Moody's places Lebanese banks' ratings on review for possible downgrade

Published: 28 July 2006

Limassol, 27 July, 2006

Moody's Investors Service has placed on review for possible downgrade the financial strength ratings (FSRs) of the three rated Lebanese Banks -- BLOM Bank, Bank Audi and Byblos Bank, all headquartered in Beirut. The three banks carry 'D' FSRs. The banks' deposit and debt ratings together with their respective stable outlooks remain unaffected by this rating action.

The review on the FSRs was triggered by the serious disruptions caused by the escalation of the conflict following Israel's attacks on Lebanon beginning 12 July, and the impact that this might have on the banking system. The conflict has delivered a serious blow to trade, tourism, construction and real estate development that have been the main pillars of economic growth in recent times.

"Moody's believes that the loan quality of the three banks is particularly at risk, exerting significant negative pressure on the FSRs, although we are currently not in a position to accurately assess the extent of possible
impairment," the ratings service said.

"However, the fact that the loan portfolio of all three banks is relatively small in proportion to the size of the balance sheet alleviates some of our concerns," it added.

Moody's also noted that the banks continue to be heavily exposed to a low-rated (B3) sovereign through substantial holdings of government securities and CDs issued by the central bank. Although since the start of the conflict the volume of deposit conversions from local currency to foreign currency and the deposit transfers outside Lebanon have not been material, they are placing a certain degree of strain on the banks'
liquidity position. A possible continuation of the crisis for an extended period of time could further damage market sentiment, increasing downward pressure on the banks' FSRs.

Moody's said it would continue to closely monitor the situation in order to have a clearer picture of the repercussions on the rated Lebanese banks. "Our review will concentrate on the impact the conflict will have on the asset quality, liquidity, revenue capacity as well as the economic solvency position of the banks," said the service.

BLOM Bank had total assets of LBP18,923 billion (US$12.6 billion) at the end of March 2006. Bank Audi had total assets of LBP18,367billion (US$12.2 billion) at the end of March 2006, while Byblos Bank had total assets of LBP11,742 billion (US$7.8 billion) at the end of March 2006.