The operating conditions in Lebanon have stabilised but challenges remain.
Moody's Investors Service has announced that the Lebanese banking system is stable, reflecting a modest economic pick-up and continued deposit inflows helping banks to finance the Government and the economy.
Alexios Philippides, a Moody's Assistant Vice President analyst, said, "We forecast a modest rise in real GDP growth to a still weak 2.5 per cent in 2018 and three per cent in 2019 from 1.9 per cent in 2017.”
The growth in GDP will be driven by greater economic policy coordination and our expectation that the government will resume long-delayed public investment projects, negative political developments are impacting the pace of economic reform and depositor confidence are a key risk.
Moody's expects modest domestic credit growth of two to three per cent over the next 12-18 months.
Slow implementation of economic and political reforms—which would also help unlock the $11 billion in concessional loans and grants by the international community in support of Lebanon's capital investment programme, will keep confidence weak and economic activity stagnant, and leave businesses struggling with deteriorating basic infrastructure.
The Banque du Liban's large gross foreign reserves maintains the Lebanese financial systems considerable liquidity buffers to weather a period of slower financial inflows or short-term outflows.
In a statement on their website, Moody's said that it continues to consider the banks' capital buffers to be modest, with sector-wide equity to assets at around nine per cent, in view of their heavy exposure to the sovereign and the challenging operating environment.
Over the outlook period, Moody’s expect banks to post a net income to tangible assets of around one per cent
However, Moody’s noted that renewed political or geopolitical unrest could however derail the reform agenda and damage confidence.
Last month, Reuters reported that, Ali Hassan Khalil, Lebanon’s Finance Minister, said it is important for political forces to be aware that time is not on our or anyone's side, therefore we urgently need to accelerate the formation of a new government
Lebanese political leaders are not forming a new government fast enough and there is no serious headway made on the matter.