Moody's downgrades Lebanon banking outlook

International Credit Rating Agency Moody’s International Credit Rating Agency Moody’s on Tuesday downgraded the outlook on Lebanon's banking system to negative from stable, due to slow economic growth and the banks' asset and loan exposures to other regional countries experiencing political unrest or economic slowdowns.
Moody's said in its statement "although non-performing loans improved during 2006-10, it is now more likely that this trend will reverse. In addition to the weakened domestic operating environment conditions, the banks, predominantly the larger ones, have material exposures to countries undergoing political transition or experiencing political unrest, particularly Syria and Egypt."
The credit rating agency added that it expected the banks' profitability to come under pressure in the future as business activity eases causing a slowdown in credit growth and fee-generating income, while the Lebanese banking system remained highly exposed to Lebanon's sovereign debt, estimated at more than $50 billion.
Mitigating some of the downside risks, Moody's said, is the banking system's liquidity buffers and resilient depositor base.
It said the deposits are supported by the influx of remittances, which in 2010 accounted for 22 per cent of GDP.
Remittances "have historically proven to be resilient even though the risk of capital flight increases during periods of political unrest," Moody's said.