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WeeklyMarketWatch

IssueNo.534

January21st–January27th2017

LLEEBBAANNOONN NEWS

ECONOMIC INSIGHTS

> THE IMF CONCLUDES 2016 ARTICLE IV CONSULTATION WITH LEBANON 1 > THE IMF RELEASES FINANCIAL SYSTEM STABILITY ASSESSMENT REPORT

ON LEBANON 2 > LEBANON RANKS 102ND WORLDWIDE AND 2ND IN THE ARAB REGION

IN THE 2016 DEMOCRACY INDEX 3 > LEBANON RANKS 136TH IN THE WORLD IN THE CORRUPTION

PERCEPTIONS INDEX 2016 4 > LEBANON FARES POORLY IN AGILITY’S EMERGING MARKETS LOGISTICS

INDEX 2017 5 > OCCUPANCY RATE IN LEBANON’S HOSPITALITY SECTOR AT 64% IN

DECEMBER 2016 6 > OPENED LETTERS OF CREDITS DROP BY 9.72% Y-O-Y BY NOVEMBER

2016 7 > NET FOREIGN ASSETS OF THE LEBANESE FINANCIAL SECTOR REGISTER

A SURPLUS OF $332 MILLION YTD NOVEMBER 2016 8 > WEIGHTED AVERAGE INTEREST RATE ON LBP DEPOSITS AT 5.54%

IN NOVEMBER 2016 8 > CONSOLIDATED ASSETS OF FINANCIAL INSTITUTIONS AT $1.43 BILLION

BY END OF NOVEMBER 2016 9 > CONSOLIDATED ASSETS OF INVESTMENT BANKS UP AT $4.58 BILLION

IN NOVEMBER 2016 10 > CEMENT DELIVERIES UP BY 8.13% Y-O-Y BY NOVEMBER 2016 11 > THE COINCIDENT INDICATOR INCREASES BY 6.18% Y-O-Y IN

NOVEMBER 2016 11 > LEBANON’S CPI CONVEYS AN INFLATION OF 3.14% IN 2016 12 > TRIPOLI PORT ACTIVITY IMPROVES BY 4.82% Y-O-Y BY NOVEMBER

2016 13 CORPORATE NEWS

> BYBLOS BANK REPORTS NET PROFITS OF $165.30 MILLION IN 2016 14 MONETARY PERFORMANCE

> MONETARY AGGREGATES 15 > MONEY MARKETS 15 LEBANESE EQUITIES

> LEBANESE EQUITIES & CREDIT LIBANAIS INDICES 16

LEBANON'S ECONOMIC & FINANCIAL SECTOR INDICATORS 18 LEBANON'S RATINGS 19

THE IMF CONCLUDES 2016 ARTICLE IV CONSULTATION WITH LEBANON

According to the IMF’s 2016 Article IV Consultation with Lebanon, many challenges have continued to paralyze the country’s major growth drivers, namely the tourism, real estate, and construction sectors, translating in a shy pace of growth (around 1%) in the years 2015 and 2016 (projected). THE IMF RELEASES FINANCIAL SYSTEM STABILITY ASSESSMENT REPORT ON LEBANON

The IMF considered in its “Financial System Stability Assessment” report on Lebanon that the country has succeeded in preserving financial stability during the post-civil war period notwithstanding the repeated economic and political shocks. LEBANON RANKS 102ND WORLDWIDE AND 2ND IN THE ARAB REGION IN THE 2016 DEMOCRACY INDEX

The EIU positioned Lebanon as the 2nd most democratic country in the Arab world and 102nd internationally in the year 2016 with a Democracy Index score of 4.86, labeling it as such as a “Hybrid Regime”. LEBANON RANKS 136TH IN THE WORLD IN THE CORRUPTION PERCEPTIONS INDEX 2016

Lebanon ranked 136th in the world in Transparency International’s 2016 Corruption Perceptions Index, slipping 13 positions from the 123rd place it occupied in 2015 despite its unchanged CPI score of 28.

TABLE OF CONTENTS

Weekly Market Watch

ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: 01-608000 FAX: 01-608231

"BDL" Banque Du Liban "ABL" Association of Banks in Lebanon "MOF" The Lebanese Ministry of

Finance "BOP" Balance of Payment "IMF" The International Monetary Fund "Moody's" Moody's Investors Service "BSE" Beirut Stock Exchange "GDRs" Global Depositary Receipts "M1" Currency in Circulation + Demand

Deposits in LBP "M2" M1 + Other Deposits in LBP "M3" M2 + Deposits in Foreign Currencies "M4" M3+ Treasury Bills Held By Non Banking System, Including Accrued

Interests "CPI" Consumer Price Index "PPI" Producer Price Index "CLASI" Credit Libanais Aggregate Stock Index "CLFI" Credit Libanais Financial Sector Stock Index

"CLCI" Credit Libanais Construction Sector Stock Index “EIU” Economist Intelligence Unit “EOY” End of Year "P/E" Price to Earnings Multiple "P/BV" Price to Book Multiple "YTD" Year To Date "YTD Price Performance" Yield to Date Price Appreciation

"Forex" Foreign Exchange "LBP" The Lebanese Pound "USD" The United States Dollar "Yen" The Japanese Yen "GBP" The British Pound/ Sterling Pound "CHF" The Swiss Franc "Y-O-Y" Year-On-Year "GDP" Gross Domestic Product "MENA" Middle East and North Africa

“LE” Livre Egyptienne – Egyptian Pound

“SAR” Saudi Arabian Riyal “AED” United Arab Emirates Dirham “BD” Bahraini Dinar

SYNOPSIS OF TERMS

Weekly Market Watch

ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: 01-608000 FAX: 01-608231

LEBANON NEWS

THE IMF CONCLUDES 2016 ARTICLE IV CONSULTATION WITH LEBANON

The Executive Board of the International Monetary Fund (IMF) concluded its 2016 Article IV Consultation with Lebanon, praising the election of a new president after a prolonged void and the subsequent appointment of a new prime minister (noting that the government was not yet formed at the time this report was drafted), and shedding light on the opportunities the country could grasp in this era of political consensus. From another standpoint, the report commented that the ongoing inflow of Syrian refugees to Lebanon has been straining the country’s economic outlook, increasing poverty and unemployment, and adding pressure on its ailing infrastructure and public finances. According to the report, these challenges have continued to paralyze the country’s major growth drivers, namely the tourism, real estate, and construction sectors, translating in a shy pace of growth (around 1%) in the years 2015 and 2016 (projected). The IMF presumed that economic growth in Lebanon is unlikely to return to its potential (4%) in the absence of a rebound in consumer and investor confidence. On the public finance front, the IMF hailed Lebanon’s primary surpluses, which came as a result of the latest drop in international oil prices and its repercussions on the government’s transfers to Electricité Du Liban (EDL). The IMF estimated the country’s primary surplus at 1.4% of GDP in 2015 and 1.1% of GDP in 2016 (projected). Nevertheless, the IMF deemed that Lebanon’s public debt burden remains significantly high despite these surpluses, standing at around 138% of GDP in 2015, and feared a further accumulation of said debt if no imminent action is taken. The report also tackled Lebanon’s macroeconomic structure, which shows a high reliance on deposit inflows from the Lebanese diaspora and foreign investors to finance its budget and current account deficits. The report pointed, however, to a slowdown in said inflows since mid-2015 amid the challenging liquidity conditions across many GCC countries, which constitute a major source of capital inflows to Lebanon, coupled with the higher risk premiums placed on Lebanese financial assets, only to name a few. As a consequence, gross foreign exchange reserves at Banque Du Liban (BDL) fell by 10.1% y-o-y to $35.1 billion at end of May 2016, prompting BDL to resort to an “unconventional financial operation” between May and October 2016. This operation boosted its gross foreign exchange buffers to $40.6 billion as at end of October, strengthened Lebanese banks’ capital buffers, and shrank LBP funding costs for both the public and the private sectors. On the other hand, BDL’s financial engineering scheme led to an overhang in Lebanese Pound liquidity, a contraction in the foreign exchange liquidity held by banks outside Lebanon, and a smaller interest rate spread between LBP and USD-denominated deposits, which reflected negatively on BDL’s balance sheet (i.e. implying a higher dollarization risk and foreign exchange liabilities at BDL). Concurrently, the IMF ruled out this engineering scheme as a sustainable solution for Lebanon’s funding needs. Despite of the importance of Lebanese banks’ capacity to attract foreign capital inflows and the ever-existing confidence in the Lebanese Pound’s peg against the greenback, the IMF drew the attention of Lebanese authorities to other policy areas that need to be addressed urgently in an endeavor to enhance confidence and economic growth in the country. In fact, the Article IV Consultation report stressed on the vital need for a sustained and balanced fiscal adjustment policy to curb the aforementioned escalating public debt levels and avoid crowding out public investment and social spending. The report also advocated Lebanese authorities to adopt the necessary reform measures in the electricity sector, which continues to be a major drain on the country’s public finances and a constraint to its competitiveness. In parallel, the report underlined the need to improve government revenues through a better tax compliance across the country and an expansion of the tax base. This includes an increase in corporate income tax from 15% to 17%, interest income tax from 5% to 7%, VAT from 10% to at least 11%, and tobacco excises, in addition to the introduction of a tax on real estate capital gains and new stamp duties and fees. From another perspective, the IMF advocated Lebanese authorities to pass a budget law for the year 2017, as well as the requested laws and legislations to encourage private sector investment, especially in (but not limited to) the oil and gas sector. On the monetary policy front, the IMF considered it utterly important to maintain the local currency peg and solid foreign exchange reserves at BDL, yet underlined the need for a new medium-term strategy to improve the Central Bank’s balance sheet. On the banking sector front, the IMF acknowledged the efficiency of authorities’ close monitoring of the Lebanese financial system and the progress made in the country’s anti-money laundering and terrorism financing framework, yet advised to further improve said framework. In this context, the report mentioned the sizeable contribution of the Lebanese banking sector to the economy, with its assets constituting around 350% of GDP, its share of Treasury-bills and Eurobonds surpassing the 50% mark, and its total sovereign debt exposure exceeding 61% of its assets. From another angle, the Article IV Consultation report considered that Lebanon is doing a “global public good” by hosting such a large number of refugees despite its small capabilities, and called the international community to provide further support to the country in that area.

