S&P Global downgrades three Lebanese banks
Agency cites 'liquidity pressure' after lowering ratings on Bank Audi, Blom Bank and Bankmed
Ratings agency S&P Global has downgraded three Lebanese banks, citing "rising liquidity pressures".
The ratings of Bank Audi, Blom Bank and Bankmed were downgraded to CCC from B-. The agency also maintained a negative outlook on the banks, stating that it will look for more clarity on deposit outflows and "reported restrictions on specific transfers and operations imposed by banks".
"We understand that the deposit erosion that started in first-half 2019 has recently intensified. This has happened because of recent political developments, protracted social unrest, prolonged bank shutdowns, and individual banks reportedly placing some restrictions on specific transfers and operations," S&P Global said in a note.
"We believe that large maturity mismatches on the banks' balance sheets limit their flexibility to respond to major deposit outflows in times of liquidity stress," S&P Global added. It stated that banks have typically used customers' short-term deposits to invest in longer-dated term deposits and certificates of deposits from the country's central bank, Banque du Liban. Placements at Banque du Liban accounted for 57 per cent of all Lebanese bank assets as at July 31, 2019.
Lebanese banks have come under strain as the country's sovereign rating has also been downgraded by ratings agencies due to the country's worsening financial situation.
Earlier this week, Banque du Liban's governor, Riad Salameh said in a press conference that the central bank had "taken enough measures so that depositors don't lose money" in local banks as concerns about the state of the economy grew. Many of the country's banks have remained closed this week as a political and economic crisis that saw former Prime Minister Saad Hariri step down last month continues to rumble on.
Citizens have demanded reforms and changes in the political system that has governed the country since the end of a 15-year civil war in 1990. They blame Lebanon’s political elite for widespread corruption and nepotism, which they say contributed to the country accruing $86bn of public debt, equivalent to 150 per cent of gross domestic product.
The central bank earlier this week offered liquidity facilities to banks in the form of short-term US dollar loans, but at an interest rate of 20 per cent.
S&P Global expects Banque du Liban to "continue to provide liquidity support to banks when needed", but said its capacity to do so remains constrained because of its role in financing the Lebanese government.
"We understand that at this stage banks have had limited recourse to this liquidity facility," it added.
Global markets investors "are coming around to our long-held view that the government will have to resort to a restructuring of its large debt pile", London-based Capital Economics said on Thursday. It said that the premiums required on credit default swaps — a form of insurance on Lebanon's sovereign bonds — point to an 84 per cent chance of a default on the country's debt within the next five years.
Updated: November 15, 2019 01:18 AM