S&P paints bleak picture of top Lebanese banks due to presidential crisis

BEIRUT: Standard & Poor's Ratings Services on Thursday placed its 'B-' long-term credit ratings of Blom Bank, Bank Audi/Audi Saradar Group, and Bankmed on CreditWatch with negative implications. The rating has infuriated some Lebanese bankers who believe that some of the rating agencies have been quite unfair with the local banks.

"Some of the rating agencies behave like newspapers that give a very bleak picture of the country. We don't have a president of a republic now but sooner or later we are going to a new head of state," Saad Andary, the adviser to the chairman of Bank of Beirut and the Arab Countries, told The Daily Star Friday.

He added that the negative outlook does not accurately reflect the true performance of the main banks in Lebanon.

"Most banks have increased their assets, customer deposits and profits. We also increased our capital by at least 50 percent in the past two years. If these are not positive signs than I don't now what is," Andary said.

"The government is not approaching local banks for new securities because it secured billions of dollars from the Paris III donor conference to meet all its needs at lower interest rates," Andary added.

He added that Lebanese banks are aggressively expanding outside Lebanon to diversify their sources of income.

Moody's assigned D- to four leading banks in Lebanon five months ago because of their risk exposure to the growing public debt.

Rating agencies do not deny that the major Lebanese banks are very liquid and are recording high profits. But there is some concern that the endless political debate over the presidential elections is creating a negative atmosphere in the country.

Lebanese banks hold the bulk of government Treasury bills and Eurobonds, which puts these banks in a vulnerable position.

S&P's report, which was published by Lebanon This Week, the economic publication of the Byblos Bank Group, explained that the 'C' short-term credit ratings on Bank Audi and BankMed were affirmed. The rating action follows the recent placement of the 'B-' long-term foreign and local currency sovereign ratings on Lebanon on CreditWatch with negative implications.

"The CreditWatch placement of the sovereign was triggered by the repeated failure of the Lebanese Parliament to select a new president by the constitutional deadline. There is a growing danger that parallel administrations will be established," S&P said.

It added that this would raise serious concerns over the prospects for policy-making and the administrative capacity of the government to service its debt, expected to reach at least 173 percent by year-end 2007.

"Lebanese banks have high direct exposure to the sovereign," said Standard & Poor's credit analyst Emmanuel Volland. "As the banks have a low ratio of loans to total assets, they channel their surplus liquidity into government securities."

On September 30, 2007, Lebanese banks' direct exposure to the sovereign (including deposits at the central bank) was LL62.7 trillion ($41.7 billion), about 6.9 times the banks' equity base or 51.0 percent of assets. This ties the fortunes of the banks to those of the country.

"We still view favorably rated Lebanese banks' good commercial profiles and strong liquidity profiles," said Volland.

"This leads to high surplus liquidity derived from a wide deposit base of middle-to-high-income domestic and international customers. Nevertheless, the majority of these funds have gone to finance the government deficit," Volland added.