Weekly Market Watch

SOURCE: IMF, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 1

LEBANON NEWS

THE IMF RELEASES FINANCIAL SYSTEM STABILITY ASSESSMENT REPORT ON LEBANON

The International Monetary Fund (IMF) released this week the “Financial System Stability Assessment” report on Lebanon in which it helps identifying the major sources of systemic risk affecting the financial sector and implementing policies to bolster its resilience to shocks. The report considered that Lebanon has succeeded in preserving financial stability during the post-civil war period notwithstanding the repeated economic and political shocks. In details, said financial stability was underpinned by a stable exchange rate, robust deposit and remittance flows from abroad and a competent crisis management policy. The report also hailed the progress made in combating money laundering and terrorism financing, maintaining as such confidence in the financial system. More particularly the report considered that controls for anti-money laundering and combating terrorism financing are “robust” and that authorities are prioritizing this issue, as depicted by the parliament’s passing of critical financial laws in this regard in late 2015. Always in the same context, the report commented that although banking secrecy does not seem to pose an immediate risk on financial stability, the IMF considered that it may hinder the analysis of banks’ exposures to certain counterparties. The report also considered banking supervision to be “effective” after assessing the banking sector’s compliance with Basel Core Principles. The report also lauded the current effort to secure a better match between the risk profile of banks and their capital structure. On the other hand, the report considered that Lebanon’s macroeconomic situation has deteriorated, as evidenced by the high projected debt to GDP ratio of 144% for 2016 as well the sizeable external and fiscal deficits. Accordingly, the report stressed on the importance of fiscal improvement and the reversal of the upward trend in the debt to GDP ratio in an endeavor to lower the reliance on deposit inflows to finance the government’s needs. Always in the same vein, the report commented that economic growth (projected at 1% in 2016) has been frail on the back of the Syrian war and the local political stalemate. The report also criticized the financial sector’s high exposure to sovereign debt (government instruments and certificates of deposit issued by Banque du Liban), standing at more than 50% of its asset base and constituting more than six-folds the banking sector’s Tier 1 capital, while also citing that deposit growth has slowed recently. The IMF also considered that the financial sector also faces interest rate, real estate and liquidity risks, expecting that banks would have to reconstitute part of their capital in the event of a protracted period of interest rate increases and a drop in real estate prices. On the liquidity front, the report commented that while banking sector deposits have been historically resilient, they are bound by a high concentration risk, with the largest 1 percent of accounts holding nearly half of the total deposits portfolio, and the largest 0.1 percent of deposits in terms of volume holding 20 percent of total deposits’ value. It also highlighted that the largest deposit chunks are dollarized and that the secondary market for bank-held government securities and certificates of deposits is relatively weak. Always on the deposit concentration front, a stress test conducted by the IMF revealed that the default of the largest borrower in each of the Lebanese banks would lower the overall banking sector’s capital adequacy ratio by 110 basis points from 14.4% to 13.3%, and that the default of the largest five borrowers would dampen the sector’s capital adequacy ratio by 200 basis points to around 12.4%. Finally on the banking sector front, the IMF considered that a ratings downgrade would increase the risk weight on foreign currency BDL (current risk weight of 50%) and government debt (current risk weight of 100%) to 150% and consequently possibly lower the sector’s capital adequacy ratio to 8%. Elsewhere on the financial sector front, the report lamented the situation of Lebanon’s capital markets, labeling them as “small” and contributing “little to the financing of the economy”. The same goes for the country’s insurance sector, bearing in mind that its total assets stood at $4.3 billion as at year-end 2014, representing a mere 8.6% of GDP, with its expansion prospects being currently restrained by a weak regulatory and institutional framework.

Weekly Market Watch

SOURCE: IMF, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 2

LEBANON NEWS

LEBANON RANKS 102ND WORLDWIDE AND 2ND IN THE ARAB REGION IN THE 2016 DEMOCRACY INDEX

The Economist Intelligence Unit (EIU) released the ninth edition of its “Democracy Index” in which it measures the state of democracy in 167 countries (“165 independent states and 2 territories”) around the globe in the year 2016. Said index is the arithmetic average of the scores reported under five criteria, namely “electoral process and pluralism”, “civil liberties”, “the functioning of government”, “political participation”, and “political culture”. The report also positions countries along four types of regimes, namely “full democracies” (score: 8-10), “flawed democracies” (score: 6-7.9), “hybrid regimes” (score: 4-5.9), and “authoritarian regimes” (score: 0-4). The EIU indicated that last year’s democracy around the globe was characterized as the “popular revolt” against the political leaders particularly the government, legislatures, state establishments and political parties who are largely considered to be unsuccessful at their role of representing the interests of the people. The report also added that this uprising was predicted in past editions of the Democracy index which highlighted people’s increasing dissatisfaction with their political representatives and the status quo, which was mostly evidenced in the oldest democracies around the world. Last year’s Brexit vote and the election of Donald Trump as the new U.S. commander in chief propelled shockwaves around the world. According to the EIU, nearly half of the world’s population (49.3%) currently lives in democratic economies, with 19 countries categorized as “full democracies”, 57 countries being “flawed democracies”, 40 countries classified under “hybrid regimes”, and 51 countries suffering “authoritarian regimes”. According to the report, Norway topped the list of the world’s most democratic countries (score: 9.93) in the 2016 Democracy Index, followed by Iceland (score: 9.50) and Sweden (score: 9.39). From another standpoint, the report indicated that the U.S. has been downgraded from a “full democracy” to a “flawed democracy” as a result of the growing erosion of trust in the government and the political elites. Regionally, the Middle East and North Africa (MENA) political situation remained unchanged, as few nations made efforts to reinforce their democratic system, while many slipped towards further authoritarianism. Furthermore, Sudan, Syria and the Gulf monarchies were among the Arab countries that experienced political stagnation. On a local basis, the EIU positioned Lebanon as the 2nd most democratic country in the Arab world in the year 2016 with a Democracy Index score of 4.86, labeling it as such as a “Hybrid Regime”, preceded only by Tunisia (score: 6.40) in the region. Internationally, Lebanon tied with Nepal in the 102nd place in the 2016 Democracy Index, followed by Nicaragua (score: 4.81) and Morocco (score: 4.77).

Weekly Market Watch

SOURCE: EIU, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 3

Country Rank Overall Score

Electoral Process and Pluralism

Functioning of Government

Political Participation

Political Culture Civil Liberties

Full DemocraciesNorway 1 9.93 10.00 9.64 10.00 10.00 10.00Iceland 2 9.50 10.00 8.93 8.89 10.00 9.71Sweden 3 9.39 9.58 9.64 8.33 10.00 9.41New Zealand 4 9.26 10.00 9.29 8.89 8.13 10.00

Flawed DemocraciesJapan 20 7.99 8.75 8.21 6.67 7.50 8.82United States of America 21 7.98 9.17 7.14 7.22 8.13 8.24Ghana 54 6.75 9.17 6.07 5.56 5.00 7.94Tunisia 69 6.40 6.00 6.07 7.78 6.25 5.88

Hybrid RegimesTurkey 97 5.04 5.83 6.07 5.00 5.63 2.65Lebanon 102 4.86 4.42 2.14 7.78 4.38 5.59Morocco 105 4.77 4.75 4.64 4.44 5.63 4.41Palestine 110 4.49 4.33 2.14 7.78 4.38 3.82Iraq 114 4.08 4.33 0.07 7.22 4.38 4.41

Authoritarian RegimesMauritania 117 3.96 3.00 4.29 5.00 3.13 4.41Jordan 117 3.96 4.00 4.29 3.89 4.38 3.24Kuwait 121 3.85 3.17 4.29 3.89 4.38 3.53Algeria 126 3.56 2.58 2.21 3.89 5.00 4.12Egypt 133 3.31 2.58 3.93 3.33 3.75 2.94Qatar 135 3.18 0.00 3.93 2.22 5.63 4.12Oman 141 3.04 0.00 3.93 2.78 4.38 4.12Bahrain 146 2.79 1.25 3.21 2.78 4.38 2.35United Arab Emirates 147 2.75 0.00 3.57 2.22 5.00 2.94Sudan 151 2.37 0.00 1.79 3.89 5.00 1.18Iran 154 2.34 0.00 3.21 3.89 3.13 1.47Yemen 156 2.07 0.00 0.00 4.44 5.00 0.88Saudi Arabia 159 1.93 0.00 2.86 2.22 3.13 1.47Syria 166 1.43 0.00 0.00 2.78 4.38 0.00Source: Economist Intelligence Unit, Credit Libanais Economic Research Unit

