S&P warns Lebanese banks of growing loan defaults
The international rating agency, Standard & Poor’s, recently expressed concern with regards to Lebanon's deteriorating economic state, placing a special emphasis on the country's growing public debt and ongoing state of recession. Such predicament, the agency argued, may lead to further worsening of the bank's loan system status.
"S&P argued that Lebanon's banking system is vulnerable primarily due to the country's structural economic weaknesses, arising from macroeconomic problems, such as the fiscal imbalance,” said Navaid Farooq, sovereign analyst at S&P, to the Daily Star. He continued, stating that the root of the problem lies in the country's flawed banking system and not in improper management or supervision of individual banks.
S&P stated that Lebanon is classified as one of the 15 countries (out of the 68 countries studied), with a stressed banking system, and may soon face a 'credit bust', due to the growing number of loan repayment defaults.
Although the new government, inaugurated in 1998, aimed at reducing budget deficit to 5 percent of GDP by the end of 2003, Lebanon's budget deficits have only worsened since. At present public debt reached $22 billion— equivalent to approximately 140 percent of GDP— considered among the highest in the world.
Last June, government’s debt servicing costs exceeded its revenues for the first time, with budget deficit soaring to more than 50 percent of the total spending for the first half of 2000-. This figure highly exceeds the Finance Ministry’s year-end target of 37 percent.
Standard & Poor’s said last June that it was considering lowering the both the country's and Lebanon's three largest banks' credit rating, due to the government’s failure to control public finances. The country's foreign-currency debt rating currently stands at BB-, and that of the local-currency obligations is BB. Both ratings are below the minimum BBB- investment-grade level, thus indicating that the agency regards investmenting in Lebanon as a speculative move.
S&P first assigned Lebanon a BB- rating in early 1997, though a year later it changed its outlook from stable to negative.
It is predicted that the agency will most likely downgrade Lebanon's rating this fall from stable to negative, thus making it more troublesome for the government to borrow additional international capital, and moreover, it would avert potential foreign investors. — (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)