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French Version

Moody's ratings agency gives Bank of Beirut less-than-encouraging score

'D-' grade in line with those of other players in sector

Lebanon's public debt and political uncertainty have negatively affected the ratings of many leading banks, which hold a big chunk of the government's Treasury bills and Eurobonds. International ratings agency Moody's on Monday assigned a D- to Bank of Beirut, a few months after the agency slapped the same rating on BLOM Bank, Banque Audi and Byblos Bank.

Moody's assigned a D- Bank Financial Strength Rating (BFSR) and a B3/Not-Prime Foreign Currency Deposit Ratings to Bank of Beirut.

"The D- BFSR reflects the bank's moderate franchise in Lebanon within a highly competitive environment, but also its high sovereign exposure, carrying a high level of default risk, a common feature among rated banks in Lebanon," Moody's said.

It added that the BFSR also factors in the bank's relatively high level of problem loans - inherited from previous bank acquisitions - as well as the fragile operating and political environment in Lebanon.

Bank of Beirut chairman Salim Sfeir told The Daily Star on Tuesday that his bank, just like other big banks in Lebanon, was rated according to the country's political situation.

"We need political stability, and without stability the situation will remain the same," Sfeir said.

The assassination of former Prime Minister Rafik Hariri in 2005, the 2006 summer war with Israel and the tense debate over the presidential election have prompted many rating agencies to warn of negative consequences on the banking system if the government fails to carry out economic reforms and settle its debts to the banks.

Sfeir said Bank of Beirut's financial situation was very good, as all its results in past years showed healthy profits.

"We are still making good profits despite the situation in the country, and I expect the net income at the end of 2007 to exceed $41 million, which is at least 10 percent higher than 2006," Sfeir said.

The bank's total assets are estimated at $4.9 billion.

Moody's said that Bank of Beirut exhibited relatively healthy financial metrics, comparable to similar banks in Lebanon, with consistently good profitability levels in recent years.

"The bank maintains a high level of core liquidity through placements with highly rated banks outside Lebanon, constituting a natural hedge to any credit events and unfavorable developments that may occur in the country," Moody's said.

It added that a fully owned UK subsidiary provides some level of geographical diversification to the bank's earning streams and also constitutes the main pillar of a possible expansion in other European countries that have business and economic links with Lebanon.

"In assigning the D- BFSR, Moody's recognizes the bank's aim to further expand in the local market, possibly through an acquisition/merger, further enhancing its franchise and presence in areas where its existing branch network was absent," the rating agency said.

Sfeir said that after acquiring Bank of Beirut and Riyadh seven years ago, the management of Bank of Beirut increased its reserves for all the bad loans it had acquired.

"That bank had a lot of bad debts, but we managed to sell most of the properties owned by this bank and made provisions for the remaining loans," he said.

He added that Bank of Beirut is considering expansion outside Lebanon but refused to give more details.

Beirut 08-11-2007
The Daily Star

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