Lebanese bank ratings outlook raised to ‘stable’ from ‘negative’

Moody’s Investors Service has changed the outlook on the B3/Not Prime foreign currency deposit ratings of the four rated Lebanese banks – Bank Audi, BLOM Bank, Byblos Bank and Bank of Beirut – to ‘stable’ from ‘negative’ a day after the rating agency changed the outlook on Lebanon’s foreign currency deposit ceiling and the debt ceiling to ‘stable’ from ‘negative’.

The outlook on Byblos Bank’s B2 FC senior and subordinated debt ratings was also changed to stable from negative. All other ratings of these banks remain unaffected.

“Lebanese banks continue to be heavily exposed to the sovereign, although to a lower degree than in the past. However, their deposit and debt ratings have been constrained by the respective country ceilings, and as a result any sovereign rating action has an impact on the bank ratings as well,” explained Nondas Nicolaides, Assistant Vice
President – Analyst for Lebanese banks.

The rated Lebanese banks continue to perform well with a growing deposit base enabling them to invest in the highly profitable Lebanese government securities, although this also raises their risk profiles considering the low ratings of Lebanon. Any improvements in the currently fragile political situation in the country that could have a positive impact on Lebanon‘s ratings would also prove beneficial for the banks’ ratings.

Furthermore, banks with significant franchises outside Lebanon and with an increasingly higher level of earnings from their international operations, are likely to benefit more from any future improvement in Lebanon‘s ratings and may also see positive pressure on their standalone ratings. For the time being, however, the still heavy earnings reliance on low rated (B3) Lebanese sovereign debt and their overall sovereign exposure relative to their equity constrains any rating upgrades, Moody’s concluded.
All four banks are based in Beirut, with the biggest, Bank Audi, reporting total assets of LBP 26,001 bln (US$17.2 bln) at the end of December 2007. BLOM Bank had total assets of LBP 25,073 bln (US$16.6 bln), Byblos Bank had LBP 14,320 bln (US$9.5 bln) and Bank of Beirut had LBP 7,952 bln (US$5.3 bln).