Moody’s changed the outlook of the long-term deposits of the 3 banks: Bank Audi S.A.L., BLOM Bank S.A.L. and Byblos Bank to B3 from B2. The decision was principally prompted by Moody’s downgrade of Lebanon’s credit rating to B3 stable from B2 Negative a week earlier.
The stable outlook is in support of the government’s new reforms including the salary scale law and tax hikes; yet, the main driver of the downgrade was the country’s worsening debt dynamics, with debt projected to reach 140% of GDP. Moody’s explains that Lebanese banks are the biggest creditors to the government, which increases their exposure to the public debt. In parallel, Moody’s also downgraded, “the baseline credit assessments (BCAs) of the three banks to b3 from b2 and their long-term Counterparty Risk Assessments (CR Assessments) to B2(cr) from B1(cr).”
The stable outlook came on the back of a newly formed government and promises to implement economic and fiscal reforms. However, Moody’s decision to downgrade the banks’ standalone BCAs to b3, and their long-term deposits ratings to B3, reflects “the extensive interconnectedness between their balance sheets and sovereign credit risk”.
The credit-rating agency concluded, “although operating conditions will remain challenging […], the rating agency expects the operating environment for banks to stabilize after years of deterioration on the back of renewed political stability driving a modest pickup in economic growth, albeit from low levels”.