Ranking and Scores of Selected Countries in EIU's 2016 Democracy Index

LEBANON NEWS

LEBANON RANKS 136TH IN THE WORLD IN THE CORRUPTION PERCEPTIONS INDEX 2016

Transparency International, a non-governmental organization founded for fighting and facing corruption, published its “Corruption Perceptions Index 2016” this week in which it ranked 176 countries across the globe based on their perceived level of public sector corruption, with scores ranging between “0” (highly corrupted) and “100” (highly transparent). In detail, Denmark retained its leading position in the Corruption Perceptions Index (CPI) for yet another consecutive year, scoring 90 and sharing its score with New Zealand which came 2nd in the ranking, followed by Finland (score: 89), Sweden (score: 88), and Switzerland (score: 86). On the other hand, the worst performing countries in terms of government corruption in the year 2016 were Somalia (score: 10; global rank: 176), preceded by South Sudan (score: 11; global rank: 175) and North Korea (score: 12; global rank: 174), only to name a few. The report highlighted that more than two-thirds of the countries covered scored below 50 in the 2016 CPI (122 out of 176), yet pointed to the various protests that have taken place around the globe in the previous year in the aim of combatting corruption. As far as the Middle East and North Africa (MENA) region is concerned, the United Arab Emirates reported the highest CPI score (66) among its peers during the year 2016, ranking 24th in the world, followed by Qatar (score: 61; global rank: 31), Jordan (score: 48; global rank: 57), Saudi Arabia (score: 46; global rank: 62), and Oman (score: 45; global rank: 64). On the local front, Lebanon ranked 136th in the world in the 2016 Corruption Perceptions Index, slipping 13 positions from the 123rd place it occupied in 2015 despite its unchanged CPI score of 28; a figure that matches last year’s. Moreover, Lebanon came in on equal footings with Guatemala, Kyrgyzstan, Myanmar, Nigeria, and Papua New Guinea.

Weekly Market Watch

SOURCE: TRANSPARENCY INTERNATIONAL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 4

Country Score Global Rank

Denmark 90 1New Zealand 90 2Finland 89 3Sweden 88 4Switzerland 86 5United Arab Emirates 66 24Qatar 61 31Jordan 48 57Saudi Arabia 46 62Oman 45 64Bahrain 43 70Kuwait 41 75Tunisia 41 75Turkey 41 75Morocco 37 90Algeria 34 108Egypt 34 108Djibouti 30 123Iran 29 131Lebanon 28 136Mauritania 27 142Iraq 17 166Libya 14 170Sudan 14 170Yemen 14 170Syria 13 173North Korea 12 174South Sudan 11 175Somalia 10 176Source: Transparency International, Credit Libanais Economic Research Unit

Corruption Perceptions Index 2016

0 50 100 150 200

United Arab Emirates

Qatar

Jordan

Saudi Arabia

Oman

Bahrain

Kuwait

Tunisia

Turkey

Morocco

Algeria

Egypt

Djibouti

Iran

Lebanon

Mauritania

Iraq

Libya

Sudan

Yemen

Syria

Somalia

2431

57

62

647075

75

75

90108

108123

131

136

142

166

170170170

173

176

Global Ranking of Major MENA Countries in the Corruption Perceptions Index 2016

Source: Transparency International, Credit Libanais Economic Research Unit

LEBANON NEWS

Weekly Market Watch

SOURCE: AGILITY, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 5

LEBANON FARES POORLY IN AGILITY’S EMERGING MARKETS LOGISTICS INDEX 2017

Agility, a global logistics company with extensive expertise in emerging markets, in collaboration with the logistics research firm Transport Intelligence, released the 8th year edition of “Agility Emerging Markets Logistics Index 2017” in which it offers a quick insight, ranking and evaluation of 50 emerging markets. In details, the index is calculated based on 3 metrics highlighted in the following section:

- Market Size & Growth Attractiveness (weight 50% of overall index score): assesses the country’s economic output, expected growth rate, financial stability and population size.

- Market Compatibility (weight 25%): measures the emerging markets based on their market accessibility, business regulation, foreign direct investment (FDI), market risk and security threats and the nation’s projected demand for logistics services.

- Market Connectedness (weight 25%): evaluates the nation’s domestic and international transport infrastructure and their corresponding connection level.

In fact, the global economy has been battling a wide range of risks, most notably China’s economic slowdown, the drop in oil prices, weaker investments and volatile currencies. More specifically, the report unveiled that the aforementioned factors have casted their shadows over the emerging markets and increased the uncertainty regarding said markets’ capacity to achieve high return on investment. Consequently, investors have lost their optimistic outlook about the emerging markets’ ability to deliver the highest returns. China topped the list in the 2017 index by a large margin with an Agility Emerging Markets Logistics Index score of 7.88, followed by India (score 7.14, up 1 position), the United Arab Emirates (score 7.07, down 1 position), Malaysia (score 6.66, position unchanged) and Saudi Arabia (score 6.48, position unchanged), only to name a few. Regionally, the Middle East and North Africa’s performance remained robust as the Emirati and Saudi markets ranked among the top five emerging economies. Furthermore, 7 out of the region’s 15 covered economies enhanced their overall score, with Iran’s score registering the highest improvement amidst its reintegration with the West. On the local front, Lebanon came in 47th among the 50 covered nations with an index score of 3.50, slipping 3 positions in comparison with last year’s index (score 3.62). In details, Lebanon scored the lowest in the market size and growth sub-index (score 2.71, rank 50), fared better in the market compatibility sub-index (score 4.37, rank 38) and in the market connectedness sub-index (score 3.97, rank 45).

Country

Market Size & Growth Sub-

Index

Market Compatibility

Sub-Index

Market Connectedness

Sub-Index 2017 Index Global Rank 2016 IndexChange in

RankingChina 9.23 6.91 6.80 7.88 1 8.00 -India 9.39 5.39 5.43 7.14 2 6.83 +1United Arab Emirates 5.73 8.77 7.74 7.07 3 7.02 -1Malaysia 6.65 6.22 6.91 6.66 4 6.71 -Saudi Arabia 6.48 6.88 6.25 6.48 5 6.67 -Qatar 4.71 8.26 5.71 5.78 12 5.88 -Oman 4.12 7.80 6.22 5.62 13 5.63 +1Iran 5.98 5.09 4.76 5.35 18 4.97 +8Egypt 6.77 2.82 4.88 5.29 20 5.16 +2Morocco 4.34 6.41 5.65 5.23 22 5.19 -1Kuwait 4.69 6.33 4.60 4.98 26 5.12 -3Jordan 3.05 5.98 5.64 4.58 33 4.40 +1Tunisia 3.28 4.09 4.19 3.78 42 3.90 -5

Libya 2.97 2.20 5.01 3.57 46 3.70 -3

Lebanon 2.71 4.37 3.97 3.50 47 3.62 -3Mozambique 2.78 3.61 3.95 3.38 50 3.46 -1Source: Agility, Credit Libanais Economic Research Unit

Agility Emerging Markets Logistics Index

LEBANON NEWS

Weekly Market Watch

SOURCE: ERNST & YOUNG, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 6

OCCUPANCY RATE IN LEBANON’S HOSPITALITY SECTOR AT 64% IN DECEMBER 2016

Ernst & Young (EY) published its “Middle East Hotel Benchmark Survey Report” on the performance of 4 & 5 star hotels in the Middle East region, conveying a 6 percentage-point annual increase in the average occupancy rate in Beirut’s hospitality sector to 64.0% during the month of December 2016. The average room rate, however, fell by 2.2% y-o-y to $148, while the average room yield rose by 6.7% to $95. The following chart captures the monthly evolution in the occupancy rate in Beirut’s 4 & 5 star hotels over the December 2015 - December 2016 period: On a regional basis, Beirut recorded the 5th highest (59%) occupancy rate among covered Middle Eastern (MEA) capitals during the full year 2016. Abu Dhabi-UAE outperformed the region, recording an average occupancy rate of 77%, followed by Muscat (65%) and Cairo and Doha (63% each). In a related note, Kuwait charged the highest average room rate ($269) in the region’s 4 & 5 star hotels, right ahead of Doha-Qatar ($213), Manama-Bahrain ($202), Riyadh-Saudi Arabia ($190), Muscat-Oman ($185), Amman-Jordan ($157), Cairo-Egypt ($142), Beirut-Lebanon ($138), and Abu Dhabi-UAE ($125).

