BEIRUT: Lebanese bankers said Friday that Lebanon’s sovereign foreign currency downgrade would not have a major impact on the financial sector and financing of the public debt but admitted that the negative rating would further tarnish the country’s image.
The bankers were reacting to Fitch Ratings, which Thursday revised down the sovereign foreign currency long-term credit rating for Lebanon to negative from stable, citing increased political risks, deteriorating public debt dynamics and weak economic growth prospects.
The credit rating was affirmed at B, five notches below investment grade, Fitch said in a statement.
“This is not the first time a rating agency downgraded Lebanon’s sovereign currency rating. Standard & Poor’s and Moody’s did the same thing few months ago, and the prices of eurobonds in the secondary market did not change,” Makram Sader, the secretary-general of the Association of Banks in Lebanon, told The Daily Star.
He added that it was common knowledge that the holders of most of the foreign currency bonds were the Lebanese banks and the Central Bank.
Sader acknowledged the negative outlook would damage the country’s image abroad, but he said not to the extent that investors holding these bonds would abandon these assets.
He added that eventually Fitch would also give the same rating to the Lebanese banks. “It is the same players, same volume and same instruments. In other words, the main players are the Lebanese banks and the Central Bank, and this will not change for the time being,” he explained.
Echoing Sader, Joe Sarrouh, the adviser to the chairman of Fransabank, said rating agencies work in concert.
“Once a rating agency issues a report on a bank or a country, the rest will follow. Nothing has changed in Lebanon since S&P downgraded the foreign currency of Lebanon,” Sarrouh argued.
He said the downgrade would not have a direct impact on Lebanon but would affect the morale and sentiment of investors internally and externally.
Sarrouh emphasized that the holding of foreign currency bonds was far lower than 10 years ago. “Our foreign currency [bonds] held by the Lebanese banks used to be 33 percent of the total debt, and now it stands at 20 to 22 percent only. The World Bank at that time told us that if the foreign debt remained at 33 percent then Lebanon will not face a problem,” he said.
Bankers repeated that they would continue to finance the country’s public debt, or more precisely swap outstanding bonds with new bonds in the same amount.
But bankers insisted that they were not willing to lend the Treasury more than absolutely necessary unless drastic reforms were carried out by the new Cabinet.
Fitch, like S&P and Moody’s, attributed the downgrade to the country’s delicate political conditions.
“The involvement of Hezbollah and Sunni groups in the neighboring Syrian conflict has increased sectarian tensions domestically,” Fitch said, referring to the civil war in Syria in which an estimated 100,000 people have died and millions more have been forced from their homes.
S&P rates Lebanon ‘B-’ with a negative outlook, one notch below Fitch. Moody’s has the nation above Fitch at ‘B1’ with a negative outlook.