brief i 24 dec 2012 - 5 jan 2013

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

[email protected]

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 CONTENTSTABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTS

FINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL MARKETS 3333

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Markets 5

Eurobond Market 6

ECONOMIC ECONOMIC ECONOMIC ECONOMIC AND FINANCIAL NEWSAND FINANCIAL NEWSAND FINANCIAL NEWSAND FINANCIAL NEWS 7777

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 DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTS 11111111

S&P Maintains a BB- Rating For Lebanons Banking Sector 11

FOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEFFOCUS IN BRIEF 12121212

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 MARKETSFINANCIAL MARKETSFINANCIAL MARKETSFINANCIAL 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, Egypts Stock Exchange was the best

performer gaining 5.35%, followed by Dubais Stock

Exchange earning 5.02%. While none of the

exchanges witnessed losses, Kuwaits and Saudi

Arabias stock exchanges 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 GDRs 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



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%


Fund Tranche B ----- $5,180.19 $5,155.17 0.49%


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%



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 countrys 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



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 doesnt 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 KSAs

maintained their range at 66-70 bps. In the emerging markets, Brazils CDS were last quoted at 101-103, down from 137-147

bps 2 weeks ago, and Turkeys 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



S A L

EEEECONOMIC 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 Lebanons Central Bank reached $76.69 billion by

end-December, up by 9.10% since last year. BdLs 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.

BdLs 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, BdLs 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 governments 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.

28.330.6

32.24

35.74

2009 2010 2011 2012

In $B

113.57

127.57139.43

150.38

2009 2010 2011 2012

By November, In $B



S A L

Lebanons 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 2011s, 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 Lebanons 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.

Governements Revenues & Expenditures

Up to August, In $M

Source: Ministry of Finance

Budget Deficit Widens To $1,489 Million By August

Lebanons 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

years same period expenditures. In details, the governments

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 years 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

5,6716,250

6,570

2010 2011 2012TOTAL EXPENDITURES TOTAL REVENUES



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

Lebanons trade deficit reached $15.3B by November this year,

widening by 5% from last years 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 Lebanons 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 years figures to reach $1.58 billion. As

for Lebanons 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

16.518.5 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



S A L

Consumer Price Indexs 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.

.

The Lebanon Brief Focus in Brief Page 11 of 14


S A L

CORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTSCORPORATE DEVELOPMENTS

BICRA Components Comparison

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

Source: Ernest & Young

S&P Maintains a BB- Rating For Lebanons Banking

Sector

Standard & Poors Ratings Services maintains a BB negative rating

for Lebanons banking sector as per their recent Banking Industry

Country Risk Assessment report (BICRA). This rating is the result of

S&Ps 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 sectors strong

resilience and adequate regulation which play a crucial role in times

of political and economic uncertainty.

EconomicResilience

EconomicImbalances

Credit Risk in theEconomy

Economic Risk

InstitutionalFramework

CompetitiveDynamics

System WideFunding

Industry Risk

Lebanon *Peer Average



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FFFFOCUS IN BRIEFOCUS IN BRIEFOCUS IN BRIEFOCUS 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 16,24217,964

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 Nov2012

Imports Exports Balance of Trade

(In millions of $)

2,037

3,462

7,899

3,325

-1,996 -1,8492007 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 Nov2012



S A L

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 countrys 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 Lebanons GDP.

The Lebanon Brief

Page 14 of 14

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Maya Mantach [email protected]

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