Dec-2015 Dec-2016 ChangeHotel Occupancy Rate (%) 58.0 64.0 6 pctg pointsAverage Room Rate (USD) 151 148 -2.2%Rooms Yield (USD) 89 95 6.7%

Performance of Beirut's Hospitality Sector During the Month of

Source: Ernst & Young, Credit Libanais Economic Research Unit

58%

53%

57%

51%55%

66%

44%

63%

63%

70%

54%

65% 64%

30%

40%

50%

60%

70%

80%

Monthly Evolution of Hotel Occupancy in Beirut


Country - Capital Dec-2015 Dec-2016 Change in % Pts Dec-2015 Dec-2016 % Change Dec-2015 Dec-2016 %

Change

Bahrain - Manama 49.0 50.0 1.0 212 202 -4.7% 105 101 -3.6%Egypt - Cairo City 49.0 63.0 14.0 112 142 26.3% 55 90 62.7%Jordan - Amman 57.0 50.0 -7.0 156 157 0.6% 89 79 -11.6%Kuwait-Kuwait 48.0 40.0 -8.0 255 269 5.6% 123 109 -11.6%Lebanon - Beirut 58.0 59.0 1.0 162 138 -15.0% 94 82 -13.5%Oman-Muscat 65.0 65.0 0.0 214 185 -13.3% 140 122 -13.2%Qatar - Doha 65.0 63.0 -2.0 249 213 -14.3% 163 136 -16.7%Saudi Arabia - Riyadh 64.0 56.0 -8.0 210 190 -9.5% 135 108 -20.0%United Arab Emirates - Abu Dhabi 78.0 77.0 -1.0 147 125 -15.1% 116 97 -16.3%

Middle East Hotel Benchmark Survey For the Period Ended

Hotel Occupancy Rates (%) Average Room Rates (USD) Room Yields (USD)

Source: Ernst & Young - Middle East Hotel Benchmark Survey, Credit Libanais Economic Research Unit

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Abu Dhabi

Muscat

Cairo

Doha

Beirut

Riyadh

Amman

Manama

Kuwait

77.0%

65.0%

63.0%

63.0%

59.0%

56.0%

50.0%

50.0%

40.0%

Hotel Occupancy Rate in the Middle East Region in the Year 2016


0 50 100 150 200 250 300

Kuwait

Doha

Manama

Riyadh

Muscat

Amman

Cairo

Beirut

Abu Dhabi

269

213

202

190

185

157

142

138

125

Average Room Rate in the Middle East Region in the Year 2016 (USD)


LEBANON NEWS

Weekly Market Watch

SOURCE: BDL, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 7

OPENED LETTERS OF CREDITS DROP BY 9.72% Y-O-Y BY NOVEMBER 2016

According to Banque Du Liban statistics, opened letters of credit (L/Cs), a measurement tool for trade activity, dropped by 25.29% during the month of November 2016 to $638.54 million, down from $854.66 million in October. On a cumulative basis, the face value of opened L/Cs came in 9.72% lower y-o-y at $6,407.43 million by November 2016, down from $7,097.05 million a year earlier. Documentary L/Cs opened to finance imports activities increased by some 2.63% y-o-y to $4,915.29 million by November 2016, from $4,789.32 million in the same period in 2015. Concurrently, utilized credits for imports inched higher by a shy 0.04% to $4,749.92 million, up from $4,748.13 million by November 2015. Inward bills for collection, another documentary credit form of financing (backed by invoices), dropped by 15.12% on a yearly basis to $1,094.53 million, down from $1,289.49 million in the equivalent period in 2015.

In a related note, documentary L/Cs opened to finance exports activities plummeted by 35.34% y-o-y to $1,492.14 million by the month of November 2016 compared to $2,307.73 million a year earlier. Utilized credits to finance exports also dropped by 31.06% to $1,597.61 million (107.07% of opened L/Cs for exports), from $2,317.48 million in the corresponding period in 2015. Concurrently, outward bills for collection fell by 8.59% annually to $1,419.64 million, while the value of outstanding outward bills rose by 27.92% to $719.60 million.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Up to Nov-2009

Up to Nov-2010

Up to Nov-2011

Up to Nov-2012

Up to Nov-2013

Up to Nov-2014

Up to Nov-2015

Up to Nov-2016

6,870.96

8,532.21 8,705.78 9,492.02 9,449.88

8,671.08

7,097.05 6,407.43

$ Million

Evolution of Total Opened L/Cs

Source: BDL, Credit Libanais Economic Research Unit

$ Million November 2015 November 2016 Y-O-Y % Change

Documentary L/Cs

– Opened Credits 4,789.32 4,915.29 2.63%

– Utilized Credits 4,748.13 4,749.92 0.04%

– Outstanding Credits 904.08 1,050.88 16.24%

Bills For Collection

– Inward Bills 1,289.49 1,094.53 -15.12%

– Outstanding Bills 149.45 145.41 -2.71%Source: BDL, Credit Libanais Economic Research Unit

Documentary Credits for Imports' Financing for the Period Ended

0

1,000

2,000

3,000

4,000

5,000

November 2015 November 2016

4,789.32 4,915.29

1,289.491,094.53

$ Million

Opened Letters of Credits & Inward Bills for Imports' Financing during the Period Ended

– Opened Credits – Inward Bills

$ Million November 2015 November 2016 Y-O-Y % Change

Documentary L/Cs

– Opened Credits 2,307.73 1,492.14 -35.34%

– Utilized Credits 2,317.48 1,597.61 -31.06%

– Outstanding Credits 991.04 788.59 -20.43%

Bills For Collection

– Outward Bills 1,552.97 1,419.64 -8.59%

– Outstanding Bills 562.52 719.60 27.92%Source: BDL, Credit Libanais Economic Research Unit

Documentary Credits for Exports' Financing for the Period Ended

0

500

1,000

1,500

2,000

2,500

November 2015 November 2016

2,307.73

1,492.141,552.97

1,419.64

$ Million

Opened Letters of Credits & Outward Bills for Exports' Financing during the Period Ended

– Opened Credits – Outward Bills

LEBANON NEWS

Weekly Market Watch


NET FOREIGN ASSETS OF THE LEBANESE FINANCIAL SECTOR REGISTER A SURPLUS OF $332 MILLION YTD NOVEMBER 2016

The net foreign assets of Lebanon’s financial sector recorded a monthly surplus of $457.2 million in November 2016 compared to a deficit of $680.2 million in October and a surplus of $188.7 million in September. This result is attributed to the twin surplus in the net foreign assets of banks & financial institutions and those of the Lebanese Central Bank which stood at $351.0 million and $106.3 million respectively. On a cumulative basis, the net foreign assets of Lebanon’s financial sector registered a surplus of $331.9 million by November while the previous year's comparable period deficit stood at $2,982.2 million. This surplus stems from the accumulation of a $4,100.2 million surplus in the net foreign assets of the Central Bank (following the introduction of the swap mechanism with banks in May 2016) which outweighed the deficit of $3,768.0 million in the net foreign assets of banks and financial institutions. WEIGHTED AVERAGE INTEREST RATE ON LBP DEPOSITS AT 5.54% IN NOVEMBER 2016

According to BDL statistics, the weighted average interest rate on Lebanese Pound denominated deposits inched upwards to 5.54% during the month of November 2016, from 5.53% in October, yet remained lower than the 5.56% level registered in November 2015. The weighted average interest rate on U.S. Dollar denominated deposits also increased to 3.48% from 3.43% a month earlier and 3.17% in November 2015. Commercial banks’ discount and lending rate on LBP denominated loans, however, settled lower at 8.26% in November with that on USD denominated ones increasing to 7.16%, as elaborated hereunder:

Net Foreign Assets

In Millions of USD November 2015

November 2016 % Change

Central Bank 255.6 4,100.2 1504.15%

Banks & Financial Institutions (3,238.0) (3,768.0) 16.37%

Total (2,982.2) 331.9 -111.13%

For the Eleven-Month Period Ending

Source: Banque Du Liban, Credit Libanais Economic Research Unit

-3500

-2500

-1500

-500

500

1500

2500 2,081.8

(2,687.7)

(1,849.1)(1,662.1)

(1,292.1)

(2,982.2)

331.9

USD Million

Cumulative Net Foreign Assets of the Financial Sector


-1000

-500

0

500

1000

1500

2000

(280.2)(152.6)

(417.4)

136.0 189.2

(794.3)

2.4

(332.0)(121.8)

(395.5)

(816.0)(718.9)

362.6

(287.9) (254.9)

(861.6)

(13.0)

352.1

1,787.8

188.7

(680.2)

