LEBANON: Moody's Investors Service maintained a stable outlook for Lebanese banks on expectations of higher deposit inflows and improved economic growth, but said there are risks from negative political developments.
Lebanon's newly-formed government will provide some respite from months of investor uncertainty, the credit rating agency said in a report on Thursday. However, the incoming government will need to implement significant reforms to ensure its fiscal deficit is sustainable in the long term and to rebuild confidence, Moody's said in a March 21 report, report agencies."We believe that despite a recent slowdown in deposit growth, inflows will be sufficient to allow banks to finance the government and the economy, provided that the new government implements reforms to bolster confidence," said Alexios Philippides, an analyst at Moody’s.
In January, Lebanon's new cabinet pledged to reduce the budget deficit, improve tax collection and fix the country's electricity network. The world's third most indebted country is struggling to control public finances as a result of ballooning public debt, anaemic economic growth and the strain from hosting more than a million Syrian refugees. Lebanon, which has a debt to gross domestic product ratio of around 150 per cent, formed a government in January, after nine months of political wrangling following the May parliamentary elections.
Lebanon’s ability to pay its bondholders, should there be a liquidity crunch, prompted Moody’s Investors Service to downgrade its rating further into junk category in January. S&P Global Ratings revised this month the outlook on Lebanon to negative from stable, amid worries about its ability to pay its foreign debt.
Operating conditions for banks will remain "challenging" in the transition period over the next 12 to 18 months and will depend on the government's ability to implement long-awaited fiscal reforms, Moody's said.