S&P negative outlook on three banks. Confidence of residents and expats backs sector - Lebanon

S&P negative outlook on three banks
Confidence of residents and expats backs sector
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Standard & Poor’s Rating Services lowered from ‘B’ to ‘B-’ its long-term counterparty credit ratings on three Lebanese banks: Bank Audi, BankMed, and BLOM Bank. It also lowered from ‘B’ to ‘C’ the short-term counterparty credit ratings on Bank Audi and BankMed. “The outlooks on all three banks remain negative,” the report said.

“The downgrade does not indicate lack of confidence in the three banks, but in the overall economic situation of the country,” said François Bassil, Chairman of the Association of Banks in Lebanon (ABL). According to him, banks are highly backed by residents and expats confidence in their professional management.

The three banks have a wide geographical presence and handle a lot of operations regionally and globally. “No major negative impact will be felt by these banks in such operations,” said Bassil. But the relationship between most international institutions and the Lebanese State and its affiliates will be negatively affected by the sovereign downgrading of Lebanon, according to Bassil. Most credit rating agencies focus on treasury bills held by banks. “Most banks will think twice now before subscribing to any new treasury bills issuance,” he said.

The rating actions follow S&P’s recent lowering of its ratings on Lebanon from ‘B’ to ‘B-’, due to deteriorating fundamentals and rising political risks. “In principal, banks worldwide cannot have ratings higher than the sovereign downgrade,” said Mazen Soueid, Chief Economist at BankMed.

S&P said it could lower the ratings on the three banks further if the political and economic situation deteriorates to the point where it halts domestic deposit growth or external inflows to the banking system. “Both are important sources for funding the government's fiscal deficits and external requirements, as well as for maintaining confidence in the lira’s peg to the dollar,” it said.

“In the current ratings, these banks are not in a risky situation especially that they enjoy high liquidity. But things may get worse if the economic and political crisis is not resolved and in the absence of a government,” said Bassil. He expected that other banks may be downgraded by credit rating agencies soon.

Conversely, S&P said it could revise the outlook on the three banks to ‘stable’ should there be a breakthrough on the domestic political front. “Local banks, in general, may stand in the current deteriorating environment for at least three years, but their profitability will surely decrease,” said Bassil.
Reported by Leila Rahbani
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Date Posted: Nov 08, 2013