457.2

Monthly Evolution of the Financial Sector's Net Foreign Assets

2015 2016

USD Million


LBP USD LBP USD LBP USD

5.56% 3.17% 5.53% 3.43% 5.54% 3.48%

5.97% 3.62% 5.90% 3.88% 5.91% 3.92%

6.93% 7.15% 8.35% 7.06% 8.26% 7.16%


Oc tobe r 2 0 16Inte re st Ra te Le ve ls

Nove mbe r 2 0 16

Discount & Loans Rate

Average Rate on Deposits

Term Savings & Deposits Rate

Nove mbe r 2 0 15

0.0

5.0

10.0

Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16

%

Evolution of LBP Lending & Deposits Rates

Spread LBP Average Rate on Deposits LBP Discount and Loans Rate


1.0

6.0


%

Evolution of USD Lending & Deposits Rates

Spread USD Average Rate on Deposits USD Discount and Loans Rate


LEBANON NEWS

Weekly Market Watch


CONSOLIDATED ASSETS OF FINANCIAL INSTITUTIONS AT $1.43 BILLION BY END OF NOVEMBER 2016

The consolidated balance sheet of financial institutions operating in Lebanon narrowed by LBP 43,610 million ($28.93 million) during the month of November 2016 to just below LBP 2,152.04 billion ($1,427.56 million), down from LBP 2,195.65 billion ($1,456.48 million) in October. This is partly attributed to the 1.66% ($12.64 million) monthly contraction in claims on the private sector to LBP 1,126.09 billion ($746.99 million). On an annual basis, the balance sheet of Lebanese financial institutions fell by 16.06% in November 2016, compared to a 2.43% yearly drop in November 2015 and a 22.69% annual increase in the same period in 2014. On the lending front, claims on the private sector, which constitute 52.33% of the total assets of financial institutions, came in 22.46% lower y-o-y at LBP 1,126.09 billion ($746.99 million). In parallel, claims on the public sector shed 6.27% annually to LBP 208.61 billion ($138.38 million), representing a 9.69% stake of the total assets of financial institutions. In a related note, the compounded annual growth rate (CAGR) in the balance sheet of Lebanese financial institutions hit the 5.13% mark over the November 2010 – November 2016 period, as sketched in the chart hereunder:

USD Million Nov-2010 Nov-2011 Nov-2012 Nov-2013 Nov-2014 Nov-2015 Nov-2016Y-O-Y % Change

AssetsCash & Banks 396.63 418.06 444.11 568.89 606.13 612.07 566.58 -7.43%Claims on the Private Sector 548.67 543.41 637.13 736.81 781.77 963.35 746.99 -22.46%Claims on the Public Sector 90.33 106.49 118.24 120.19 369.30 147.63 138.38 -6.27%Other Assets 21.64 22.54 17.10 -5.16 -14.13 -22.40 -24.40 8.94%Total Assets 1,057.26 1,090.51 1,216.58 1,420.73 1,743.06 1,700.66 1,427.56 -16.06%LiabilitiesLiabilities to the Private Sector 280.19 215.54 266.40 258.28 300.67 443.79 219.08 -50.63%Liabilities to the Financial Sector 400.95 486.36 518.33 676.61 906.01 676.07 593.78 -12.17%Other Financial Liabilities 12.57 15.59 17.78 19.34 21.01 21.71 31.61 45.59%Capital Accounts 261.17 308.56 344.47 389.66 429.46 461.31 488.51 5.90%Other Liabilities 102.38 64.47 69.60 76.84 85.91 97.78 94.57 -3.29%Total Liabilities 1,057.26 1,090.51 1,216.58 1,420.73 1,743.06 1,700.66 1,427.55 -16.06%

Financial Institutions Consolidated Balance Sheet


Cash & Banks & Other Assets

37.98%

Claims on the Private Sector

52.33%

Claims on the Public Sector

9.69%

Breakdown of Financial Institutions Balance Sheet as at End of November 2016


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Nov-2010 Nov-2011 Nov-2012 Nov-2013 Nov-2014 Nov-2015 Nov-2016

1,057.26 1,090.511,216.58

1,420.73

1,743.06 1,700.66

1,427.56

$ Million

Evolution of Financial Institutions' Assets


LEBANON NEWS

Weekly Market Watch


CONSOLIDATED ASSETS OF INVESTMENT BANKS UP AT $4.58 BILLION IN NOVEMBER 2016

According to Banque Du Liban (BDL) statistics, the consolidated balance sheet of investment banks operating in Lebanon widened by 0.64% during the first eleven months of 2016 to just over $4.58 billion, up from $4.55 billion at end of year 2015. This expansion owes primarily to the 1.99% increase in claims on the private sector to nearly $1.42 billion, coupled with some 31.55% hike in claims on the public sector to $685 million. On the liabilities side, private sector deposits rose by 2.44% YTD November 2016 to just above $2.19 billion, with liabilities to the financial sector soaring by 16.80% to $845 million and capital accounts edging 8.42% higher to $1.34 billion. Abiding by legislative decree number 50 and subsequent BDL circulars, investment banks operating in Lebanon have managed over the last couple of years to increase loans to the private sector at the expense of reducing exposure to the public sector. Consequently, the surplus representing the difference between loans to the private sector and claims on the public sector ended the month of November 2016 at $732 million, in comparison with $868 million in the full year 2015, $832 million in 2014, $709 million in 2013, and $419 million in 2012.

0

200

400

600

800

1,000

1,200

1,400

1,600

2012 2013 2014 2015 Nov-2016

762

493 548 521685

1,181 1,203

1,380 1,389 1,417

Investment Banks' Loans to the Private Sector V/S Claims on the Public Sector ($ Million)

Claims on Public Sector Claims on Private Sector

Starting the year 2010, Investment Banks' Loans to the Private Sector > Claims on the Public Sector in Conformity with BDL's Directives

In Millions of USD 2012 2013 2014 2015 Nov-2016 % ChangeCash and Banks 1,736 1,922 1,886 2,290 2,108 -7.95%Claims on Private Sector 1,181 1,203 1,380 1,389 1,417 1.99%Claims on Public Sector 762 493 548 521 685 31.55%Other Items 338 368 301 354 373 5.38%Total Assets 4,017 3,986 4,114 4,554 4,583 0.64%

Private Sector Deposits 2,178 1,946 2,002 2,140 2,192 2.44%Liabilities to the Financial Sector 570 598 637 723 845 16.80%Capital Accounts 927 1,000 1,137 1,236 1,340 8.42%Other Items 181 250 151 237 206 -13.29%Total Liabilities 4,017 3,986 4,114 4,554 4,583 0.64%Source: BDL, Credit Libanais Economic Research Unit

Evolution of Investment Banks' Consolidated Balance Sheet

LEBANON NEWS

Weekly Market Watch


CEMENT DELIVERIES UP BY 8.13% Y-O-Y BY NOVEMBER 2016

Cement deliveries, the coincident indicator of construction activity, dropped by 3.99% during the month of November 2016 to 526,760 tons compared to 548,652 tons in October. On a cumulative basis, cement deliveries rose by 8.13% y-o-y to 4,968,592 tons by the end of the first eleven months of 2016, from 4,595,143 tons during that same period a year earlier. Cement deliveries registered an extremely shy compounded annual growth rate (CAGR) of 1.18% over the November 2009 – November 2016 period, mirroring the lackluster activity of Lebanon’s construction sector. THE COINCIDENT INDICATOR INCREASES BY 6.18% Y-O-Y IN NOVEMBER 2016

Banque Du Liban’s coincident indicator, which is an indicative measure of the country’s overall economic activity, and which comprises import of petroleum derivatives, electricity production, check clearing activity, cement deliveries, foreign passengers, foreign trade, and the M3 monetary aggregate, spiked by 8.39% during the month of November 2016 to 311.2, up from 287.1 in October. On an annual basis, the coincident indicator came in 6.18% higher than the 293.1 reading recorded in November of last year, portraying as such a sizeable improvement in Lebanon’s overall economic activity.

Nov-2009 4,578,366

Nov-2010 4,827,000

Nov-2011 5,103,934

Nov-2012 4,941,516

Nov-2013 5,454,534

Nov-2014 5,071,901

Nov-2015 4,595,143

Nov-2016 4,968,592

Evolution of Cumulative Cement Deliveries (Tons)


2,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,0005,500,000 4,578,366

4,827,000 5,103,9344,941,516

5,454,534

5,071,9014,595,143 4,968,592

Yearly Evolution of Cement Deliveries


Tons

250

260

270

280

290

300

310

320


293.1

302.3

279.4

294.6296.1

297.6 297.9

273.5 272.2

284.6 284.2287.1

311.2

Evolution of Lebanon's Coincident Indicator


LEBANON NEWS

Weekly Market Watch

SOURCE: CAS, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 12

LEBANON’S CPI CONVEYS AN INFLATION OF 3.14% IN 2016

According to the Central Administration of Statistics (CAS), Lebanon’s monthly inflation, as captured by the change in the consumer price index (CPI), stood at 0.62% during the month of December 2016, compared to 0.39% in November. On an annual basis, Lebanon’s CPI expanded by 3.14% to 98.93 by year-end 2016, up from 95.92 in December 2015. Said annual increase in prices is mainly attributed to the 5.03% increase in the prices of housing (owner occupied) (13.20% weight in the index) coupled with some 10.37% hike in the prices of clothing & footwear (5.40% weight) and an 8.27% appreciation in the prices of housing (actual rent propelled by a 15.34% annual rise in old rent prices in tandem with the enforcement of a new rent law) (3.40% weight in the index), among others, which altogether outweighed the 0.94% decline in healthcare costs (7.80% weight in the index) and 0.09% contraction in telecommunications prices (4.60% weight in the index). The following section captures the fluctuation in Lebanon’s consumer basket’s key constituents: On a geographical basis, all regions across Lebanon reported a monthly increase in CPI values in December. The North region depicts the sharpest monthly rise (1.47%) in its CPI reading, followed by the South (0.69%), Bekaa (0.65%), Mount Lebanon (0.58%), Nabatieh (0.47%) and Beirut (0.07%) regions. The following chart captures the evolution of the yearly change in CPI values since December 2009:

