* Crisis will not prevent c.bank’s policy of stability
* Leading banker says prolonged crisis would hurt economy
(Adds S&P, Moody’s ratings)
By Mariam Karouny
BEIRUT, Jan 18 (Reuters) - Lebanon’s Central Bank remains committed to exchange rate and interest rate stability and will provide the banking sector with any necessary liquidity, a Central Bank statement said on Tuesday.
It quoted governor Riad Salameh as telling bankers that “the current conditions will not stand in the way of the Central Bank’s commitment to stability of the exchange rate and interest rates.”
He was speaking in a regular monthly meeting with bankers which coincided with a political crisis in Lebanon following the collapse of the government last week.
Joseph Torbey, chairman of the Association of Banks in Lebanon, said the “banking sector is capable of containing ... and overcoming the situation, wishing that the crisis is not prolonged as it would have a negative impact on the economy,” the statement said.
Ratings agency Standard & Poor’s downgraded Lebanon’s outlook to stable from positive on Tuesday, saying prospects of economic reform had been damaged by the government’s collapse. [ID:nLDE70H17L]
Nassib Ghobril, senior analyst at Byblos Bank, said reform efforts by the government of Prime Minister Saad al-Hariri had already been hobbled by political divisions before it collapsed.
“Now we have to be realistic and not expect any sort of fundamental reforms in the near future, as political priorities will prevail in the foreseeable future at the expense of fiscal, economic and financial reforms,” Ghobril said.
Moody’s said on Monday that the collapse of the government has called into question Lebanon’s 2011 economic growth forecast of 5 percent and capital flight remains a “significant risk”.
Analyst Stathis Kyriakides said there was a potential for slower growth even if the current political crisis does not deteriorate into factional clashes.
Lebanon’s biggest banks, Bank Audi (AUDI.BY), Blom Bank (BLOM.BY), and Byblos Bank (BYB.BY), had relatively high exposure to sectors which could be affected by slower growth including retail lending, tourism, construction and real estate.
Political stalemate was likely to hit profitability by encouraging banks to place more funds in U.S. dollar accounts with lower interest rates compared to the Lebanese pound LBP=, Moody's said.
And protracted market uncertainty could also lead to a widening of yields on Lebanese government securities “which ... constitute around one-quarter of banking system assets,” Kyriakides said.
But the central bank’s high foreign currency reserves, which amount to around $31 billion, provide significant defence of Lebanon’s exchange rate, which is set between 1,501 and 1,514 pounds to the U.S. dollar. (Additional reporting by Dominic Evans; Editing by Ron Askew)