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Moody’s reviews banks' outlook to "negative"
Low government bonds rating affects credit profile
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Ratings’ firm Moody's has changed to 'negative' from 'stable' its outlook on the long-term local and foreign currency deposit ratings of the three largest local banks: Bank Audi, BLOM Bank, and Byblos Bank.

Moody's reviewed the outlook on the three banks' National Scale Ratings (NSR): Aa1.lb for Bank Audi and BLOM Bank, and Aa2.lb for Byblos Bank. “The government's weakening creditworthiness weighs on the standalone credit profile of the banks given the high credit linkages between their balance sheets and sovereign credit risk,” the agency said. Moody's said the banks' asset quality is likely to deteriorate in light of the weakening operating environment.

The rating actions came a day after Moody’s changed the outlook on the sovereign bond ratings to negative on May 14. The agency downgraded its outlook on government bonds from 'stable' to 'negative', but affirmed the country's B1 rating.

The negative outlook reflects the impact of the ongoing conflict in Syria, which is adversely affecting investment, trade, and tourism in the country, according to the agency: “The war in Syria will suppress economic growth and increase fiscal deficits, thus leading to an increase in the already high public debt burden in 2013 and 2014.”

Another reason behind the downgrade is the risk that further escalation of the Syrian crisis could also lead to local political instability.

Moody's expects the local debt-to-GDP ratio to continue to rise, reaching 133 percent in 2014 after having dropped from 172 percent to 126 percent in the 2006-2011 period. The public debt burden is currently the third highest globally after Japan and Greece, among rated sovereigns.

The decision to affirm a B1 sovereign rating is supported by abundant foreign exchange liquidity in the local banking sector and the proven resilience of domestic banks. Moody's said it would downgrade the government bond rating if the main debt indicators showed further deterioration or if the domestic political turmoil intensified.
Reported by Hanadi Chami
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Date Posted: May 15, 2013