S&P ratings uplifts
sovereign outlook to stable

Result related to

BDL's financial engineering

S&P Global Ratings has revised its outlook on the sovereign risk to stable from negative as deposit inflows are likely to remain sufficient to support the Government’s borrowing requirement and the country's external financing gap.

The credit rating agency said in a recent report that it affirms its 'B-/B' sovereign credit ratings.

This revision will have a positive impact on the attitude of corresponding banks toward their local counterparts, said Amine Awad, advisor to BLOM Bank group.

He also said that he anticipates that the outlook on local rated banks will be soon upgraded to ‘stable’.

S&P said it expects bank deposits to increase four percent at the least in 2016. The borrowing requirements account for 26 percent of the country's GDP this year while the needs of external financing represent 89 percent of GDP.

“We could raise our ratings if the policymaking framework became more predictable, supporting foreign capital inflows, and improving the sustainability of public finances,” S&P said in its report.

The banks’ claims on the public sector account for about 20 percent of their overall assets. This means bank creditors hold about one-half of the total public debt. The banks also purchase certificates of deposit issued by the Central Bank (BDL), which in turn buys Government debt.

Central Bank held 37 percent of the Government's outstanding treasury bills at the end of 2015. These represented 23 percent of the overall public debt.

“Although we view the concentration of Government financing from these sources as a structural weakness, at the current rating level these flows are an essential support,” the rating agency said.

Awad said S&P’s revision was mainly the result of BDL’s recent financial engineering operations. BDL’s intervention boosted its foreign currency reserves and injected a surplus of liras in the banking system which was made available for lending. This was appreciated by the credit rating agency, he said.

Awad also said that in the last two weeks major global players like Goldman Sachs and Citibank have released ‘Buy’ recommendations for Lebanese securities such as Eurobonds and treasury bills.

This revision reflects an improvement in the confidence level of international organizations in the country, especially after BDL’s financial engineering intervention, said Marwan Barakat, Head of Research at Bank Audi.

It is an acknowledgment of the resilience of the financial sector amid continuous and sound deposit growth, he said.