Fitch cuts two Lebanese banks

Fitch Ratings said it downgraded Bank Audi SAL’s and Byblos Bank SAL’s long-term issuer default ratings to RD from CCC-. Fitch also downgraded the banks’ viability ratings to f from ccc- and removed them from rating watch negative.

“The rating action follows recently adopted measures by the Banque du Liban (BdL; Lebanese central bank), which introduced certain restrictions for banks’ operations in foreign currency (FC), including for payments on customer deposits. These measures indicate increasing funding and currency stress in the country and are undertaken by BDL to limit pressures on the country’s currency reserves and banking sector,” said Fitch in a press release.

The downgrade of both banks mirrors the regulatory intervention into banking-sector deposits, which hinders the banks’ ability from servicing their contractual obligations in foreign currency in full compliance with their original terms. The new measures, which require banks to pay in local currency half of the interest due on their foreign currency customer deposits represent a material reduction in terms compared with the original contractual terms of banks’ financial obligations and meet the agency’s definition of a restricted default, the agency said.

“To limit the ongoing deposit withdrawals, the Lebanese banks association set U.S. dollar cash withdrawal limit of $1,000/week with some banks applying tighter limits due to increasing FC-liquidity pressures,” Fitch said.

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