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TEXT-S&P revises outlooks on 3 Lebanese banks
May 30, 2012 / 3:27 PM / 6 years ago

TEXT-S&P revises outlooks on 3 Lebanese banks

(The following statement was released by the rating agency)	
    	
Overview	
     -- We revised our outlook on the Republic of Lebanon to negative from 	
stable, and affirmed our 'B/B' sovereign credit rating on May 28, 2012.	
     -- We are therefore revising our outlook on three Lebanese banks--Bank 	
Audi, BankMed, and Blom Bank--to negative from stable.	
     -- At the same time, we are affirming the 'B' long-term ratings on all 	
three banks, and the 'B' short-term ratings on Bank Audi and BankMed.	
     -- The negative outlooks on the three banks closely mirror that on 	
Lebanon, owing to their high exposure to the sovereign.	
	
Rating Action	
On May 30, 2012, Standard & Poor's Ratings Services revised its outlooks on 	
three Lebanese banks--Bank Audi SAL-Audi Saradar Group (Bank Audi), BankMed 	
s.a.l., and Blom Bank sal--to negative from stable. At the same time, we 	
affirmed our 'B' long-term counterparty credit ratings on all three banks, and 	
our 'B' short-term counterparty credit ratings on Bank Audi and BankMed.	
	
Rationale	
The outlook revisions follow the same rating action on the Republic of Lebanon 	
(B/Negative/B; see "Lebanon Outlook To Negative On Increased Risk Of Prolonged 	
Domestic And Regional Instability, 'B/B' Ratings Affirmed," published May 28, 	
2012). 	
	
The outlook revision on the sovereign reflects our view that the security 	
situation in Lebanon may deteriorate in tandem with Syrian developments, 	
threatening government stability in Lebanon, straining already weak public 	
finances, placing deposit levels at risk, and undermining the central bank's 	
ability to maintain its currency peg to the U.S. dollar. 	
	
The rating actions on the three banks mainly reflect our view of the risks 	
inherent to their fragile operating environment. They also reflect our 	
assumption that these banks would not withstand a scenario where Lebanon 	
defaults on its obligations. We also incorporate this assumption into our 	
ratings on these banks, though not into their stand-alone credit profiles 	
(SACP). Consequently, our ratings on the three banks do not exceed that on the 	
sovereign. 	
	
The three banks' exposure to the sovereign compared to their equity has 	
reduced over time, but remains high. As a result, we believe the banks' 	
financial performances are closely linked to Lebanon's solvency. On Dec. 31, 	
2011, the ratio of gross Lebanese government and central bank debt instruments 	
(excluding cash and reserves at central bank) to common shareholder equity 	
stood at about 3.8x (or about 3.3x excluding risk ceded to qualified 	
customers), 4.1x, and 4.8x, respectively, for Bank Audi, BankMed, and Blom 	
Bank.	
Outlook	
The negative outlooks on the three banks mirror that on Lebanon. 	
	
A negative rating action on Lebanon would trigger a similar action on the 	
three banks. The ratings on the three banks could therefore be lowered if 	
domestic or regional security deteriorates to an extent that it adversely 	
affects deposit inflows over an extended period, in turn straining the 	
government's ability to raise and roll over its debt, undermining the 	
economy's ability to fund the large current account deficits and the central 	
bank's ability to maintain the currency peg to the dollar. 	
	
Conversely, we could revise the outlook on the three banks to stable if we 	
revise our outlook on Lebanon to stable. This could occur if there is an 	
improvement in domestic stability, either due to an improvement in regional 	
stability or improved government cohesion and policymaking.	
	
Owing to close links between Lebanese banks' creditworthiness and that of the 	
sovereign, specific factors relating to each of the three banks that would 	
prompt a change in their respective ratings appear limited at this stage. 	
	
	
Related Criteria And Research	
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011	
     -- Banking Industry Country Risk Assessment Methodology And Assumptions, 	
Nov. 9, 2011	
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009	
     -- Lebanon Outlook To Negative On Increased Risk Of Prolonged Domestic 	
And Regional Instability, 'B/B' Ratings Affirmed, May 28, 2012	
     -- BICRA On Lebanon Maintained At Group '8' Following Affirmation Of 	
Sovereign Ratings, Feb. 21, 2012	
	
Ratings List	
Ratings Affirmed; CreditWatch/Outlook Action	
	
                                        To                 From	
Bank Audi SAL-Audi Saradar Group	
 Counterparty Credit Rating             B/Negative/B       B/Stable/B	
 Certificate Of Deposit                 B/B                B/B            	
	
BankMed s.a.l.	
 Counterparty Credit Rating             B/Negative/B       B/Stable/B	
 Senior Unsecured                       B                  B	
 Certificate Of Deposit                 B/B                B/B                 	
	
Blom Bank sal	
 Counterparty Credit Rating             B/Negative/--      B/Stable/--	
 Certificate Of Deposit                 B                  B               	
	
 (Caryn Trokie, New York Ratings Unit)

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