Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Byblos Bank SAL’s (Byblos) Financial Strength Rating (FSR) at ‘BBB-’. The ratings are supported by the Bank’s improved asset quality, sound capital adequacy, comfortable liquidity and good domestic franchise.
Exposure to Lebanon sovereign and country risk, as well as slow economic growth remain constraining factors. The continued fall in profitability, primarily the result of a declining net interest margin (NIM), together with translation losses and high dividend payouts have kept common equity capital flat for the past three years. Although the Outlook on the FSR remains ‘Stable’, should the foregoing trend in profitability persist it could lead to a downward adjustment in the FSR in the next review.
The Bank’s Long and Short-Term Foreign Currency (FC) Ratings are both affirmed at ‘B’, with a ‘Stable’ Outlook, constrained by the Sovereign Ratings of Lebanon. Given Byblos’ systemic importance and Banque du Liban’s (BdL) record of assisting banks, the Support Level is affirmed at ’3′, reflecting the high likelihood of official support in case of need. Loan asset quality improved and stands at a relatively good level, as the rate of increase in non-performing loans (NPLs) has reduced significantly and loss reserves have been raised to almost full coverage through sustained provisioning.
Byblos has a structurally low NIM, which partly reflects a higher share of local currency business and lower interest rate mismatching. Despite higher asset growth and good control of operating costs, declining yields on investments and loans led to a further decrease in net interest income and lower operating and net profit – a trend likely to continue in the current year.
Given the strength of its franchise, Byblos increased its customer deposits at a moderately high rate in 2013, despite strong competition. The Bank enjoys good access to capital markets and this has allowed it to diversify its sources of funding to a greater extent than most Lebanese banks. Byblos’ liquidity remains comfortable. However, as is the case with other Lebanese banks, liquidity must be viewed in the light of the systemic liquidity and interest rate risks which are characteristic of the Lebanese banking system. Lebanon’s sovereign debt metrics continued to weaken, although they remain partly mitigated by the country’s external liquidity which remains robust. The security situation in Lebanon has improved since the new Government was appointed in February 2014. However, any political risk event in the region threatening stability within Lebanon could adversely affect banking system deposit growth and the refinancing of public sector debt.
With end 2013 total assets of $18.5 billion, Byblos is the third largest Lebanese bank. The Bank’s shareholder base comprises members of the Bassil family which established the Bank in 1979 and other prominent Lebanese entrepreneurs, as well as the International Finance Corporation (IFC) and other international shareholders. Byblos follows a universal banking model offering services in commercial and retail banking through one of the largest branch networks in Lebanon and operations in 11 locations abroad which include Cyprus, Belgium, the UK, France, Syria, Sudan, Iraq, the Democratic Republic of Congo and Armenia.
Senior Credit Analyst
Tel: +357 2534 2300