Lebanon’s banking sector rated at ‘low-level of potential vulnerability’: Fitch

Lebanon’s banking sector enjoys a low level of potential vulnerability, said Fitch Ratings according to Lebanon This Week, an economic publication of the Byblos Bank Group.“In its semi-annual risk assessment of 114 banking systems in advanced and emerging economies, Fitch Ratings placed Lebanon’s banking sector among 86 banking systems with a ‘low level of potential vulnerability,’ the highest category on Fitch’s Macroprudential Indicator,” Lebanon This Week reported.

The article explained that the MPI identifies the buildup of potential stress in banking systems due to a specific set of circumstances. It said that it aims to highlight potential systemic stress that could materialize up to three years after an early warning is first detected.

“As such, it identifies instances of rapid real credit growth over successive two-year periods, along with growth in real property prices, an appreciation in the real exchange rate or a rise in real equity prices. Its assessment is based on three years of annual data, with a trigger in any of the three years determining a country’s MPI score,” it said.

It added that an MPI score of 1 denotes low potential vulnerability, while a score of 2 reflects moderate vulnerability and a score of 3 denotes a high level of vulnerability to potential systemic stress.

Lebanon This Week reported that Lebanon’s MPI score has been unchanged since October 2013, when Fitch upgraded the country’s score to 1 from a previous score of 2. “As such,Lebanon, along with Angola, Bahrain, Cameroon, Cape Verde, Egypt, Iraq, Israel, Kenya,Kuwait, Morocco, Namibia, Nigeria, Oman, Saudi Arabia, the Seychelles, South Africa,Tunisia, the UAE and Uganda have an MPI score of 1 in the Middle East & Africa region. Other countries in this category include Canada, Denmark, Finland, Germany, Japan and the United States,” it said.

In parallel, the agency indicated that Lebanon’s banking sector was among 15 banking systems that have a Banking System Indicator of “b” according to the report.

It said that the BSI is a measure of intrinsic banking system quality or strength, derived from Fitch’s Viability Ratings for banks. It deliberately excludes potential support from shareholders or governments since the objective is to highlight systemic weakness that might trigger the need for such support. It explained further by saying that the BSI is an asset-weighted average of bank Viability Ratings for at least two-thirds of banks in any banking system, including systemically important unrated banks. “Lebanon came in the ‘b’ category, along with Egypt and Nigeria in the Middle East & Africa region, as well as with Argentina, Armenia, Ecuador and Kazakhstan, among others, worldwide,” it said.

According to the report, Fitch said that 60 percent of banking systems in developed countries have BSIs of “a” and higher. It added that only three banking sectors in developed economies have a BSI of “aa” and only one sector has a BSI of “ccc” or lower. Also, it indicated that the typical level of banking strength in emerging markets is weaker and is distributed evenly across the “bbb,” “bb” and “b” categories. “Lebanon, Argentina, Armenia, Belarus, Cyprus, the Dominican Republic, Ecuador, Egypt, El Salvador, Kazakhstan, Nigeria, Slovenia, Sri Lanka and Vietnam are the only countries with an MPI score of 1 and a BSI Strength of ‘b’,” it said.

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