The Association of Banks in Lebanon (ABL) recommended to its member banks to maintain the Beirut Reference Rate (BRR) in US dollars at 4.53% in July 2020. The ABL previously recommended to banks to lower the BRR by 104 basis points on January 3, to cut the rate by an additional 85 basis points on January 16, to reduce the BRR by 175 basis points on February 14, to lower the rate by 100 basis points on April 15, and to cut the BRR by 122 basis points to 4.53% on June 12. The five decisions resulted in a cumulative decline of 586 basis points in the BRR in US dollars so far in 2020. The rate, considered as the reference rate for lending in foreign currency, replaced the London Interbank Offered Rate (LIBOR) in 2009, as the ABL decided that the LIBOR does not reflect the cost of funding and lending in Lebanon.

In addition, the ABL maintained the BRR in Lebanese pounds at 7.75%. The ABL had previously recommended to reduce the rate in Lebanese pounds by 104 basis points on January 3, to lower the rate by 95 basis points on January 16, to cut the rate by 250 basis points on February 14, and to reduce the rate by 125 basis points on April 15. Consequently, the four decisions resulted in a cumulative decline of 574 basis points of the BRR in Lebanese pounds so far in 2020.

In parallel, the ABL asked banks to cap the lending rates at the BRR plus 2% level until the end of 2020, and to start applying the new ceiling in July 2020. It indicated that the decreases in the BRR are consistent with its efforts to stimulate the economic cycle in the current challenging environment. It considers that the BRR does not replace the Beirut Prime Lending Rate in each currency, but constitutes the basis for calculating the prime rate after adding the cost of liquidity and refinancing, credit risk and the profitability of banks.

According to Banque du Liban, the weighted average lending rate in Lebanese pounds was 8.45% in May 2020, down from 9.29% in May 2020 and from 10.75% a year earlier; while the same rate in US dollars was 7.9%, relative to 7.79% in the previous month and to 9.54% in May 2019.

S&P Global Ratings affirmed at 'SD/SD' (Selective Default) Lebanon's long- and short-term foreign currency sovereign credit ratings, and kept at 'CC/C' the country's long- and short-term local currency ratings, with a 'negative' outlook. The foreign-currency sovereign credit ratings of 'SD/SD' are 12 notches below investment grade. The agency also affirmed at 'CC' Lebanon's Transfer & Convertibility Assessment. In addition, it revised from 'SD' to 'D' (Default) the issue ratings on the May 2022, 2023 and 2029 Eurobonds, as well as on the June 2025 bonds, the October 2022 Eurobond, the November 2024, 2026, 2028 and 2035 bonds, and the December 2024 Eurobond, due to missed coupons payments that were due in May and June.  

The agency indicated that the 'negative' outlook on the local currency ratings and on the associated ratings reflect its expectation that the government will likely restructure its local currency debt as part of a broader debt restructuring program.

S&P indicated that, since the Lebanese government announced the suspension of payments on its external debt in March 2020, it has made limited progress in engaging with creditors on debt-restructuring negotiations. As such, it expected the negotiations to extend beyond 2020 in the absence of a comprehensive restructuring plan backed by all major political parties, as well as by external support. It considered that the authorities' challenges are exacerbated by the coronavirus pandemic that has further weighed on the country's already weak economic activity and severe external, fiscal, and financial pressures.

In addition, S&P considered that the peg of the Lebanese pound to the US dollar is "faltering", amid sustained foreign currency shortages and a widening gap between the official and parallel exchange rates. It also said that Banque du Liban's new regulations suggest a move toward a dual or multiple exchange rate regime.

The consolidated balance sheet of commercial banks operating in Lebanon shows that total assets stood at $203.8bn at the end of May 2020, constituting a decrease of 6% from $216.8bn at the end of 2019 and a decline of 19.6% from $253.6bn at end-May 2019. The year-on-year decline in assets is mainly due to the "netting" on the assets and liabilities' sides of the consolidated balance sheet of banks, as part of the implementation of international accounting standard IFRS 7 starting in December 2019.

