increased by 3.40% and 1.01% to end the week at
$7.90 and $8.00 respectively. In addition, Bank Audi
listed as well as Audi GDR also increased by 1.97%
and 0.65% to close at $6.21 and $6.16 respectively.
Byblos shares gained 4.58% to reach $1.60 per
share. Meanwhile, BLC and BEMO shares lost
4.74% and 3.17% to close at $1.81 and $1.83
respectively. On the London stock exchange (LSE)
the GDR’s of BLOM and Audi increased by 1.26%
and 0.33% to reach $8.05 and $6.12 respectively.
Banking Sector

Mkt 4/1/2013 21/12/2012 % Change
BLOM (GDR) BSE $8.00 $7.92 1.01%
BLOM Listed BSE $7.90 $7.64 3.40%
BLOM (GDR) LSE $8.05 $7.95 1.26%
Audi (GDR) BSE $6.16 $6.12 0.65%
Audi Listed BSE $6.21 $6.09 1.97%
Audi (GDR) LSE $6.12 $6.10 0.33%
Byblos (C) BSE $1.60 $1.53 4.58%
Byblos (GDR) LSE $79.00 $79.00 0.00%
Bank of Beirut (C) BSE $19.00 $19.00 0.00%
BLC (C) BSE $1.81 $1.90 -4.74%
Fransabank (B) OTC $28.00 $28.00 0.00%
BEMO (C) BSE $1.83 $1.89 -3.17%

Mkt 4/1/2013 21/12/2012 % Change
Banks’ Preferred
Shares Index *

104.71 $107.16 -2.29%
BEMO Preferred 2006 BSE $100.00 $100.00 0.00%
Audi Pref. D BSE $10.35 $10.35 0.00%
Audi Pref. E BSE $100.00 $100.00 0.00%
Audi Pref. F BSE $100.00 $100.00 0.00%
Byblos Preferred 08 BSE $102.10 $101.70 0.39%
Byblos Preferred 09 BSE $102.10 $103.00 -0.87%
Bank of Beirut Pref. D BSE N/A $27.10 -
Bank of Beirut Pref. E BSE $25.70 $26.20 -1.91%
BLOM Preferred 2011 BSE $10.17 $10.17 0.00%
Bank of Beirut Pref. H BSE $26.00 $26.19 -0.73%
* 25 August 2006 = 100

1050
1100
1150
1200
1250
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
BLOM Stock Index
HI: 1226.1
LO: 1104.42
The Lebanon Brief Economic and Financial News Page 4 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L
Real Estate

Mkt 4/1/2013 21/12/2012 % Change
Solidere (A) BSE $12.84 $13.09 -1.91%
Solidere (B) BSE $12.85 $13.02 -1.31%
Solidere (GDR) LSE $12.65 $13.20 -4.17%

The Preferred shares index lost 2.29% to close at
104.71, noting that one of its component shares,
BoB Preferred D were redeemed and delisted
before year end. BoB Preferred E & H shares lost
1.91% and 0.73% to close at $25.70 and $26.00
respectively. Byblos Preferred 08 gained 0.39%,
while Byblos 09 lost 0.87%, both closing at a
price of $102.10.


Manufacturing Sector

Mkt 4/1/2013 21/12/2012 % Change
HOLCIM Liban BSE $15.75 $15.50 1.61%
Ciments Blancs (B) BSE $3.26 $3.26 0.00%
Ciments Blancs (N) BSE $3.30 $3.30 0.00%
In the real estate sector, both Solidere A and B
lost 1.91% and 1.31% to close at $12.84 and
$12.85 respectively. Solidere GDR, which is listed
on the LSE dropped 4.17% to close at $12.65


In the industrial sector Holcim gained 1.61% to
close at $15.75 per share.

Funds

Mkt 4/1/2013 21/12/2012 % Change
Beirut Preferred Fund BSE $103.50 $103.50 0.00%
BLOM Cedars Balanced
Fund Tranche “A”
----- $6,839.48 $6,807.57 0.47%
BLOM Cedars Balanced
Fund Tranche “B”
----- $5,180.19 $5,155.17 0.49%
BLOM Cedars Balanced
Fund Tranche “C”
----- $5,194.63 $5,170.39 0.47%
BLOM Bond Fund ----- $9,826.19 $9,832.00 -0.06%


RYMCO was subject to several cross trades
leading to a 31.82% increase in its share price to
end the week at $2.90.


