Moody’s lowers outlook on top three banks

Agency downgrades credit rating for Audi, Blom, and Byblos by one notch

Moody’s Investor Services has lowered its standalone credit assessments for the top three local banks: Bank Audi, BLOM Bank, and Byblos Bank, by one notch, to ‘b1’, similar to Lebanon’s sovereign debt rating.

The downgrade was driven mainly by the high exposure of each of these banks to sovereign debt and their low overseas operations.

“Rating agencies’ decisions have no impact on the activity of banks. Banks’ customers who hold deposits and investors who hold bank paper are not affected,” said Marwan Barakat, head of research at Bank Audi. “Depositors are aware of the financial standings of banks and the risks and do not await decisions by rating agencies to withdraw holdings.”

The top three local banks have high exposure to government debt, according to Moody’s. When including investments in Central Bank certificates of deposits, sovereign debt is equivalent to 350 percent of Bank Audi’s Tier 1 capital, and to around 400 percent of the Tier 1 capitals of each of BLOM and Byblos. The agency said that banks with high exposure to sovereign debt are more tied to the credit strength of the country and are unlikely to have standalone credit assessments above the sovereign rating.

The three banks have moderate geographical diversification abroad, Moody’s said. Bank Audi’s foreign assets make up around 30 percent of its consolidated assets, while the foreign assets of each of BLOM and Byblos make up one third of their respective consolidated assets.

“It is widely believed that the ratings given by these agencies are far from the real risks of the banks. Are banks’ reserve requirements also counted as sovereign exposure by rating agencies?” Barakat asked. He said that local banks’ papers are often priced by the market at two to three notches above rating agencies’ assessments.

Moody’s assigned a stable outlook to all of the ratings of the three banks, in line with the stable outlook on Lebanon’s debt ratings.

Standard & Poor’s has recently revised downward its outlook on Bank Audi and BLOM Bank’s long-term ratings to ‘negative’ from ‘stable’. It attributed the outlook revision to its earlier similar change of the outlook on Lebanon’s sovereign ratings. The rating didn’t include Byblos Bank.

Reported by Hani Bathiche