1. The two main external drivers of the bank’s strategy over the next five years are the evolution of Lebanon’s domestic structural adjustment policy and the outcome of the regional geopolitical situation. Domestic adjustment policies will have a strong impact on economic activity in general and banking in particular, especially for banks like Banque Audi which has invested heavily in IT and electronic banking infrastructures, human capital development, product and service diversification and branch network expansion. The bank’s strategy consists of market diversification, mainly through regional expansion in retail banking and services, focusing on relatively developed countries where the environment for launching banking activities becomes more supportive. The bank’s incremental non-interest income generated in those markets should henceforth offset the impact of increasing IT and fixed costs.
2. As a direct consequence of the war in Iraq, regional banks felt the impact during the first half of the year, though disproportionately. It was estimated that banks’ asset growth halved with the combined profits of the first 20 Arab banks regressing by 5%, mainly as a result of volatility in tourism remittances, hard currency inflows, trade finance, exchange rates and in some cases liquidity disturbances. But Arab banks managed to weather the storm as activity picked up again in the second half of the year, supported by consistently elevated oil prices. The post-war era is expected to raise both challenges and opportunities. Banks are expected to be increasingly careful in their day-to-day operations in terms of new money laundering compliance requirements and risk management directives, which drastically affected the regional and international business landscape. More opening up might also create some pressures on operating conditions of small and medium sized banks, thus favouring consolidation among regional entities.