Investors are expected to remain reactive and
opportunistic depending on the upcoming events,
especially that the Lebanese Parliamentary
elections will be held this year.



Retail Sector

Mkt 4/1/2013 21/12/2012 % Change
RYMCO BSE $2.90 $2.20 31.82%
ABC (New) OTC $33.00 $33.00 0.00%


Tourism Sector

Mkt 4/1/2013 21/12/2012 % Change
Casino Du Liban OTC $545.00 $550.00 -0.91%
SGHL OTC $7.00 $7.00 0.00%

The Lebanon Brief Economic and Financial News Page 5 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L
Foreign Exchange Market
Lebanese Forex Market

4/1/2013 21/12/2012 %Change
Dollar / LP 1508.00 1508.00 0.00%
Euro / LP 1961.56 1989.90 -1.42%
Swiss Franc / LP 1621.84 1647.90 -1.58%
Yen / LP 17.10 17.93 -4.63%
Sterling / LP
2419.09 2449.24 -1.23%
NEER Index** 104.34 103.72 0.60%
*Close of GMT 09:00+2
**Nominal Effective Exchange Rate; Base Year Jan 2006=100
**The unadjusted weighted average value of a country’s currency relative to all major
currencies being traded within a pool of currencies. The NEER represents the
approximate relative price a consumer will pay for an imported good.


Demand for the US dollar remained flat during the past 2
weeks, as banks maintained the range at which they exchange
the currency at $/LP 1,506 - $/LP 1,510, with a mid-price of
$/LP 1,508. Foreign assets (excluding gold) at the Central Bank
increased by a monthly 0.17% to $35.74 billion by the end of
December 2012, while the dollarization rate of private sector
deposits stood at 64.58% by the end of November 2012 as
opposed to 65.76% in December 2011.


Nominal Effective Exchange Rate (NEER)


The Euro lost grounds against the Dollar, as the latter
reinforced on positive flows of information, going from
President Obama succeeding in passing a budget deal to avoid
the fiscal cliff by delaying spending cuts and limiting increases
in taxes, to expectations of improving employment data in the
US. In addition, speculations that the Fed may slow or halt its
systematic bond buying, eased the pressure over the dollar.
Meanwhile as Europe is thought to have survived the worst,
the Euro had limited upside potential to match the Dollar
boost. By Friday January 04, 2013, 12:30 pm Beirut time, the
euro closed at €/$ 1.30 down by 1.42% from two weeks
earlier. Hence, the dollar-pegged LP appreciated to €/LP
1,961.56 from €/LP 1998.9 on Friday 21th of December. The
Nominal effective exchange rate (NEER) increased by 0.6%
over the cited period to 103.34 points, while its new year-to-
date performance stood at 0.51%.
Money & Treasury Bills Markets
Money Market Rates


Treasury Yields
4/1/2013 21/12/2012 Change bps
3-M TB yield 4.38% 4.38% 0
6-M TB yield 4.87% 4.87% 0
12-M TB yield 5.08% 5.08% 0
24-M TB coupon 5.84% 5.84% 0
36-M TB coupon 6.50% 6.50% 0
60-M TB coupon 6.74% 6.74% 0
4/1/2013 21/12/2012 Change bps
Overnight Interbank 2.75% 2.75% 0
BDL 45-day CD
3.57% 3.57% 0
BDL 60-day CD
3.85% 3.85% 0
Broad money M3 increased by LP 362B ($240M) during the
week ending December 20 to reach LP 157,555B ($104.51B).
Accordingly, M3 increased by 7.85% y-o-y and 7.49% from
end of December 2011. M1 rose during the week by LP102B
($68M) as money in circulation decreased by LP61B ($40M)
and demand deposits increased by LP163B ($108M). Total
deposits (excluding demand deposits) increased by LP261B
($173M) driven by the progress of deposits denominated in
foreign currencies by $148M, and a rise in term and saving
deposits in LP by LP38B ($25M). As for the dollarization rate
of broad money, it widened by 1 basis point on a weekly
basis to 58.18%. The overnight interbank rate stood at 2.75%
during the month of October, according to BdL.

