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15 December 2019
RATINGS

Moody’s declares ‘deposit default’ for three top Lebanese banks

Lebanon’s financing model continues to rely on foreign-currency inflows in the absence of a clear policy path to reform the country’s economic structure.

Bloomberrg/Hasan Shaaban

by Kudakwashe Muzoriwa

Moody’s said that emergency measures by Banque du Liban (BdL) to address foreign-currency shortages forced three of the country’s top lenders into a ‘deposit default’.

The central bank’s instructions add to unofficial restrictions that Lebanon's Association of Banks announced on 17 November 2019 for transfers abroad and dollar withdrawals from deposit accounts and implemented by banks.

Moody’s said that the incremental measures by both the BdL and the banks will likely diminish depositor confidence and stifle future foreign-currency inflows for some time, a credit negative for banks.

Bank Audi, Blom Bank and Byblos Bank also had their baseline credit assessments (BCAs) downgraded to the second-lowest level in a move that Moody’s said it was not a credit rating action but an opinion on issuers’ standalone intrinsic strength in the absence of any extraordinary support from outside.

The rating agency said that the downgrade is driven by the payment of part of the interest for foreign currency deposits in local currency by banks in Lebanon following instructions by the country’s central bank, which constitutes a deposit default.

Staring down the worst financial crisis the country has faced in decades, the central bank told lenders to pay half of foreign-currency deposits in Lebanese pounds. BdL plans to do the same on what it owes banks for dollar-denominated deposits and certificates of deposits.

Moody’s also said that the three banks remain on review for downgrade. Last month, the rating agency lowered their the banks’s long-term issuer credit ratings by two notches to the fifth-lowest junk level, warning that Lebanon’s economic crisis is draining liquidity from the system.

Additionally, the rating agency also expressed alarm at the banks’ high exposure to government debt held on their balance sheets and the deteriorating operating environment.

 


RELATED STORIES: Moody’s Blom Bank Byblos Bank Bank Audi Banque du Liban

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