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Bank Audi sees long-term payoff in Syria, Egypt

By Osama Habib

BEIRUT: Bank Audi, the largest Lebanese bank in terms of deposits and assets, is convinced
that their expansion into Syria and Egypt will pay off once peace is established and construction
starts in earnest, a top executive said.

“We probably put our expectations in these countries too high. I am not too pessimistic about
what’s happening in these countries because the situation will eventually settle down and the
construction will start,” Freddie Baz, the adviser to the chairman of Bank Audi and chief
economist, told The Daily Star in an interview.

Bank Audi was one of the first Lebanese banks to move to the Egyptian and Syrian markets
before the Arab revolutions broke out.

Like all foreign banks that made substantial investments in the countries that witnessed popular
Arab uprisings, Bank Audi saw their assets and deposits in Syria fall, but not to an extent that
would damage the bank’s consolidated balance sheets.

Baz firmly believes that the dramatic changes and ongoing violence in some Arab countries are
only part of a transitional period, and stresses that banks and businesses in general will surely
prosper in healthy democratic systems and under elected governments and presidents.

Baz cites Turkey as an example of a country in the Middle East that has overcome economic
and political problems, noting that within the past decade it has managed to become one of the
leading economic powers in the region thanks to the determination of its new rulers.

“If you look at the socioeconomic conditions of Egypt in 2012, and you compare it to Turkey
2001, you would believe that you are talking about the same country,” Baz said. “Look what
happened to Turkey over the past 10 years. It has succeeded in overcoming all its problems and
achieved steady growth due to the reforms the government carried out.”

Baz argues that looking at the GDP growth of countries could give the wrong impression of these
states, adding that the real benchmark is job growth, especially in the Middle East.

“I never look at [GDP] growth in any country. According to a U.N./World Bank combined study,
the Middle East needs to create 90 million jobs by 2030, which would require $4 trillion in
investments,” he emphasized.

In Baz’s opinion, investments yield more in stable countries that have democratically elected
governments, and the best example of this is Turkey, which saw considerable political turbulence
in the past before it was able to adjust.
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“It took Turkey 10 years through comprehensive administrative, labor and financial reforms to
reach what it is now. Look at Turkish banks, which were all bankrupt more than 10 years ago;
the Turkish lira lost 100 percent of its value overnight during that time. Now the Turkish banks are
very strong and profitable,” Baz said.

He added that the Turkish success story was one of the main reasons that Bank Audi decided to
invest $300 million in that country and open a subsidiary called Odea Bank, with assets of more
than $9 billion.

Against this backdrop, Baz is confident that countries like Egypt and Syria will eventually pursue
the course of reforms and reconstruction once stability is established, adding that hard-line
Islamist movements will become weaker with time.

He argued that the resilience of Lebanese banks allowed Audi to weather the war in Syria and
instability elsewhere.

“When our shareholders ask us what differentiates us from our regional peers, I always answered
them that this is due to our capacity to manage uncertainties and learn through our work
experience. You can’t learn from the books and schools, you have to go through the process,”
Baz said.

He recalled that the consolidated equities of Lebanese banks back in the mid-1980s totaled only
a few million dollars, while now they are in the billions of dollars.

“There have been shocks and pains in Syria, but the Lebanese banks to some extent were able
to absorb the damages in this country. We have increased provisions but thank God there were
no human and physical losses in this country,” Baz said.

He said that in December 2010, on the eve of the uprising, Bank Audi had $2 billion in assets,
while today it has $300 million.

Baz revealed that Bank Audi had provided $1 billion in loans to Syrian customers, and out of this
amount, nearly 90 percent was paid back to the bank, leaving an outstanding amount of only
$100 million.

“We were able to cash back more than $800 million in loans in a country which was dismantled
by the war and this has allowed us to deleverage voluntarily and maintain a small-sized super
clean bank.”

Baz added that Bank Audi, as in the case of other Lebanese banks, is fully complying with all
international sanctions and resolutions pertaining to Syria, assuring that there was no pressure
on the local banks to withdraw from the country.

He also expressed confidence in the future of Syria despite the war that is ravaging the country
now.

“It is estimated that the reconstruction in Syria will cost at least $200 billion and the investors
and bankers will surely benefit from this drive once peace is established in this country,” Baz
maintained.

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He added, however, that Bank Audi has scaled back operations in Syria and there would be no
additional investments until the picture becomes clearer.

“Provided there is a political transition in Syria followed by a reconstruction drive, Bank Audi will
be among the first to grab this opportunity,” he added.

Baz stressed that the entire assets of Bank Audi in Syria were less than 1 percent of the
consolidated balance sheets of the bank, which have now reached $40 billion.

Bank Audi is now operating in 13 countries around the world, and in spite of that, 70 percent of
the bank’s total profits come from the Lebanese market.

In June 2014, the balance sheets of Bank Audi showed that 45 percent of the assets were
abroad while the rest were in Lebanon and 43 percent of the total deposits were from abroad
while the rest were in Lebanon.

But the loans portfolio of the bank showed that 67 percent were from abroad while 33 percent
were from Lebanon.

Baz said Bank Audi hopes that the net profits from operations abroad will reach close to 50
percent of the total consolidated profits.

Bank Audi recorded net profits of $190 million in the first six months of this year, slightly higher
than the same period of 2013.

Baz said that Odea Bank made a modest profit this year but assured that the subsidiary would
make higher net income in the future thanks to the huge and promising Turkish market.

He also commented on the Lebanese market and tense situation in the country.

“Lebanon is still an important market for us, and we are not too concerned about the security
situation, despite its delicacy, because all of the main factions in the country have shown no
desire to escalate the situation,” Baz said.

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08/09/2014

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