In the TBs auction held on December 27, the Ministry of
Finance raised LP 504.38B ($334.58M) through the issuance
of Treasury Bills. Demand was mainly observed on the 3-year
bill which captured 87% of total subscriptions. The 1-year TB
paper accounted for 5% of total demand, while the 2-year
papers took the remaining 8%. During the auction, the
average discount rate for the 1-year papers and the average
coupon rate for the 2-year and 3-year paper remained
unchanged at 5.08%, 5.84%, and 6.5% respectively. New
subscriptions were less than those that matured by LP 5.29B
($3.5M).

93
95
97
99
101
103
105
107
Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12
The Lebanon Brief Economic and Financial News Page 6 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L

Eurobond Market
Eurobonds Index and Yield
3/1/2012 20/12/2012 Change Year to Date
BLOM Bond Index (BBI)* 109.240 109.070 0.16% 0.17%
Weighted Yield** 4.99% 5.03% -4 -3
Weighted Spread*** 419 426 -7 -11
*Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market
** The change is in basis points ***Against US Treasuries (in basis points)
Lebanese Government Eurobonds

Maturity - Coupon
3/1/2013
Price*
20/12/2012
Price*
Weekly
Change%

3/1/2013
Yield
20/12/2012
Yield
Weekly
Change bps
2013, Mar - 9.125% 101.43 101.90 -0.47% 0.94% 0.12% 82
2013, Jun - 8.625% 103.25 103.63 -0.37% 1.31% 1.09% 22
2014, Apr - 7.375% 107.13 107.31 -0.17% 1.65% 1.66% -1
2014, May - 9.000% 109.50 109.10 0.37% 1.66% 2.12% -46
2015, Jan - 5.875% 104.75 104.50 0.24% 3.42% 3.58% -16
2015, Aug - 8.500% 111.75 111.50 0.22% 3.67% 3.83% -16
2016, Jan - 8.500% 112.50 112.50 0.00% 4.07% 4.11% -4
2016, May - 11.625% 123.00 122.75 0.20% 4.17% 4.31% -14
2017, Mar - 9.000% 116.63 116.50 0.11% 4.60% 4.66% -6
2018, Nov - 5.150% 100.50 100.50 0.00% 5.05% 5.05% 0
2020, Mar - 6.375% 104.50 104.69 -0.18% 5.60% 5.57% 3
2021, Apr - 8.250% 115.75 115.75 0.00% 5.82% 5.83% -1
2022, Oct - 6.100% 101.75 101.50 0.25% 5.86% 5.89% -3
2023, Jan - 6.00% 100.63 100.50 0.12% 5.92% 5.93% -1
2024, Dec - 7.000% 107.00 106.50 0.47% 6.16% 6.22% -6
2026, Nov - 6.600% 102.00 101.50 0.49% 6.38% 6.43% -5
2027, Nov - 6.75% 101.75 100.75 0.99% 6.56% 6.67% -11
• Mid Prices ; BLOMINVEST bank

The Eurobond market went stale on the week before the year-end break, to rally again by the end of this week, with the
BLOM Bond Index rising 0.16% to close at 109.24 points on Thursday. This led the average yield on holding the Lebanese
Eurobonds to pull back 4 basis points to 4.99%, while the spread against the US benchmark narrowed further by 7 basis
points as the American treasury bills tumbled after New Year. Lebanese Eurobonds prices corrected late during this week,
with the papers maturing in less than 5 years dropping an average of 0.09% in price while longer maturities gained an
average of 0.27% pulled by the longest-term notes that added as much as 0.85% in value. This could be stemming from
investors’ bearishness over the near-term, 2013 being the year of the Lebanese parliamentary elections, while remaining
positive over the long-term outlook of the country. In comparison, the JP Morgan emerging markets’ bond index rose 1.03%
in the period between 20/12/2012 and 3/1/2013.

In the US, bonds market took a break as the feared fiscal cliff was avoided, when a budget deal was stroke on January 2
averting taxes on most Americans and delaying the spending cuts until March. News from Fed suggesting it might end its
monthly debt purchases in 2013 have also temporarily led the bond markets to lose their appeal. Nevertheless, investors’
faith doesn’t seem to be restored in the prospects of the Economy, as they are mildly responding to positive economic
reports, while standing-by to dip in Treasuries again ignoring the record lows of bonds-returns.

