Moody’s drops Le­banon banks’ rat­ings after sov­er­eign down­grade to B2

Financial Mirror (Cyprus) - - FRONT PAGE -

Moody’s In­vestors Ser­vice has down­graded to B2 the longterm de­posit rat­ings of three Le­banese banks: Bank Audi S.A.L., BLOM Bank S.A.L. and By­b­los Bank S.A.L., fol­low­ing Tues­day’s the down­grade of Le­banon’s gov­ern­ment bond rat­ings to B2 from B1 (out­look neg­a­tive).

Con­cur­rently, Moody’s low­ered the base­line credit as­sess­ments of the three banks to b2 from b1 (within the E+ bank fi­nan­cial strength rat­ing cat­e­gory) and down­graded the long-term na­tional scale rat­ings (NSRs) of Bank Audi and BLOM Bank to Aa3.lb and By­b­los Bank to A1.lb. The longterm de­posit and na­tional scale rat­ings have a neg­a­tive out­look.

The rat­ing agency said the down­grades re­flect the view that the gov­ern­ment’s weak­en­ing cred­it­wor­thi­ness weighs on the banks’ stand­alone credit pro­file given the high credit link­ages be­tween their bal­ance sheets and sov­er­eign credit risk, and the gov­ern­ment’s re­duced ca­pac­ity to support banks in case of need.

Ac­cord­ing to Moody’s es­ti­mates, the banks’ di­rect ex­po­sure to gov­ern­ment credit risk (in­vest­ments in gov­ern­ment se­cu­ri­ties and cen­tral bank cer­tifi­cates of de­posits) stood at around 2.5 times tier 1 cap­i­tal for Bank Audi, 2.6 times for BLOM Bank and 4.4 times for By­b­los Bank as of Septem­ber 2014.

“The high di­rect ex­po­sure to gov­ern­ment credit risk, in ad­di­tion to the pri­mar­ily Le­banese fo­cus of their op­er­a­tions ren­ders the banks sus­cep­ti­ble to event risk at the sov­er­eign level and con­strains their base­line credit as­sess­ments at the level of the gov­ern­ment’s bond rat­ing,” the rat­ing agency said.

Re­gional ge­o­graphic di­ver­si­fi­ca­tion ranges from around 10% of as­sets for By­b­los Bank, 23% for BLOM Bank and 45% for Bank Audi, and is not suf­fi­cient to off­set the risks as­so­ci­ated with the banks’ credit link­ages to the Le­banese sov­er­eign, it added.

Moody’s es­ti­mates that Le­banon’s 2015 gov­ern­ment debt will reach close to 140% of GDP and that cur­rent debt trends are likely to con­tinue to de­te­ri­o­rate in the next two years through a com­bi­na­tion of lower growth and on­go­ing po­lit­i­cal paral­y­sis, ex­ac­er­bated by the spillover ef­fects of the Syr­ian cri­sis.

Up­ward pres­sure on the banks’ rat­ings is limited given the neg­a­tive out­look. How­ever, Moody’s said im­prove­ments in the op­er­at­ing en­vi­ron­ment and in the sov­er­eign’s credit risk pro­file could prompt a change in the out­look on their rat­ings to sta­ble.

At the end of Septem­ber, Bank Audi had to­tal as­sets of LBP 60.1 bln ($39.8 bln), BLOM Bank had to­tal as­sets of LBP 41.5 bln ($27.5 bln) and By­b­los Bank had to­tal as­sets of LBP 28.6 bln ($18.9 bln).

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