Economic Research | Lebanon This Week | Lebanon This Week 627 | Outlook on banking sector revised to 'negative' on elevated economic and fiscal pressures | Lebanon | Byblos Bank

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Byblos Bank

Lebanon This Week 627

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Outlook on banking sector revised to 'negative' on elevated economic and fiscal pressures

Moody's Investors Service revised the outlook on the Lebanese banking sector from 'stable' to 'negative', to reflect the deterioration in economic and financial conditions in the country, as business activity weakens and the economy slides into paralysis following the government's default on its foreign debt obligations in March 2020. As such, it expected the banking sector to face large losses given its elevated exposure to the Lebanese sovereign. Also, it noted that the outbreak of the coronavirus is adding to the challenges that the country is facing at a time when the latter has few resources to provide support to vulnerable businesses and individuals.

The agency indicated that the outlook revision reflects its expectations of a deterioration in the operating environment and a weakening in the banks' asset quality, capitalization, profitability, funding and liquidity over the next 12 to 18 months. It also projected the level of government support to the banking sector to remain low in the context of the sovereign's commitment to restructure its public debt, as well as mounting fiscal and external headwinds. 
 
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