Regarding credit default swaps (CDS), the Lebanese CDS for 5 years narrowed early this week to 420-460 basis points from
426-473 bps 2 weeks ago, signaling slightly improved sentiments over the Lebanese Government default probability among
international hedgers. In the Arab markets, Dubai CDS quotes tightened to 204-216 bps from 220-230 bps, while KSA’s
maintained their range at 66-70 bps. In the emerging markets, Brazil’s CDS were last quoted at 101-103, down from 137-147
bps 2 weeks ago, and Turkey’s read 112-115 bps down from 123-126 bps.
4.30%
4.80%
5.30%
5.80%
Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12
Weighted Effective Yield of Eurobonds
The Lebanon Brief Economic and Financial News Page 7 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L
E EE ECONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS CONOMIC AND FINANCIAL NEWS


BdL Foreign Assets (Excluding Gold)

Source: BdL

BdL Foreign Assets Grow 10.86% to $35.74B In 2012

Total assets of Lebanon’s Central Bank reached $76.69 billion by
end-December, up by 9.10% since last year. BdL’s foreign assets
expanded 10.86% y.o.y to $35.74 billion, excluding the Gold
reserves that increased by 6.33% y.o.y with the rise in Gold prices
from $1,637/ounce in Dec 2011 to $1,682/ounce in Dec 2012.
BdL’s Securities portfolio shrunk 6.72% to reach $10.81 billion
compared to $11.58 billion in 2011, while loans to the financial
sector achieved a considerable growth of 16.16% rising from $1.39
billion end Dec 2011 to $1.62 billion by end-Dec, 2012. Latter have
resulted from increased efforts by the BdL to stimulate lending
through incentives and preferential rates for banks. On the
liabilities side, the financial sector deposits grew 11.01% to $54.37
billion up from $48.98 billion, while currency outside BdL increased
by 10.82% to $2.41 billion. Public sector deposits also grew by
11.56% to $5.91 billion. As for the monthly variation, BdL’s assets
contracted 2.33% between November and December, mainly
driven by the 8.33% decrease in securities portfolio.




Lebanese Commercial Banks’ Consolidated Assets


Source: BdL













Commercial Banks’ Assets Rise 7% To $150.38B Since
Year Start To November

The consolidated assets of the Lebanese commercial banks
registered a 0.67% monthly increase in November to reach
$150.38B, resulting in an annual increase of 7.85% compared to
November 2011, and a 7% rise since year start. Lending to the
resident and non-resident private sector increased by 8.42% y-o-y
and by 0.42% on a monthly basis to reach $42.93B in November.
Claims on the public sector accounting for 20.48% of total assets,
grew 4.47% annually to register $30.80B by end November as their
Eurobond portfolio rose 3.5% to $13.17B, and Treasury Bills in
Lebanese pounds grew 5.2% to $17.55B. Lending to the public
sector increased by 1.67% from October following the participation
of banks in the government’s issuance of Eurobonds during
November. On the other hand, resident and non-resident private
sector deposits, which account for 81.87% of total commercial
banks’ liabilities, increased by 7.87% y-o-y and by 0.43% m-o-m to
stand at $123.12B by November this year. The dollarization rate of
private sector deposits retracted to 64.58% in November 2012
compared to 65.92% in December and 65.76% in November 2011.





28.3
30.6
32.24
35.74
2009 2010 2011 2012
In $B
113.57
127.57
139.43
150.38
2009 2010 2011 2012
By November, In $B
The Lebanon Brief Economic and Financial News Page 8 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L



Lebanon’s BoP Deficit

Source: BdL




BoP Deficit Contracts To $1,849 Million By November

The Balance of Payment (BoP) registered a deficit of $1,849 million
during the first 11 months of this year, contracting by 31.2%
compared to the same period last year, according to data released
by the Central Bank (BDL). By November 2012, the change in Net
foreign Assets (NFA) of BDL recorded a positive $1,554 million,
29% lower than 2011’s, while the change of NFAs at the
commercial banks improved by 30% from a negative $(4,878.5)
million by November 2011 to $(3,403) million by November 2012.
The BoP deficit, persisting on its second consecutive year, is
mainly associated to the declining income from tourism given the
17.74% drop in the number of tourists witnessed by November
2012, in addition to Lebanon’s continuous trade deficit that
recorded $15,305 million by November. Moreover, foreign direct
investments (FDI) declined, affected by both the domestic and
neighbouring political instabilities. Meanwhile, remittances from
the Lebanese Diaspora have sustained their levels during the past
two years. In November alone, the BoP recorded a surplus of
$179.6 million, substantially higher than the $558.9 million deficit
seen in November 2011.



