Global Arab Network | Lebanon: Byblos Bank’s Ratings Affirmed

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Lebanon: Byblos Bank’s Ratings Affirmed

Global Arab Network - - Ammar Shikhani

Tuesday, 31 May 2011 00:00

Global Arab Network - Capital Intelligence (CI) announced that it has affirmed Byblos Bank (BB)’s Long-Term and Short-Term Foreign Currency Ratings of ‘B’ and’ B’ respectively. These ratings continue to be set at CI’s sovereign ratings for Lebanon, Global Arab Network reports according to a press statement.
The agency also affirmed the Bank’s Financial Strength Rating (FSR) of ‘BBB-’, reflecting the Bank’s better than peer group loan quality and capital adequacy. The FSR continues to be constrained by sovereign risk factors, including a challenging operating environment and asset concentrations arising from investment in Lebanese government paper and Central Bank CDs. Given the high likelihood of official support in case of need, the Support Level is ‘3’. The Outlook for all the ratings is ‘Stable’.

BB is a well managed institution, implementing a clear business strategy based on sound risk management practices. Through a series of capital injections over the years from supportive shareholders, the Bank has successfully grown its capital base and operations in Lebanon and abroad. While the latter is bringing diversification to risk assets and income streams, the bulk of BB’s assets remain domestic in nature with a significant amount invested in Lebanese government securities and Central Bank CDs. Although these assets together give rise to concentration risks, the exposures are reducing in both absolute and relative terms as the Bank grows its other liquid assets and loans. The quality of the Bank’s already sound credit portfolio improved further on the back of strong economic expansion in Lebanon; BB boasted the lowest non-performing loan (NPL) ratio and best provision coverage among its peers. That said, credit conditions are expected to weaken in the current year as the Lebanese economy slows down noticeably in the face of increased geopolitical risks in the region and a political stalemate in the country.

The rights issue in 2010 strengthened the Bank’s capital adequacy ratio to a level that is better than that of its peers. Net profit and operating profit continued to grow aided by credit expansion and in spite of a lower interest differential. Profitability as measured by the ROAA ratio remained modest in common with its peers. BB’s liquidity is comfortable supported by a deep base of customer deposits. That said, the bulk of liquid assets is composed of Lebanese government securities and Central Bank CDs, a feature typical of Lebanon’s banking sector. The exposure to these assets is some cause for concern when viewed in the context of the government’s large debt burden together with the absence of fiscal reform. In mitigation, Lebanon’s near term refinancing risks have receded reflecting its significantly increased foreign currency reserves.

BB was established in 1959 and has since grown into one of the three largest banks operating in Lebanon’s crowded banking sector. Family members of the founding shareholders, who continue to have a controlling stake in the Bank, sold an 11% share to the IFC in February 2010. BB follows a universal banking model and offers services in commercial and retail banking through one of the largest branch networks in the market. Abroad, the Bank has successful operations in Europe, Syria, Africa and Armenia. BB’s total assets at end 2010 amounted to LBP22,751 billion (USD15 billion) and total capital was LBP2,752 billion (USD1.8 billion).

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