Loans extended to the private sector reached $42.9bn at the end of May 2020, and regressed by 13.8% from end-2019 and by 23.8% from a year earlier. Loans to the resident private sector totaled $37.7bn, constituting a decrease of 14.7% from the end of 2019 and of 24.2% from end-May 2019. Also, credit to the non-resident private sector reached $5.2bn at the end of May 2020, declining by 6.2% from end-2019 and by 21.2% from a year earlier. In nominal terms, credit to the private sector contracted by $6.9bn in the first five months of 2020 relative to a decrease of $3.1bn in the same period of 2019, as lending to the resident private sector declined by $6.5bn and credit to the non-resident private sector regressed by $343.3m in the covered period. The dollarization rate of private sector loans fell from 69.7% at end-May 2019 to 64.7% at end-May 2020.

In addition, claims on non-resident financial institutions stood at $4.7bn at the end of May 2020 and declined by $2.1bn (-30.3%) from the end of 2019, by $4.4bn (-48.4%) from end-August 2019, and by $4.6bn (-49.3%) from the end of May 2019. Also, deposits at foreign central banks totaled $507.6m, constituting a decrease of 14% from end-2019 and a drop of 45% from end-May 2019. In addition, claims on the public sector reached $24.7bn at end-May 2020, down by $4bn (-13.8%) from end-2019 and by $7.9bn (-24.3%) from the end of May 2019. The banks' holdings of Lebanese Treasury bills stood at $14bn at the end of May 2020, down by $637.2m (-4.4%) from the end of 2019; while their holdings of Lebanese Eurobonds reached $10.5bn at end-May 2020, constituting a decline of $3.3bn (-24%) from end-2019. The average lending rate in Lebanese pounds was 8.45% in May 2020 compared to 10.75% a year earlier, while the same rate in US dollars was 7.9% relative to 9.54% in May 2019. Further, the deposits of commercial banks at BdL totaled $115.7bn at the end of May 2020, down by 1.7% from $117.7bn at the end of 2019 and by 18% from $140.9bn at the end of May 2019, following the netting operation. 

In parallel, private sector deposits totaled $146.3bn at the end of May 2020, and decreased by 8% from the end of 2019 and by 14.4% from end-May 2019. Deposits in Lebanese pounds reached the equivalent of $30bn at end-May 2020, and declined by 21.5% from the end of 2019 and by 39.2% from a year earlier; while deposits in foreign currency stood at $116.4bn, as they regressed by 3.6% from end-2019 and by 4.3% from end-May 2019. Resident deposits totaled $117.2bn at the end of May 2020 and decreased by $9.2bn (-7.3%) from the end of 2019 and by $17.3bn (-13%) from a year earlier. Also, non-resident deposits reached $29.1bn at end-May 2020, as they regressed by $3.4bn (-10.4%) from end-2019 and by $7.2bn (-20%) from the end of May 2019. In nominal terms, private sector deposits declined by $3.8bn in January, by $3.4bn in February, by $2.1bn in March, by $2.1bn in April and by $1.22bn in May 2020. As such, aggregate private sector deposits regressed by $12.6bn in the first five months of 2020 relative to a decrease of $3.4bn in the same period of 2019, with deposits in Lebanese pounds dropping by $8.2bn and foreign-currency deposits declining by $4.36bn. In comparison, private sector deposits declined by $2.2bn in September, by $1.9bn in October, by $5.8bn in November and by $3.7bn in December 2019. As such, aggregate private sector deposits dropped by $26.24bn in the nine-month period ending in May 2020, due largely to the repayment of loans, to the hoarding of cash at households, to deposit outflows, and to the buying of real estate. The dollarization rate of private sector deposits was 79.6% at end-May 2020, up from 76% at the end of 2019, and compared to 71.2% in May 2019.

In parallel, the liabilities of non-resident financial institutions reached $7.8bn at the end of May 2020 and decreased by 11.5% from end-2019. Further, the average deposit rate in Lebanese pounds was 4.63% in May 2020 compared to 8.72% a year earlier, while the same rate in US dollars was 1.99% relative to 5.79% in May 2019. The ratio of private sector loans to deposits in foreign currency stood at 23.8% at the end of May 2020 compared to 32.3% a year earlier. The same ratio in Lebanese pounds reached 50.7% at end-May 2020 relative to 34.7% from a year earlier. As such, the total private sector loans-to-deposits ratio reached 29.3% compared to 33% at end-May 2019. The banks' aggregate capital base stood at $20.3bn at end-May 2020, down by 3.8% from $21.1bn a year earlier.