Lebanon's "B3" credit rating reflects turmoil-Moody's

NEW YORK, May 9 (Reuters) - The takeover of the Muslim half of Beirut by the Iranian-backed Lebanese group Hezbollah on Friday reflects heightened political tensions in the country but is already accounted for in the nation's low credit rating, Moody's Investors Service said.

The credit ratings agency said on Friday that Lebanon's "B3" rating, the lowest possible for governments that are not in default, remains with a stable outlook.

"Given that the government of Lebanon is not in default, Moody's believes that the country's low ratings already encapsulate the risk of severe political turmoil," Tristan Cooper, sovereign ratings analyst at Moody's said in a statement.

Lebanon's government has never defaulted on its debt, despite experiencing many destabilizing political shocks, including a 15-year civil war between 1975 and 1990 and a devastating month-long war between Hezbollah and Israel in 2006, the statement said.

The agency said it recognizes the country's poor state of public finances, however the central bank still has a large stock of foreign currency reserves, $10.8 billion in February, or about 45 percent of gross domestic product. While legally constrained from being sold, central bank gold reserves worth $8.9 billion in February also acts as a source of reassurance.

In addition, Lebanon's domestic banking sector has over the years been tolerant of domestic political turmoil while the government benefits from "committed support of powerful donors that include the US, major EU countries and Saudi Arabia."

Moody's said that while these factors have made the government resistant to political shocks it remains concerned about current developments and is monitoring the situation.

"We would be particularly concerned if political chaos or a change in the composition of the government deterred donor support or altered the government's willingness to service its obligations," Cooper said. (Reporting by Daniel Bases, Editing by Chizu Nomiyama)