Banks will continue to encounter turbulent and challenging operating conditions in 2014-2015, similarly to banks in the Arab Mediterranean region, according to a report by Standard and Poor’s Rating Services. It said: “Regional political turmoil hampers policy making and business confidence and delays economic recovery.”

The country remains vulnerable to the evolving conflict in Syria. S&P said that banks are set for recovery if political and geopolitical risks recede. This positive outlook is based on the country’s economic growth potential, supportive demographics, and educated workforce among others.

S&P said that the banking sector, unlike the country’s political institutions, has coped well with the prevailing challenging conditions. “Despite all bad events, banks are continuously financing the private sector through commercial, industry, housing, and consumer loans, as well as supporting the public sector,” said Gilbert Zouein, Assistant General Manager, at Byblos Bank.

Banks are playing a crucial role in meeting the government’s financing needs, and their role has increased as sovereign creditworthiness has deteriorated and because foreign investor’s appetite for sovereign debt has regressed, S&P said.

S&P expects banks to continue to subscribe to sovereign securities, which would expose them to critical concentration risks as government debt represents a multiple of the banks’ equity base.

Lending to the private sector is expected to grow by about ten percent annually during the 2014-2015 period, supported by credits to trade, services, domestic consumption, and real estate related projects.

“Loans to the private sector are contributing to the growth of the economy and covering part of the deficit in the balance of payment,” said Zouein.

S&P said that the banking sector’s regulatory and supervisory framework aims at sustaining the confidence of depositors. It said that regulations are complied with international standards, but are often implemented over longer periods of time than global norms, in order to accommodate the need to supervise the large number of banks operating locally.

The rating agency has a stable outlook on rated banks similar to the outlook on sovereign ratings. It said that it is unlikely to upgrade any of the banks ratings over the next 12 months.