BEIRUT: The Lebanese capital market and bank activity Tuesday did not see any dramatic change despite the tense political atmosphere in the country.

Most Lebanese banks told The Daily Star the conversion from Lebanese pound to U.S. dollar accounts was not very alarming.

A branch of BLOM bank in Beirut told the paper only three depositors converted their accounts from Lebanese pound to U.S. dollars over the past week.

But these bankers cautioned that the picture may change completely if the political tension degenerated into an open armed conflict between Hizbullah and other Sunni groups.

“So far depositors are not panicking or withdrawing their money. But we hope politicians come to their senses and cast aside their differences for the sake of all,” one banker told the paper on condition of anonymity.

The BLOM stock index fell only to 1,479.51 points Tuesday from 1, 488.25 points Monday, a drop of 0.59 percent.

Brokers agree that political sentiment is one of the main reasons which cause the drop in prices of shares on Beirut Stock Exchange.

They added that the real estate giant Solidere and nearly all the listed banks recorded handsome profits in 2010.

Bankers and investors confidently say they prefer to see caretaker Prime Minister Saad Hariri to be reappointed as the new prime minister because this move would relax the market and boost the confidence of the United States and European countries.

However, these bankers believe that even if the opposition managed to form a cabinet, this government will be compelled to maintain the same monetary police which was adopted by Central Bank Governor Riad Salameh.

Salameh made a series of statements Tuesday to allay the fears of depositors and investors that the country can weather any crisis.

However, Salameh warned against any security escalation as this could affect economic growth in 2011.

Salameh told the Association of Banks in Lebanon that the Central Bank remains committed to exchange rate and interest rate stability and will provide the banking sector with any necessary liquidity.

A statement quoted Salameh as saying that “the current conditions will not stand in the way of the Central Bank’s commitment to stability of the exchange rate and interest rates.”

Joseph Torbey, chairman of A.B.L., said in a statement the “banking sector is capable of containing … and overcoming the situation, wishing that the crisis is not prolonged as it would have a negative impact on the economy.”

Ratings agency Standard & Poor's downgraded Lebanon’s outlook to stable from positive Tuesday, saying prospects of economic reform had been damaged by the government’s collapse.

Nassib Ghobril, senior analyst at Byblos Bank, said reform efforts by the government of Prime Minister Saad Hariri had already been hobbled by political divisions before it collapsed.

“Now we have to be realistic and not expect any sort of fundamental reforms in the near future, as political priorities will prevail in the foreseeable future at the expense of fiscal, economic and financial reforms,” Ghobril added.

Many rating agencies have commended the ability of Lebanese banks to maintain high profits and at the same time to keep high liquidity. But most of these agencies and international financial institutions warn Lebanese banks are highly exposed to the public debt because they hold a big chunk of the government’s treasury bills and Eurobonds.

Lebanon’s biggest banks, Bank Audi, Blom Bank and Byblos Bank, had relatively high exposure to sectors which could be affected by slower growth including retail lending, tourism, construction and real estate.

Political stalemate was likely to hit profitability by encouraging banks to place more funds in U.S. dollar accounts with lower interest rates compared to the Lebanese pound, Moody’s said.

And protracted market uncertainty could also lead to a widening of yields on Lebanese government securities “which … constitute around one-quarter of banking system assets,” Kyriakides said.

But the Central Bank’s high foreign- currency reserves, which amount to around $31 billion, provide significant defense of Lebanon’s exchange rate, which is set between 1,501 and 1,514 pounds to the U.S. dollar.

The other biggest challenge still facing the country is the size of the public debt which remains too high compared to the country’s G.D.P.