Governement’s Revenues & Expenditures
Up to August, In $M


Source: Ministry of Finance








Budget Deficit Widens To $1,489 Million By August

Lebanon’s budget deficit reached $1,489 million in the first 8
months of 2012, 52.6% higher than the same period of last year
when the deficit stood at $975 million, according to the Ministry of
Finance. The budget deficit rose to account for 18.48% of total
expenses by August, whereas it accounted for 13.51% of last
year’s same period expenditures. In details, the government’s
expenditures rose by 11.53 % y-o-y to reach $8,059 million against
$7,226 million by August 2011. The transfers to Electricite Du Liban
(EDL) led the hike soaring by 61.88 % over the cited period to
record $1,441 million by August this year. On the other hand, total
revenues modestly climbed by 5.11% y-o-y to $6,570 million driven
by the 7.54% increase of collected taxes that partially offset the
1.68% drop in transferred profits from the Telecom ministry.
Primary Surplus fell to $787.39 million in the first eight months of
2012 compared to the $1,505 million surplus realized up to August
2011. The primary surplus now covers 9.77% of expenditures
whereas it covered 20.83% of last year’s expenditures up to
August.






2,747
6,289
2,082
(2,688)
(1,849)
2008 2009 2010 2011 2012
Up to November ($M)
7,216 7,226
8,059
5,671
6,250
6,570
2010 2011 2012
TOTAL EXPENDITURES TOTAL REVENUES
The Lebanon Brief Economic and Financial News Page 9 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L


Cumulative Deficit, Imports and Exports

Up to November, $B



Source: Lebanese Customs









Monthly Trend For Utilized Import & Export L/Cs

In $M


Source: BdL, Blominvest



Trade Deficit Expands To $15.3B By November

Lebanon’s trade deficit reached $15.3B by November this year,
widening by 5% from last year’s November, according to data
published by the Lebanese Customs. Cumulative imports
increased by 5% y.o.y. to $19.4B against a 4.5% y.o.y. growth of
cumulative exports to $4.1B. Mineral products (including oil), the
largest of total imports, represented 28% of Lebanon’s import bill
for the first 11 months, increasing by 27.6% from the same period
last year to reach $5.5 billion. Machinery and Electrical Equipment
followed with a 9.8% share amounting to $1.9 billion, down 2.8%
from last year during the same period. Products of the chemical or
allied industries came in third place, representing 8% of total
imports, 0.5% less than last year’s figures to reach $1.58 billion. As
for Lebanon’s exports, they were driven by a 24% increase in
pearls and precious stones which represented 42% of total exports
and stood at $1.62B up till November 2012. Following were
Machinery and Electrical Equipment which represented 11.6%
reaching $475M, declining by 0.70% y.o.y, and Base Metals which
represented 11% falling by 7.7% to $455M. Main exporting
countries to Lebanon between January and November were the
United States at 12% or $2.3B, China and Italy at 8% or around
$1.6B, France at 7% or $1.4B and Germany at 5.6% or $1B. Main
importing countries from Lebanon for the same period were South
Africa at 21% or $856M, Switzerland at 11.4% or $467M, UAE and
KSA at 8% or $328M, and Syria at 6% or $251M.


