Fitch affirms Lebanon's Banque Audi and Banque Saradar on proposed merger

Published April 7th, 2004 - 02:00 GMT

Fitch Ratings has affirmed the ratings of Lebanon's Banque Audi and Banque Saradar following the recently announced merger between the two entities.  


Audi is rated at Long-term and Short-term foreign currency B-, and B respectively, Individual C/D, and Support 5. Saradar is rated at Long-term and Short-term foreign currency B- and B, respectively, Individual D, and Support 5. Both banks have Stable Outlook on their Long-term ratings, stated a press release.  


The agreed merger, which is still contingent on the approval of the Central Bank of Lebanon and the respective banks' general assemblies, will create the largest banking group in Lebanon with on-balance sheet assets of nine billion dollars and a market share of c.15 percent.  


In a banking market that is over-banked and in need of consolidation, and that is exposed to a weak operating environment, this type of merger is seen as a positive trend. It will help reduce surplus capacity and create larger and potentially stronger financial institutions.  


A surprising, but also, positive feature of this merger, is that it involves family-controlled institutions, since family ownership of smaller banks is often viewed as a stumbling block to industry consolidation.  


Audi is to pay $159 million for Saradar - $100 million in cash, and the remainder in new shares. For Audi, the merger will to some extent bolster its corporate, investment and private banking activities. However, Fitch views the deal as much more important to Saradar, which, like other medium-sized and small banking institutions, is more exposed to the very challenging operating environment. These conditions have made it particularly tough for these institutions to find profitable growth opportunities. This has coincided with an increasingly onerous and costlier regulatory environment adding further pressure to the ongoing survival of smaller banks. Saradar will benefit from the economies of scale from being part of a much larger group.  


Saradar will remain a separate legal entity within the Audi-Saradar Group, but will be renamed Banque Audi Saradar Private Bank. Within the new group, Banque Audi Saradar Private Bank will service the private banking market, while Audi will focus on commercial and retail banking. The other domestic banking business within the group, Audi Investment Bank, will cover corporate and investment banking activities.  


The process of integration is expected to begin once all the necessary approvals have been obtained, which is envisaged to be by mid-2004. Potential cost synergies are mostly non-staff related with systems and back offices targeted.  


The group aims to have a single back office. Saradar does not have a substantial branch network, although there may be some realignment of the combined network to better serve its target market.  


Internationally, the intention is to merge various banking subsidiaries that operate in similar countries, and this is an area that is seen to have some good potential for cost synergies. The group continues to seek to expand its international operations, particularly those in the Middle East region to reduce its susceptibility to local conditions. — ( 



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