Dec. 5 (Bloomberg) -- The outlook for Lebanon’s banking system was cut to “negative” from “stable” at Moody’s Investors Service on slower economic growth and political instability, particularly in Syria.
Lebanese banks have assets and loans linked to countries in the region experiencing political unrest as well as slowing growth, such as Egypt and Jordan, it said. The Arab nation’s economy has also slowed after a “sharp” deceleration in gross domestic product in the first half, it said.
The International Monetary Fund forecasts 1.5 percent growth in Lebanon this year, the slowest since 2006. The country’s public debt reached about $52.6 billion last year, the equivalent of 137 percent of GDP. The uprising in Syria against the rule of President Bashar al-Assad, which began more than six months ago, is hurting tourism in Lebanon.
The credit risk of Lebanese banks, which are closely linked to Lebanon’s sovereign debt, will continue to be tied to the Lebanese government which is rated as “stable,” Moody’s said. The banks’ profitability is also undermined because “subdued business activity” will probably cause a slowdown in credit growth and fee-generating income, it said.
Some of the risks will be mitigated by the banks’ “resilient depositor base”, Moody’s said. “The sector retains a relatively stable funding structure driven by customer deposits, which account for approximately 90 percent of total liabilities,” it said. Deposits mainly come from Lebanese expatriates who accounted for 22 percent of GDP at the end of last year, it said.
The stability of Lebanon’s pound, pegged at about 1,500 to the dollar since 1993, coupled with interest rates that were as high as 8 percent in 2008, have attracted a steady flow of funds into the country, Central Bank Governor Riad Salameh said in an interview on Oct. 5. Bank deposits grew 10 percent last year to $110 billion, he said.
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