Import & Export L/Cs Decline During October

The export documentary Letters of Credit (L/Cs) opened during the
month of October contracted 4.11% compared to October 2011 to
reach $268.42 million, with the utilized letters of credit plummeting
by 38.28% to $224.95 million compared to $364.46 million last
October. During the period going from January to October, opened
L/Cs for exports reached $3,315 million, a decline of 3.09%
compared to the same period of last year. As for utilized L/Cs, they
reached $3,055 million, a mere 1.1% growth compared to 2011,
noting that they represented 81.71% of total Lebanese exports
made during the period. On the other hand, opened L/Cs for
imports witnessed a 4.65% annual rise in October to score $452.36
million whereas utilized L/Cs have grown 28.93% to $611.82 million
compared to October 2011. On a year-to-date account, opened
L/Cs for imports recorded a sizable increase of 18.51% to $5,305
million by end-October, accompanied by a 16.3% rise of utilized
L/Cs to $5,107 million, which represented 28.68% of total imports
made during the period. Marked with the assassination of a top
chief security General, the month of October has seen the figures
move into negative territory for all L/Cs on a monthly basis, with
opened and utilized export L/Cs contracting 3.92% and 3.02%
respectively compared to September, and opened and utilized L/Cs
for import plunging 31.12% and 9.73%
3.8 3.9 4.1
16.5
18.5
19.4
-12.7
-14.6
-15.3
2010 2011 2012
Exports Imports Deficit
0
100
200
300
400
500
600
700
800
Utilized Import L/Cs Utilized Export L/Cs
The Lebanon Brief Economic and Financial News Page 10 of 14

ISSUE 803; Week of 24 Dec 2012 – 05 Jan 2013


S A L



Consumer Price Index’s Trend (Adjusted)



Source: CAS, Blominvest adjusted estimates



Inflation Falls By 0.38% In November

The Lebanon Consumer Price Index (CPI) declined by a monthly
0.38% in November, driven by a 3.16% drop in the “transportation”
sub-index. The decrease in the official gas prices that started since
mid- September and continued during November in a sharper
trend, has probably led to the reduction of the consumers’
expenses on this level. The “Water, electricity, gas and other fuels”
sub-index followed suit, falling by 0.33% m.o.m in November.
Meanwhile, the “alcoholic beverages and tobacco” prices
increased by 0.46%, “Food and nonalcoholic beverages” increased
by 0.21%, and “clothing and footwear” added 0.41%. Compared to
November 2011, the CPI has witnessed an increase of 10.20%
jumping from 117.6 points to 129.6 points, noting that this increase
is inflated by the incorporation of price adjustments to the Housing
sub-index in July.

.
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CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS CORPORATE DEVELOPMENTS


BICRA Components’ Comparison

*Egypt, Jordan, Morocco, Nigeria, Sri Lanka, and Tunisia

Source: Ernest & Young
S&P Maintains a BB- Rating For Lebanon’s Banking
Sector
Standard & Poor’s Ratings Services maintains a BB negative rating
for Lebanon’s banking sector as per their recent Banking Industry
Country Risk Assessment report (BICRA). This rating is the result of
S&P’s outlooks on the two main BICRA components, economic and
industry risk. The economic risk component received an “extremely
high-risk” rating which was attributed to low real GDP growth, a
widening current account deficit, and decrease in tourism. The
industry component received a “high-risk” rating as a result of
elevated foreign currency lending, expected deterioration in loan
quality, and high exposure to sovereign debt. The report noted the
high pressures from war torn Syria weighing down on the
Lebanese banking sector while adequate provisioning was
acknowledged as well as the Lebanese banking sector’s strong
resilience and adequate regulation which play a crucial role in times
of political and economic uncertainty.








Economic
Resilience
Economic
Imbalances
Credit Risk in the
Economy
Economic Risk
Institutional
Framework
Competitive
Dynamics
System Wide
Funding
Industry Risk
Lebanon *Peer Average
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F FF FOCUS IN BRIEF OCUS IN BRIEF OCUS IN BRIEF OCUS IN BRIEF
2013: A Difficult and Challenging Year


Real GDP Growth

Source: National Accounts & Blominvest Estimates




Imports, Exports and Trade Balance

Source: Ministry Of Finance

Balance Of Payment Trend

Source: BDL



Number of Tourists

Source: Ministry of Tourism



Last year brought with it many challenges and problems in Lebanon, the region, and the world. The United States economy
was growing well below its potential with a high risk of recession this year if the fiscal cliff was not to be resolved by end
2012. Europe sank into recession as countries were getting trapped in a vicious circle of fiscal tightening and negative
economic growth. Revolutions and wars were still entangling the Middle East with accompanying economic challenges and
problems. Countries that went through the Arab Spring are trying to find their identities and their economies are suffering
from low growth rates, lack of investments, and capital flight.

