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Lebanon in denial, Part II

Lebanon in denial, Part II

Lebanon seems to think it has successfully avoided the global recession, but it’s not out of the woods yet, Part II.

February 4, 2009 8:55 by

Click here to read Part I.

Leading the pack

Lebanese banks have reported far better results. Despite the admission from both Audi and Blom of losses in Lehman brothers, the collapsed US investment bank, the sector delivered strong results in the first nine months of 2008. Blom’s profits rose 34 percent on the first nine months of 2007, Audi’s rose 30 percent during that time and Byblos’ increased by the same proportion. Audi’s deposits grew by 17 percent, Blom’s by 10 percent and Byblos Bank’s by 11 percent.

While each insists they expect a slowdown in the rest of the year, they’re not as exposed as many international and Arab banks due to the nature of their lending. A loans-to-private-sector-deposits ratio of 33 percent is one of the world’s lowest. The sector is far more dependent on loans to the Lebanese government, which has taken the public debt to more than $45 billion with the help of soft loans from international donors.

The public debt, and the government deficit that fuels it, remain Lebanon’s big vulnerability. “It’s the debt that means we have a credit rating of B-, close to default, something that holds back the whole country,” says one banker.

Lebanon is being monitored by the International Monetary Fund because of a reform program it signed with international donors at the “Paris 3″ conference in January 2007, which was extended during the IMF annual meetings in October. A key component of that program, privatization, is now in question because of the international downturn.

In telecommunications, the projected sale of two cellular licenses is also in jeopardy because of adverse market conditions, and political wrangling in the “national unity” government. Yet Lebanon has a potentially lucrative market, as mobile penetration is just 32 percent compared to 60 percent in Syria and 110 percent in the UAE. But with telecoms shares dropping internationally since August (when Credit Suisse estimated a sell-off could fetch more than $5 billion), many analysts believe the Lebanese government should delay the sale.

Demand for $2.7 billion Lebanese government Eurobonds that are set to enter the market next year is also uncertain – which could increase pressures over servicing the debt.

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