The main driver of the ratings on Lebanese banks continues to be the economic risk inherent in their fragile operating environment, as evidenced by the government’s high level of indebtedness and fiscal deficit, Standard & Poor’s Ratings Services notes in an updated report on the Lebanese banking system.
“Adjustments to these factors are causing difficulties for the banking system and profitability and asset quality are under pressure as a result of slow economic growth,” says Standard & Poor’s credit analyst Emmanuel Volland.
The banks’ direct exposure to the sovereign (Republic of Lebanon; B-/Positive/C) is very high and represents the most important risk factor. Lebanese banks’ direct exposure to the sovereign (including deposits at the central bank) represents about eight times their equity base.
While the increasing confidence after the Paris II conference in November 2002 and the slight upswing in the economy created better prospects for 2003, recent political tensions have put the brakes on the government’s reform agenda.
“Any improvements in the Lebanese banking sector hinge on the successful implementation of the fiscal programme, privatisation, and securitisation operations, as well as domestic and regional political stability,” adds Volland. “Failure to capitalise on recent progress could put downward pressure on the banking sector.”
Visit www.ratingsdirect.com for the report.