Syria turmoil constrains Lebanon’s rating

Relatively steady dollarization rates suggest confidence in banking sector: Fitch Ratings

The ongoing turmoil in Syria is likely to have a further disruptive impact on Lebanon, global rating agency Fitch Ratings said on Tuesday (March 13).

It said that the upheaval in Syria has had a limited but significant effect on Lebanon. Fitch said that the impact of the Syrian unrest has already been felt in Lebanon, citing the major annual drop in tourism activity in 2011. The number of visitors fell by 24 percent in 2011 compared to the previous year.

Fitch Ratings in July last year affirmed Lebanon’s ‘B’ rating with a ‘stable’ outlook. But it said that prolonged declines in non-resident deposits due to political turbulence or geopolitical tensions would negatively affect the sovereign’s funding profile, and therefore the rating.

According to the ratings firm, Lebanon is almost completely dependent on overland routes through Syria for its access to Middle Eastern markets, which absorb around 45 percent of Lebanon’s exports.

The rating firm said that no significant deposit outflows (from Lebanon) were reported, as a result of events in Syria. It said that dollarization levels have been holding steady after an increase in the first half of 2011. This, it said, suggests confidence in the local banking sector.

Fitch Ratings said that “instability in Syria remains the main threat to political stability in Lebanon.” This, it said, is a major constraint on Lebanon’s rating.

by Hanadi Chami