Monthly (November-

December 2016) % change

Annual(December 2015-December 2016)

% change

Weight

Food & Non-Alcoholic Beverages 1.49% 0.37% 20.60%

Alcoholic Beverages & Tobacco -0.02% 0.94% 1.60%

Clothing & Footwear -0.38% 10.37% 5.40%

Housing - Actual Rent 0.36% 8.27% 3.40%

Housing - Owner Occupied 0.98% 5.03% 13.20%Housing - Water, Electricity, Gas and Other Fuels 2.57% 6.71% 11.90%

Furnishings, Household Equipment & Routine Household Maintenance 0.15% 1.03% 3.70%

Health -1.41% -0.94% 7.80%

Transportation -0.22% 2.91% 13.10%

Communication 0.00% -0.09% 4.60%

Recreation, Amusement, and Culture -0.19% 4.47% 2.30%

Education 0.00% 3.49% 5.90%

Restaurant & Hotels 0.09% 2.49% 2.60%

Miscellaneous Goods & Services 0.30% 1.94% 4.00%

Consumer Price Index 0.62% 3.14% 100.00%

Price Volatility

Source: Central Administration o f Statistics, Credit Libanais Economic Research Unit

Region Monthly Inflation WeightBeirut 0.07% 17.30%Mount Lebanon 0.58% 44.60%North 1.47% 13.80%Bekaa 0.65% 10.50%South 0.69% 7.80%Nabatieh 0.47% 5.80%Lebanon 0.62% 100.00%

December 2016 Inflation Across Regions

Source: Central Administration of Statistics, Credit Libanais Economic Research Unit

3.40%

4.60%

3.10%

10.10%

1.10%

-1.43%

-3.40%

3.14%

-5%

-2%

1%

4%

7%

10%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Evolution of Yearly Change in CPI

LEBANON NEWS

Weekly Market Watch

SOURCE: TRIPOLI PORT, AL BAYAN ECONOMIC MAGAZINE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 13

TRIPOLI PORT ACTIVITY IMPROVES BY 4.82% Y-O-Y BY NOVEMBER 2016

Freight activity via the port of Tripoli increased to 201 thousand tons during the month of November 2016 from around 197 thousand tons in October. On a cumulative basis, Tripoli Port freight activity improved by 4.82% y-o-y to 1,765 thousand tons in the first eleven months of 2016 compared to 1,684 thousand tons during that same period in 2015. According to Al Bayan Economic Magazine, this improvement can be mainly attributed to the fact that the port of Tripoli has become a maritime center for the reception of ship ferries that facilitate imports and exports by truck from and to a number of MENA countries, namely Turkey, Egypt, and Saudi Arabia. Moreover, the relative stability reigning the Northern capital has had positive impact on the activity of its port. On the other hand, the number of vessels fell by 5.93% annually to 746 by November down from 793 vessels a year before. Concurrently, the number of imported cars via the Tripoli Port shed 13.20% on a yearly basis to 4,531 compared to 5,220 cars YTD November 2015. In this context, port-related revenues (excluding VAT and customs) rallied by 4.50% y-o-y to $13.16 million compared to $12.59 million in the first eleven months of 2015.

Tripoli Port

Indicators Nov-2015 Nov-2016 Y-O-Y % Change

Freight Activity (000 Tons) 1,684 1,765 4.82%

Number of Vessels 793 746 -5.93%

Number of Imported Cars 5,220 4,531 -13.20%

Port-Related Revenues ($ Million) 12.59 13.16 4.50%

For the Eleven-Month Period Ending

Source: Port of Tripoli, Al Bayan Economic Magazine, Credit Libanais Economic Research Unit

Weekly Market Watch

SOURCE: BYBLOS BANK, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 14

BYBLOS BANK REPORTS NET PROFITS OF $165.30 MILLION IN 2016

Byblos Bank released its unaudited financial statements this week conveying a shy annual increase of 2.37% in net after tax profits to $165.30 million in the year 2016, up from $161.48 million in 2015. In details, the bank reported a 3.33% drop in net interest income to $247.74 million coupled with a 0.28% contraction in net commission & fee income to $80.67 million which were outweighed by the 193.13% rally in net gains on the financial instruments’ portfolio & other operating income to $349.55 million, the bulk of which (around 80%) stems from gains on sale of instruments held at amortized cost. The Bank commented that the surpluses it generated from its participation in the swap transactions with BDL have been in part used to write off impairments on its investment in Syria and Sudan, in addition to the constitution of provisions in preparation of the bank’s compliance with IFRS 9 principles by 2018. On the balance sheet front, Byblos Bank’s consolidated assets expanded by 4.81% during the year 2016 to circa $20.83 billion boosted by a 5.00% increase in net loans & advances to just below $5.18 billion. In parallel, customer deposits added 2.79% to $17.10 billion, with the ratio of net loans to customer deposits firming at 30.28% up from 29.64% at end of year 2015. Finally, the bank’s equity ended the year 2016 up by $88.74 million at just above $1.80 billion.

CORPORATE NEWS

159.00

160.00

161.00

162.00

163.00

164.00

165.00

166.00

2015 2016

161.48

165.30

Mil

lion

s of

US

D

Evolution of Byblos Bank's Profitability

Source: BSE, Byblos Bank, Credit Libanais Economic Research Unit

Byblos Bank

In Millions of USD 2015 2016Y-O-Y % Change

Key Balance Sheet FiguresTotal Assets 19,870.26 20,825.48 4.81%Net Loans and Advances 4,931.95 5,178.36 5.00%Customer Deposits 16,636.91 17,100.89 2.79%Shareholders' Equity 1,713.73 1,802.46 5.18%

Ratios (%)Net Loans to Customer Deposits 29.64% 30.28%

In Millions of USD 2015 2016Y-O-Y % Change

Key P&L FiguresNet Interest Income 256.26 247.74 -3.33%Net Commission and Fee Income 80.90 80.67 -0.28%Net Gains on Financial Instruments & Other Operating Income 119.25 349.55 193.13%

Net Operating Income 424.63 681.44 60.48%Total Operating Expenses 214.04 239.63 11.96%Net Profits 161.48 165.30 2.37%Source: BSE, Byblos Bank, Credit Libanais Economic Research Unit

MONETARY AGGREGATES

The overall money supply, “M4”, widened by LBP 129.58 billion during the week of January 12, 2017 to LBP 209,938 billion, noting that the non-banking sector’s Treasury bills portfolio rose by LBP 16 billion. On the other hand, Lebanese-pound denominated deposits and currency in circulation, “M1”, shed LBP 167.12 billion week-on-week to LBP 9,474 billion on the back of some LBP 156 billion contraction in money in circulation and LBP 11 billion drop in demand deposits. Local currency term deposits, “M2”, also fell by LBP 88.37 billion on a weekly basis, yet registered a 3.99% year-on-year increase to LBP 81,808 billion. Consequently, private sector term and saving deposits denominated in LBP (“M2- M1”) edged slightly higher to LBP 72,334 billion, with deposits denominated in foreign currencies (“M3–M2”) firming at LBP 117,679 billion. MONEY MARKETS

The January 19th Treasury bill auction raised LBP 393.640 billion ($261.12 million), compared to LBP 1,182.921 billion ($784.69 million) in the auction of the previous week.

The majority of subscriptions (51.17%) was concentrated in the two-year to maturity T-bonds, followed by the ten-year (38.36%) and six-month (10.47%) tenure treasury securities.

Consequently, the weighted average yield on Lebanese Pound Treasury bills stood at 6.37% in the auction of January 19. The yields on the six-month, two-year and ten-year to maturity Treasury securities remained flat at 4.99%, 5.84 % and 7.46% respectively.

MONETARY PERFORMANCE

Weekly Market Watch

SOURCE: BDL, REUTERS, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 15

Lebanese Treasury Bills 3 Months 6 Months 12 Months 24 Months 36 Months 60 Months 84 Months 120 MonthsTreasury Yield 4.44% 4.99% 5.35% 5.84% 6.50% 6.74% 7.08% 7.46%

3 Months

6 Months

12 Months

24 Months

36 Months60 Months

84 Months

120 Months

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

0 1 2 3 4 5 6 7 8 9

On The Run Yield Curve

Lebanese Treasury Bills

Yield (%)Face Value (in billions

of LBP)

% of Total Face Value

6 Months 4.99% 41.211 10.47%24 Months 5.84% 201.425 51.17%120 Months 7.46% 151.004 38.36% Total 393.640 100.00%Source: Reuters, Credit Libanais Economic Research Unit

January 19, 2017

Mone y Supply

LBP Billion

M1 9 ,6 4 1 9 ,4 7 4 - 1.7 3 %

M2 8 1,8 9 7 8 1,8 0 8 - 0 .11%

M3 19 9 ,3 7 4 19 9 ,4 8 7 0 .0 6 %

M4 2 0 9 ,8 0 9 2 0 9 ,9 3 8 0 .0 6 %

M2 - M1 7 2 ,2 5 6 7 2 ,3 3 4 0 .11%

M3 - M2 117 ,4 7 8 117 ,6 7 9 0 .17 %Source: Banque Du Liban, Credit Libanais Economic Research Unit

Ja nua ry 5 , 2 0 17 Ja nua ry 12 , 2 0 17 % Cha nge

6,000

26,000

46,000

66,000

86,000

January 5,2017

January 12,2017

209,809 209,938199,374 199,487

Money Supply - LBP Billion -

M4 M3


LEBANESE EQUITIES

Activity on the Beirut Stock Exchange was characterized by a sharp increase in the number of shares changing hands amid the sizeable trades on Solidere “A” and “B” shares involving together nearly 2 million stocks. In fact, the number of shares traded soared to 2,317,292 shares this week, up from 664,936 shares last week, with value traded rallying to just over $22.19 million, from around $6.35 million a week before. The contribution of real estate stocks of total weekly traded volume stood at 85.73%.

