Capital Intelligence, the international credit rating agency, has raised Lebanon’s long-term foreign and local currency ratings to ‘B’ from ‘B-’ (B minus). The outlook is stable.
The long-term foreign currency ratings of six Lebanese banks that were constrained by the sovereign’s rating – Bank Audi-Audi Saradar Group, BBAC, BLOM Bank, Byblos Bank, Credit Libanais, and Fransabank – have also been raised to ‘B’ with a stable outlook.
The upgrade in the sovereign’s ratings primarily reflects Lebanon’s improved international liquidity position but also takes into account the reduction in near-term financing risks resulting from increased investor confidence and banking sector liquidity. Underlying the improvement in the sovereign’s credit profile is the return of relative political normality over the past year or so, evidenced most recently by peaceful and undisputed parliamentary elections in June.
The decrease in political risk perceptions coupled with favourable interest rate differentials has contributed to a pick up in financial inflows and greater demand for local currency denominated deposits, enabling the central bank to almost double its foreign exchange reserves between end-2007 and April 2009 to USD 19 bln (equivalent to 60% of GDP). Official reserves are currently about four times as high as annual government foreign currency debt service and, combined with the liquid foreign assets of the commercial banks, cover more than 70% of short-term external debt.
Although the government's projected gross financing requirement for 2009 is high at about 45% of GDP, the majority of foreign currency amortisation has already been covered through a Eurobond exchange in March and strong deposit inflows should enable the government to tap the market again later in the year.