Restoring confidence: Can S&P bank upgrade help Lebanon's economy?
International rating agency Standard & Poor’s has raised its outlook for Lebanon-based Bank Audi, BankMed and BLOM Bank to stable from negative, just a week after upgrading the outlook of Lebanon from negative to stable.
“At the same time, we affirmed our ‘B-’ long-term counterparty credit ratings on all three banks. We also affirmed our short-term counterparty credit ratings on Bank Audi and BankMed at ‘C,’” S&P said.
S&P attributed this revision to the ability of Lebanese banks to finance the public debt thanks to the steady flow of deposits the lenders receive each year.
“The outlook revision on the sovereign reflects our view that the government’s debt-service capacity is materially determined by the strength of deposit flows to the financial system. In our view, this funding source has helped stabilize the government’s financing needs during increasingly challenging times for the internal and external political environments,” it said.
Lebanese banks hold the bulk of the treasury bills and Eurobonds, increasing the risk of exposure to default. Lebanese lenders intend to roll over around $1.6 billion in Eurobonds that mature in April and May of this year.
The move comes as lawmakers consider raising the tax on interest on customer deposits from 5 to 7 percent and applying similar taxes on the banks’ investments in Lebanese securities.
This proposal prompted banks to threaten to raise interest rates on personal and housing loans if these taxes were applied.
S&P said Audi, BLOM and BankMed were still highly exposed to the high public debt risks.
“Despite the three banks’ sound geographic diversification by regional standards, and risk-control strategies since the Syrian outbreak, we believe that they are highly exposed to their domestic operating environment. This includes primarily their very large exposure to the sovereign. Consequently, our ratings on these banks do not exceed those on the sovereign,” it said.
It added that the stable outlooks on Bank Audi, BLOM Bank, and BankMed mirror S&P’s stable outlook on Lebanon.
“The stable outlook on the sovereign reflects our view that deposit inflows to the financial system will enable the government to meet its financing needs over the coming year despite the difficult internal and external political environment. Owing to the close links between Lebanese banks’ creditworthiness and that of the sovereign, specific factors relating to each of the three banks that would prompt a change in the respective ratings appear limited at this stage,” S&P said.
Last week, Audi, BLOM and Byblos distributed the dividends to the shareholders during general assembly meetings.
Bank Audi’s board of directors proposed a $0.40 for 2013 flat from last year, BLOM Bank $0.50 for 2013, up from $0.45 in 2012, and Byblos Bank’s BOD offered a $0.133 for 2013 up from $0.126 last year.
According to FFA Private Bank, at today’s listed share prices, dividend yields remain attractive at 6.5 percent, 5.5 percent and 8.0 percent for Bank Audi, BLOM Bank and Byblos Bank respectively.