In parallel, the average daily trading volume skyrocketed to 463,458 shares this week, from 132,987 shares last week. Similarly, the average daily trading value widened to nearly $4.44 million, from around $1.27 million a week earlier. Ten gainers and one loser were screened this week, lifting the BSE’s market capitalization up by 3.44% week-on-week to about $12.19 billion and the Credit Libanais Aggregate Stock Index (“CLASI”) higher by 1.51% to a new year-high of 1,161.81. The recent listing of 2.50 million Bank Audi preferred shares Series “I” also contributed by some $250 million to said hike in market capitalization.

In the real estate sector, trades mainly consisted of Solidere “A” and “B” shares (84.48% of total traded volume), with the price of Solidere “A” appreciating by 5.13% to $10.25 and that of Solidere “B” increasing by 1.13% to $9.84. Consequently, the Credit Libanais Construction Sector Stock Index (“CLCI”) ended its week 2.55% higher at 545.93.

In the banking sector, BLOM Bank listed shares amassed the highest concentration of trades (4.41% of total traded volume) on a thin turnover ratio of 0.05%. The Credit Libanais Financial Sector Stock Index (“CLFI”) inched 1.28% higher this week to 1,555.61 amid the 3.06% rise in the price of the Bank Audi listed shares to $6.74, the 0.59% appreciation in the price of Bank Audi GDRs to $6.82, and the 2.31% increase in the price of BLOM Bank GDRs to $11.50.

LEBANESE EQUITIES

Weekly Market Watch

SOURCE: BSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 16

Credit Libanais Week of Week of Weekly YTDIndices 20-Jan-17 27-Jan-17 % Change % ChangeCredit Libanais AggregateStock Index <.CLASI> 1,144.54 1,161.81 1.51% 0.32%

Credit Libanais FinancialSector Stock Index <.CLFI> 1,535.99 1,555.61 1.28% 1.23%

Credit Libanais ConstructionSector Stock Index <.CLCI> 532.35 545.93 2.55% -3.43%

.CLASI Credit Libanais Aggregate Stock Index

Value Daily % Chng Daily Net Chng

1,161.81 0.625% 7.22

Yr.High Year Hi.Date Yr.Low Year.Lo.Date

1,161.81 27-Jan-17 1,140.53 24-Jan-17

Life High Life Hi.Date Life Low Life.Lo.Date

1,801.01 7-Jul-08 836.11 25-Mar-09

Friday, January 27, 2017

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CLASI

CLASI 1.51%

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CLFI

CLFI 1.28%

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Credit Libanais Construction Sector Stock IndexWeekly Performance

CLCI

CLCI 2.55%

The weighted average price to earnings (P/E) and price to book (P/BV) multiples of listed stocks ended Friday’s session higher at 7.317x and 0.889x respectively.

LEBANESE EQUITIES

Weekly Market Watch

SOURCE: BSE, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 17

Previous Last % ChangeValue Traded ($) 6,349,762 22,193,410 249.52%Volume Traded 664,936 2,317,292 248.50%Average Daily Trading Value ($) 1,269,952 4,438,682 249.52%Average Daily Trading Volume 132,987 463,458 248.50%Market Cap - BSE ($) 11,784,753,471 12,189,649,442 3.44%Weighted Average P/E 7.185 7.317 1.84%Weighted Average P/BV 0.877 0.889 1.40%Source: Beirut Stock Exchange, Credit Libanais Economic Research Unit

Activity Analysis

Source: BSE, Credit Libanais Economic Research Unit

0

2

4

6

8

Jan 20, 2017 Jan 27, 2017

7.185 7.317

0.877 0.889

Evolution of Beirut Bourse Comparable Benchmarks

P/E P/BV

P/E P/BV

Solidere A $10.25 5.13% 869,257 37.51% $8,293,518 37.37% 100,000,000 $1,025,000 11.78 0.84 -1.25% 2.20% 2.09% 0.83%Solidere B $9.84 1.13% 1,088,402 46.97% $10,265,030 46.25% 65,000,000 $639,600 11.31 0.81 -6.29% 2.29% 2.17% -4.11%BLC Bank $0.99 0.00% - - - - 71,033,333 $70,323 7.62 0.50 0.00% 26.26% 24.95% 24.95%BLC Bank Preferred Class "B" $101.00 1.00% 250 0.01% 25,250 0.11% 550,000 $55,550 n.a n.a 1.00% 6.58% 6.25% 7.25%BLC Bank Preferred Class "C" $100.00 0.00% - - - - 350,000 $35,000 n.a n.a 0.00% 6.41% 6.09% 6.09%BLC Bank Preferred Class "D" $101.00 1.00% 800 0.03% $80,800 0.36% 750,000 $75,750 n.a n.a 1.00% - - -Bank Audi - Listed Shares $6.74 3.06% 97,523 4.21% $639,168 2.88% 399,749,204 $2,694,310 6.13 0.88 -0.88% 5.93% 5.64% 4.76%Bank Audi GDR $6.82 0.59% 22,044 0.95% $149,875 0.68% 119,924,761 $817,887 6.20 0.89 4.92% 5.87% 5.57% 10.49%Bank Audi Preferred "F" $102.50 0.00% - - - - 1,500,000 $153,750 n.a n.a 0.00% 5.85% 5.56% 5.56%Bank Audi Preferred "G" $102.10 0.00% - - - - 1,500,000 $153,150 n.a n.a -0.10% 5.88% 5.58% 5.48%Bank Audi Preferred "H" $102.30 0.00% - - - - 750,000 $76,725 n.a n.a 0.00% 6.35% 6.04% 6.04%Bank Audi Preferred "I" $100.00 0.00% 2,000 0.09% $200,000 0.90% 2,500,000 $250,000 n.a n.a 0.00% - - -Bank Of Beirut - Listed Shares $18.80 0.00% - - - - 17,746,417 $333,633 9.64 1.08 0.00% 3.18% 3.02% 3.02%Bank Of Beirut Priority Shares 2014 $21.00 0.00% - - - - 4,762,000 $100,002 10.77 1.21 0.00% 4.00% 3.80% 3.80%Bank Of Beirut Preferred "H" $26.25 0.00% 710 0.03% $18,638 0.08% 5,400,000 $141,750 n.a n.a 0.00% 6.67% 6.33% 6.33%Bank Of Beirut Preferred "I" $26.25 0.00% - - - - 5,000,000 $131,250 n.a n.a 0.00% 6.43% 6.11% 6.11%Bank Of Beirut Preferred "J" $26.25 0.00% - - - - 3,000,000 $78,750 n.a n.a 0.00% 6.19% 5.88% 5.88%Bank Of Beirut Preferred "K" $25.25 0.00% - - - - 4,000,000 $101,000 n.a n.a 0.00% - - -Byblos Bank - Listed Shares $1.71 0.00% 10,320 0.45% $17,737 0.08% 565,515,040 $967,031 9.00 0.77 0.59% 7.76% 7.37% 7.96%Byblos Bank Preferred Class 2008 $102.20 0.10% 1,633 0.07% $166,866 0.75% 2,000,000 $204,400 n.a n.a -0.39% 7.83% 7.44% 7.05%Byblos Bank Preferred Class 2009 $103.60 0.97% 1,066 0.05% $110,435 0.50% 2,000,000 $207,200 n.a n.a 2.27% 7.72% 7.34% 9.61%Byblos Bank GDR $79.60 0.00% - - - - 1,309,078 $104,203 8.38 0.72 -0.50% 8.33% 7.92% 7.42%BEMO Bank - Listed Shares $1.70 0.00% - - - - 51,400,000 $87,380 9.44 1.01 0.00% 2.22% 2.11% 2.11%BEMO Bank Preferred Class 2013 $100.00 0.00% - - - - 350,000 $35,000 n.a n.a 0.76% 7.00% 6.65% 7.41%BLOM Bank GDR $11.50 2.31% 48,002 2.07% $550,558 2.48% 73,896,010 $849,804 5.75 0.97 4.55% 7.21% 6.85% 11.40%BLOM Bank Listed Shares $10.80 0.00% 102,227 4.41% $1,104,052 4.97% 215,000,000 $2,322,000 5.40 0.91 1.89% 7.68% 7.29% 9.18%BLOM Bank Preferred Class 2011 $10.10 0.00% 44,211 1.91% $446,531 2.01% 20,000,000 $202,000 n.a n.a 0.00% 6.93% 6.58% 6.58%RYMCO Class "B" $3.25 0.00% - - - - 10,920,000 $35,490 14.77 1.67 0.00% 3.37% 3.20% 3.20%Holcim Liban $11.40 -4.60% 6,500 0.28% $75,069 0.34% 19,516,040 $222,483 5.11 0.94 -2.98% 7.09% 6.74% 3.76%Ciment Blancs Bearer $2.42 7.56% 22,347 0.96% $49,883 0.22% 6,000,000 $14,520 4.40 1.10 -25.54% 11.87% 11.28% -14.26%Ciment Blancs Nominal $1.57 0.00% - - - - 3,000,000 $4,710 2.85 0.71 0.00% 18.29% 17.38% 17.38%

Dividend yield figures pertain to year 2015 distributions until year 2016 dividends are declared and paid

Note: n.a stands for not applicable

Market Capitalisation

($000)BEIRUT STOCK EXCHANGE

Weekly Value Traded

Total Listed Shares

Weekly %Change

Closing

Source: Beirut Stock Exchange, Credit Libanais Economic Research Unit

% of Weekly Volume Traded

% of Weekly Value Traded

Gross Dividend

Yield

Net Dividend

Yield

YTD Total Net

Return

Lebanese Equities

YTD Price Perf.

