BEIRUT: Most Lebanese bankers reacted cautiously to Moody’s downgrading of the banking outlook from stable to negative, stressing that the deteriorating situation in Syria will not have a major impact on the overall performance of these banks.

Most bankers admit that Lebanese banks in Syria did see a significant drop in assets and deposits since the crisis erupted there, but they insist in the meantime that banks are highly regulated and can withstand any unforeseen crisis in the future.

“Lebanon’s economy and banking sector is classified negatively this year and this classification was due to the unfolding developments in the Arab countries and Syria in particular. We have high liquidity but the situation may turn worse next year, especially as the financial penalties on Syria will affect Lebanon directly,” François Bassil, chairman of Byblos Bank, told Voice of Lebanon radio station.

Other bankers say that despite the short- and medium-term effects of the Syrian crisis on Lebanon, the banks are still witnessing growth in deposits and assets although this growth is not as high as last year’s.

But some bankers say privately that their banks in Syria have provided billions of dollars in loans to the private sector in the neighboring state although the ratio of default so far was not too alarming.

Central Bank Governor Riad Salameh said earlier that the regulatory authorities have taken measures to mitigate the negative effects on the Lebanese banking sector.

Salameh said funds from neighboring Syria haven’t been transferred to Lebanese banks and that the banks are capable of abiding by sanctions targeting Syrian assets, Al-Arabiya television reported.

Neither the Central Bank nor the government of Syria has funds in Lebanese banks, Salameh told the Dubai-based channel, reiterating remarks he made in October.

On Nov. 27, the Arab League issued sanctions against Syria amid growing economic and political pressure for President Bashar Assad to end a nine-month crackdown on protesters.

The Arab bloc’s unprecedented measures, which follow U.S. and European sanctions, halt dealings with the Syrian central bank and ban financial transactions and trade with the government, excluding basic commodities.

Moody’s said: “The key drivers of credit risk within this system are (i) slower economic growth, following a sharp GDP deceleration in H1 2011; (ii) downside economic risks due to regional political uncertainty, particularly in Syria; and (iii) the banks’ asset and loan exposures to other regional countries experiencing political unrest and/or economic slowdown.”

The rating agency expects the banks’ profitability to come under pressure over the outlook horizon, as subdued business activity will likely cause a slowdown in credit growth and fee-generating income. Combined with historically low interest rates and potential upward pressure on funding costs, Moody’s expects the slowdown to exert pressure on banks’ pre-provision income. Provisioning charges are likely to rise at least into H1 2012, further suppressing net income.