Moody's Downgrades Financial Strength Ratings of Lebanon's 3 Largest Banks
Moody's Investors Service downgraded the standalone bank financial strength ratings (BFSRs) of Bank Audi, BLOM Bank and Byblos Bank to 'E+' from 'D'.
In parallel, it affirmed the three banks' local currency long-term deposit rating at 'Ba3', short-term deposits rat- ing at 'Not Prime', and national scale deposit short-term ratings at 'LB1'. It also affirmed Byblos Bank's national scale long-term deposit rating of 'Aa2.lb' and its foreign currency subordinated debt rating of 'B1', as well as the 'Aa1.lb' national scale long-term deposit rat- ings of Bank Audi and BLOM Bank.
The agency's rating actions on the three Lebanese banks are part of a broader review of the standalone credit assessment of 13 banks in Lebanon, Jordan, Pakistan and Ukraine. The agency said that its review was triggered by its revised assessment of the linkage between the credit profiles of sovereigns and financial institutions. It noted that the creditworthiness of banks with low cross-border operational diversification and/or with high balance sheet exposure to sovereign debt is closely linked to the country's credit strength where the bank is domiciled. Therefore the banks are unlikely to have standalone credit assessments above the sovereign rating.
Moody's indicated that it took into account the extent to which the three Lebanese banks' business depends on the domestic macroeco- nomic and financial environment; the degree of reliance on market-based, and therefore more confidence-sensitive, funding; and direct or indirect exposures to domestic sovereign debt compared with the banks' capital base. It concluded that the banks' creditworthiness is highly correlated to that of the Lebanese sovereign. Consequently, it reduced the BSFRs of the banks so that each is now in line with Lebanon's 'B1' sovereign rating.
The agency pointed out that the one-notch downgrade reflects the banks' high exposure to the Lebanese government, which is equiva- lent to around 350% of Bank Audi's Tier One capital, under 400% of Byblos Bank's Tier One capital, and over 400% of BLOM Bank's Tier One capital when including the banks' holdings of Certificates of Deposits issued by the Central Bank of Lebanon. It noted that the downgrade also reflects the banks' moderate geographical diversification outside Lebanon, as foreign assets account for about 33% of each of BLOM Bank's and Byblos Bank's consolidated assets, and for less than 30% of Bank Audi's consolidated assets.
It considered that there is a high probability that each of the banks would receive systemic support in case of need, despite that systemic sup- port assumptions in Lebanon are constrained by the banking sector's high rate of dollarization. It warned that the deterioration in the banks' operating environment or a weakening of their standalone financial fundamentals would exert downwards pressure on the ratings.
Source: Lebanon This Week, Byblos Bank economic publication
Photo: Horia Varlan
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