Standard & Poor’s Ratings Services has revised its outlook on three Lebanese banks Banque Audi, Banque de la M éditerran ée and Blom Bank to positive from stable following the outlook revision on the
At the same time, all ratings on the banks were affirmed, including the ‘B-‘ long-term counterparty credit ratings on all three banks, and the ‘C’ short-term counterparty credit ratings on Audi and de la M éditerran ée.
The outlook revision on the sovereign reflects the government’s commitment to an ambitious adjustment programme, concessional financing from the Paris II conference, and the resulting renewal in market confidence. This has led to a reduction in interest rates, and is likely to give rise to a decline in the public debt burden.
Standard & Poor’s view of the banking system remains unchanged, and the ratings on all three banks continue to reflect the risks inherent in operating in Lebanon, notably as a result of the high budget deficit. Lebanese banks have high direct exposure to the republic. As the banks have a low proportion of loans to total assets, with claims on private sector credit representing about one-third of total bank assets, they channel their surplus liquidity into government securities. “Commercial banks are consequently a major source of government financing, holding 68.3% of outstanding treasury bills at
In addition, Lebanese banks increasingly have been major investors in the US dollar-denominated notes that Lebanon has issued to reduce interest costs.
Standard & Poor’s continues to view favourably the rated banks’ good franchises and nimble liquidity management. One of the main features of the franchises is a healthy deposit base from the middle-to-higher end of the market, representing not only domestic but also international clients, the latter as a result of the Lebanese diaspora. Nevertheless, Lebanese banks have been financing the government’s deficit spending for a decade, and have become increasingly vulnerable to the credit risk of the republic.
“The positive outlooks on Banque Audi, Banque de la M éditerran ée, and Blom Bank reflect that on the Republic of Lebanon,” adds Volland. The successful implementation of the fiscal program, privatization, and securitisation operations, as well as domestic and regional political stability, could lead to the ratings on both the sovereign and the banks being raised. Conversely, failure to capitalize on recent progress could put downward pressure on the ratings.