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| Moody's changes the
outlook on Lebanese bank's financial strength ratings to stable from negative Limassol, March 04, 2006 -- Moody's Investors Service has changed the outlook on the financial strength ratings (FSRs) of the three rated Lebanese Banks' (BLOM Bank, Bank Audi, and Byblos Bank) to stable from negative. All deposit and debt ratings of these banks remain unaffected by this rating action. The negative outlooks have been in place since March 2005, when Moody's downgraded all three banks' FSRs to "D" from "D+" following a sovereign downgrade (to B3 from B2) triggered by political turmoil and the negative impact that this had on both the macro-economic environment and the country's financial system. Moody's notes that as a result of the central bank's (Banque du Liban) effective monetary policy together with the banks' strong core liquidity, the banking system was able to weather the political shock and restore depositors' confidence. In addition, the three banks' robust financial performance in 2005 as well as the additional equity they have recently raised, has alleviated any rating pressure on their FSRs. Although the banks continue to be heavily exposed to a low-rated sovereign through government securities and CDs issued by the central bank, Moody's takes comfort from their increasing efforts to diversify their revenue base outside of Lebanon. All three rated banks appear to have strategies in place to expand their banking operations, mainly in the MENA (Middle East & North Africa) region, which is expected to gradually loosen their interdependent relationship with the Lebanese government. Despite the risks involved, a well-planned and meaningful regional expansion will provide the banks with more investmentopportunities, while at the same time diversifying their income streams away from the risky class of Lebanon-related debt. Moody's also notes that in the meantime the future stability of the Lebanese banking system will continue to rely to a great degree on market and depositors' confidence, which in turn will depend on how the political situation will evolve going forward. Structural and economic reforms combined with a revival of the country's business activity will provide support to the banks' ratings, Moody's concludes.
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