In this messy regional and global environment, Lebanon managed to keep its economy afloat although political tension and
security skirmishes had their toll on the different economic sectors. Real GDP barely grew by 1% in 2012 driven by robust
consumption and trade patterns. Tourism tumbled due to security events and was aggravated by the decision of Arab
8.4%
8.6%
9.0%
7.0%
3.0%
1.0%
2007 2008 2009 2010 2011 Up to Nov.
2012
16,137 16,242
17,964
20,158
19,408
3,478 3,484
4,253
4,265
4,102
-12,659 -12,758
-13,711
-15,893
-15,306
2008 2009 2010 2011 Up to Nov
2012
Imports Exports Balance of Trade
(In millions of $)
2,037
3,462
7,899
3,325
-1,996 -1,849
2007 2008 2009 2010 2011 Up to Nov.
2012
(In millions of $)
1,017,072
1,332,551
1,851,081
2,167,879
1,655,051
1,254,461
2007 2008 2009 2010 2011 Up to Nov
2012
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countries to warn their citizens not to visit Lebanon. Foreign direct investment and portfolio investment deteriorated and
exports went under pressure as transit routes through Syria closed down. These developments resulted in a negative
balance of payments for a second year in a row.

With the ongoing war in Syria, and Europe still trapped in its problems, internal and external difficulties will continue to
weigh on the Lebanese economy. Therefore 2013 appears to be more challenging than 2012 especially when it comes to
internal economic developments. Several issues remain to be addressed by the government starting from the control of the
fiscal deficit in an election year and not ending with the wage increase and the related sources of revenues.

A major challenge for 2013 is the stalemate in economic activity as a result of the declining tourism and real estate, the two
sectors that were the main drivers of economic growth during the past few years. The external factors are not helping in
this regard as the unrest continues in Syria, and the whole region is going through major difficulties. Internally, the decision
making process for any measure to promote economic growth or to implement any structural reform is complicated and
extremely slow.

With an election looming and the recovery looking pallid, the government seems locked between controlling its budget
deficit and promoting growth through expansionary policies. The government will face the difficult task of containing the
budget deficit increase in order for the debt to GDP ratio to remain stable or even decline as its current level of 135% is still
one of the highest in the world. However additional spending may have a positive impact on the economy if it is related to
infrastructure such as roads, which will increase the country’s potential output.

Moreover the government has another challenge, which is to implement structural reforms that will help jump start the
economy and attract foreign investors and capital. One of the main issues to tackle is the ongoing problem of the subsidies
to the Electricity Company (EDL) as it is getting aggravated by the high oil prices and the cut off of gas supply from Egypt.
Subsidies to EDL are draining on government resources and constitute around 15% of total spending. Other structural
reforms include the improvement of the business environment as Lebanon ranks low on the doing business indicator issued
by the World Bank.

Another challenge to be faced in 2013 is the wage increase that was approved by the council of ministers in 2012.
Nonetheless the government did not transmit the draft law to parliament for approval as it decided not to go ahead with the
increase if no additional resources were found to cover the costs expected at USD 1.5 to 2 billion. However finding
additional resources by increasing taxes in a low growth environment will worsen the economic outlook.

In the context described above and in case no real internal reforms and the status quo was maintained on the external front,
the balance of payments may as well remain in negative grounds in 2013 for the third year in a row. This can be absorbed
by the banking system as the gross reserves of the central bank are above USD 35 billion. However a persistent negative
balance of payments in the coming years will put a pressure on interest rates that will have to rise in order to attract capital
especially as the government financing needs increase. The cost of servicing the public debt may increase and put more
pressure on the budget while crowding out the private sector as investments become less attractive.

To end on a positive note, it is of no doubt that the resilience of the Lebanese economy and especially the Lebanese
banking sector has been proved as it was tested several times in the past. Moreover the financial situation of the
government and the banking system is at its best compared to other periods with public debt to GDP that has declined by
45 percentage points in the past 5 years, the central bank foreign reserves reached levels never seen before, and the size of
the banking sector assets exceeds 3 times the size of Lebanon’s GDP.

The Lebanon Brief


Page 14 of 14







Your Investment Reference

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Research Department:
Mirna Chami mirna.chami@bliminvestbank.com
Youssef Chahine youssef.chahine@blominvestbank.com
Maya Mantach maya.mantach@blominvestbank.com
Marwan Mikhael marwan.mikhael@blominvestbank.com