Banque Audi Rated BB-/B by S&P;Outlook Stable.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/27/97-- Standard & Poor's today assigned its double-'B'-minus long-term and single-'B' short-term counterparty ratings to Banque Audi Sal (Banque Audi). The outlook on the long-term rating is stable.

The ratings reflect the specific characteristics of the current operating environment for banks in Lebanon, where the economy is recovering after a long period of civil war and the banks face a period of adjustment. The fragility of the environment is indicated by the double-'B' and double-'B'-minus local currency and foreign currency sovereign ratings respectively assigned to Lebanon by Standard & Poor's, which reflects inter alia high budget deficits, high public debt burdens and a fiscal structure vulnerable to economic and political shocks.

Banque Audi is one of the largest of the Lebanese banks, ranking third in the system by total assets. Since the cessation of the civil war in 1990, the bank has grown rapidly, and total assets reached Lebanese pound 2,862.7 billion (approximately US$1.8 billion) at year-end 1996. The bank is a universal bank and is involved in investment banking through a subsidiary. The bank's ownership is well spread amongst Lebanese and international investors, though the Audi family retains a sizable minority stake and continues to be involved in the management of the bank.

The bank's main focus has been small and mid-size corporations, where it enjoys a strong position, though it has recently also begun to target large companies. Although the bank does not appear to have an overhang of problem lending from the war years, as many of its peers do, the accelerated growth of its lending has pressured asset quality, necessitating higher provisions. However, less than a third of the bank's footings are loans, with the balance of the bank's assets split between Lebanese Treasury bills and interbank placements. Banque Audi's profitability was satisfactory with a return on average assets in 1996 of 1.23%, though in the future the bank will be challenged to maintain this good performance because of lower T-bill yields, tighter lending on corporate business owing to increased competition and a comparatively high cost base.

More generally, Standard & Poor's sees the Lebanese banking system as evolving very rapidly as it catches up and modernizes and, latterly, consolidates. Banque Audi is a dynamic player in this process and, like all Lebanese banks, is seeking to find the right balance between managing its fast rate of organic growth and managing external growth, for example, by acquisitions. In the haste to increase critical mass, attention must also be paid by Lebanese banks to easing of certain structural disadvantages: for example, the high interest sensitivity of earnings; large maturity mismatches in bank assets and liabilities; and the limitations brought on by small size. Standard & Poor's notes that Banque Audi's management has been amongst the first to begin to address these issues; for example, by issuing long-term bonds and by widening its shareholder base by opening its capital to international investors.

OUTLOOK: Stable.

The stable outlook reflects Standard & Poor's expectation that the bank will continue to fortify its strong market position and profile. Further relatively small acquisitions are considered likely but Banque Audi is expected to maintain its commitment to maintaining its capital at acceptable levels, Standard & Poor's said. -- CreditWire

CONTACT: Richard Thomas, London (44) 171-826-3627

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