Weekly Volume Traded

LEBANON’S MAIN INDICATORS

Weekly Market Watch

SOURCE: BDL, ABL, MOF, IMF, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 18

2 0 10 2 0 11 2 0 12 2 0 13 2 0 14 2 0 15 2 0 16 2 0 17

MACROECONOMIC INDICATORS

GDP ($ Billion) 38.01 40.08 44.10 47.60 49.91* 50.81* 51.82* 53.37*

Real GDP Growth Rate 8.00% 0.90% 2.80% 2.50% 2.00%* 1.00%* 1.00%* 2.00%*

GDP Per Capita ($) 8,756 9,144 9,966 10,655 11,067* 11,157* 11,271* 11,497*

Net Foreign Direct Investment ($ Billion) 4.96 3.40 2.30 3.79

FDI/GDP Ratio 13.05% 8.48% 5.22% 7.97%

INDUSTRY

Industrial Exports ($ Million) 3,291 3,530 3,567 3,384 3,150 2,956 2,117 (4)

Import of Industrial Machinery ($ Million) 227 239 288 300 269 234 198 (4)

TOURISM

Total Number of Tourists 2,167,989 1,655,051 1,365,845 1,274,362 1,354,647 1,517,927 1,302,655 (3)

Growth in Tax- Free Spending 21% 10% - 6% 4% 8% 2% - 9%

REAL ESTATE

Value of Real Estate Transactions ($ Million) 9,479 8,841 9,175 8,708 8,952 8,006 8,482

Number of Real Estate Sales Transactions 94,202 82,984 74,569 69,198 70,721 63,386 64,248

Construction Permits (000 sqm) 15,187 13,980 12,362 10,527 11,164 10,294 9,929

Cement Delivery (000 tons) 5,227 5,550 5,309 5,831 5,517 5,043 4,969 (5)

TRANSPORTATION

Beirut Port: Freight Activity (000 Tons) 6,469 6,677 7,225 8,268 8,281 7,240 8,737

Beirut Airport: Number of Passengers (million) 5.55 5.65 5.96 6.26 6.57 8.22 6.46 (4)

FOREIGN TRADE

Imports ($ Million) 17,964 20,158 21,280 21,228 20,494 18,069 17,169 (5)

Exports ($ Million) 4,253 4,265 4,483 3,936 3,313 2,952 2,732 (5)

Trade Balance ($ Million) (13,711) (15,893) (16,797) (17,292) (17,181) (15,117) (14,437) (5)

BALANCE OF PAYMENTS

Net Foreign Assets at the Financial Sector ($ Million) 3,325 (1,996) (1,537) (1,127) (1,407) (3,354) 332 (5)

Foreign Assets ($ Billion) 30.85 32.24 35.74 35.29 37.86 37.09 40.71 40.63 (7)

PUBLIC FINANCE

Government Expenditures ($ Million) 11,336 11,675 13,321 13,640 13,952 13,528 9,404 (2)

Government Revenues ($ Million) 8,414 9,333 9,396 9,420 10,879 9,576 6,876 (2)

Budget Primary Deficit / Surplus ($ Million) 1,203 1,662 (110) (240) 1,307 724 405 (2)

Total Defic it ($ Million) (2,894) (2,342) (3,925) (4,220) (3,073) (3,952) (2,528) (2)

Defic it / GDP Ratio 7.61% 5.84% 8.90% 8.87% 6.14% 7.26%

Debt Service / GDP Ratio 10.85% 9.99% 8.21% 7.96% 8.75% 8.60%

Net Public Debt ($ Billion) 45.01 46.35 49.12 53.18 57.30 61.54 65.14 (5)

Gross Public Debt/GDP Ratio 138.39% 133.89% 130.80% 133.36% 133.36% 138.41%* 143.87%* 149.17%*

MONETARY AGGREGATES & INFLATION

M4 ($ Billion) 97.31 103.50 110.00 117.41 124.53 131.17 139.20 139.26 (6)

(M2- M1) ($ Billion) 35.66 35.82 39.32 40.56 43.27 46.25 47.95 47.98 (6)

Monetization Level (M2/GDP Ratio) 103.46% 99.32% 99.44% 95.68% 97.40% 102.46% 105.06%

Change in CPI (%) 6.19% 4.27% 4.68% 2.05% - 1.66% - 3.40% 3.14%

BANKING SYSTEM

Number of Commercial Banks 54 54 54 56 55 53 52 (1)

Number of Branches 912 948 962 985 1,020 1,039 1,044 (1)

Total Assets ($ Million) 128,925 140,576 151,883 164,821 175,697 185,989 200,954 (5)

Total Deposits ($ Million) 108,601 117,703 127,657 139,166 147,637 154,951 162,929 (5)

Loans to the Private Sector ($ Million) 34,929 39,375 43,452 47,381 50,899 54,224 56,967 (5)

Customer Loans/ Deposits 32.16% 33.45% 34.04% 34.05% 34.48% 34.99% 34.96% (5)

Dollarization Rate 63.24% 65.92% 64.82% 66.14% 65.71% 64.88% 65.30% (5)

Exchange Rate (LBP to USD) 1,507.50 1,507.50 1,507.50 1,507.50 1,507.50 1,507.50 1,507.50 1,507.50

Recap of Lebanon's Major Indicators

* Figures Reflect IM F Estimates

(1) As at End of June, 2016, (2) As at End of August, 2016, (3) As at End of September, 2016, (4) As at End of October, 2016, (5) As at End o f November, 2016, (6) As at January 12, 2017, (7) As at M id-January, 2017

LEBANON’S RATINGS

Weekly Market Watch

SOURCE: S&P, MOODY’S, FITCH, CREDIT LIBANAIS ECONOMIC RESEARCH UNIT 19

Rating Agency Tenor Rating

Long- Te rm B-

Short- Te rm B

Moody's Inve stors Se rvic e Long- Te rm B2

Fitc h Ra tings Long- Te rm B-

Short- Te rm B-

Source: S&P Global Ratings, M oody's Investors Service, Fitch Ratings

Stable

S table

Ne ga tive

Republic Of Lebanon Sovereign Ratings

Outlook

Sta nda rd & Poor's Globa l Ra tings

Rated Banks

Long Term Foreign Currency

Financial Strength

Outlook Long Term

IDR

Outlook Long-Term Counterparty Credit Rating

Short-Term Counterparty Credit Rating

Outlook

Bank Audi B2 E+ Negative B- Stable B- C Stable

BLOM Bank B2 E+ Negative - - B- - Stable

Credit Libanais - - - - - - - -

Byblos Bank B2 E+ Negative B- Stable - - -

BBAC - - - - - - - -

Fransabank - - - - - - - -

BankMed - - - - - B- C Stable

S&P Global Ratings

Lebanese Banks' Latest Ratings

Moody's Investors Service Fitch Ratings

Sources: M oody's Investors Service, Fitch Ratings, S&P Global Ratings

CONTACTS

RESEARCH

Fadlo I. Choueiri, CFA

[email protected]

961-1-608 000 EXT: 1280 Jad Abi Haidar, CFA [email protected] 961-1-608 000 EXT. 1283

Joelle Samaha [email protected] 961-1-608 000 EXT. 1281 Mayda Zaarour [email protected] 961-1-608 000 EXT. 1282

Nagham Abdel Ahad [email protected] 961-1-608 000 EXT. 1284

MONEY MARKETS DESK

Robert Araman

[email protected]

961-1-608 000 EXT. 0760

This document is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This document does not constitute an offer or invitation to subscribe to or purchase any security, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. Reasonable care has been taken to ensure that the facts stated herein are accurate and the estimates, opinions and expectations contained herein are fair and reliable.

Weekly Market Watch

ECONOMIC RESEARCH UNIT - ADLIEH, BEIRUT LEBANON - TEL: 01-608000 FAX: 01-608231 20

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