Moody's takes rating actions on four Lebanese banks

Moody's has downgraded to Ba3 from Ba2 the long-term global local currency (GLC) deposit ratings of Bank Audi, BLOM Bank and Byblos Bank. In addition, the outlook on foreign currency deposit ratings of Bank Audi, BLOM Bank, Byblos Bank and Bank of Beirut has been changed to positive from stable. The outlook on Byblos Bank's senior unsecured debt rating has also been changed to positive from stable. Details on the rating actions and their rationale are provided below.

Following systemic support reassessment, three banks' GLC deposit ratings have been downgraded

Today's downgrades of the long-term GLC deposit ratings of Bank Audi, BLOM Bank and Byblos Bank conclude the review that Moody's initiated on these ratings on 27 May 2009, prompted by its reassessment of the Lebanese government's ability to provide support to its banking system. These three institutions' bank financial strength ratings (BFSRs) are unaffected by this action.

Moody's believes that, like most governments, the Lebanese authorities are at least as likely to support their banking system as they are to service their own debt -- a view that has traditionally led to bank ratings benefiting from significant uplift. However, given the co-dependence between the banking sector and government finances in Lebanon and the likelihood that stress in the system would predominantly arise in the event of an inability of the government to service its debt, Moody's believes that greater weight should be attributed to the government's rating as a measure of public support for the country's banks.

Consequently, Lebanon's systemic support indicator is now set at B1, one notch above the government's B2 local currency bond rating (rather than the local currency deposit ceiling).

Moody's assessment of the probability that the authorities would extend support in case of need is unchanged for these three banks: at 'high' for both Bank Audi and BLOM Bank and 'moderate' for Byblos Bank. However, the B1 systemic support indicator is not high enough to provide any uplift to the three banks' GLC deposit ratings from their baseline credit assessments (BCAs), which are Ba3 for each bank (mapping from their D- BFSRs).

Outlook changed to positive on FC deposit ratings

Further to Moody's recent sovereign action to change to positive from stable the outlook on Lebanon's foreign currency deposit and foreign currency debt ceilings, Moody's has today also changed the outlook on the four Lebanese banks' B2 long-term foreign currency (FC) deposit ratings to positive from stable as these ratings remain constrained by the sovereign ceiling.

In addition, the outlook on Byblos Bank's B1 senior unsecured debt rating was also changed to positive from stable (and remains capped by the respective sovereign ceiling). The bank's B1 subordinated debt rating caries a stable outlook as it is currently unconstrained at Lebanon's B1 sovereign debt ceiling.

Despite improvements in Lebanon's operating environment - amelioration of the political situation, solid economic growth in 2009 and brisk growth in customer deposits driving the improved ability of the country's banking system to finance the government's fiscal deficits - banking and government finances remain co-dependent, with sovereign exposures constituting local banks' largest credit concentration. As a result, recent improvements not withstanding, the four Lebanese banks' D- BFSRs (mapping to a BCA of Ba3) remain restricted by their respective large exposures to Lebanese sovereign risk and continue to carry a stable outlook.

Positive pressure on the ratings could develop if the currently more consensual political environment is sustained and if Lebanese banks' risk continues to diversify away from the sovereign - either through the continuation of their regional expansion or domestically.

The four banks' respective national scale ratings (NSRs) are unaffected by this rating action.

Detailed rating changes

The following rating changes were implemented today:

Bank Audi

- BFSR: affirmed at D-; Outlook Stable

- GLC deposit ratings: downgraded to Ba3/NP from Ba2/NP; Outlook Stable

- FC deposit ratings: affirmed at B2/NP (constrained); Outlook changed to Positive from Stable

- NSRs: affirmed at Aa1.lb/LB-1; Outlook: Stable

BLOM Bank

- BFSR: affirmed at D-; Outlook Stable

- GLC deposit ratings: downgraded to Ba3/NP from Ba2/NP; Outlook Stable

- FC deposit ratings: affirmed at B2/NP (constrained); Outlook changed to Positive from Stable

- NSRs: affirmed at Aa1.lb/LB-1; Outlook: Stable

Byblos Bank

- BFSR: affirmed at D-; Outlook Stable

- GLC deposit ratings: downgraded to Ba3/NP from Ba2/NP; Outlook Stable

- FC deposit ratings: affirmed at B2/NP; Outlook changed to Positive from Stable

- Senior unsecured debt rating: affirmed at B1 (constrained); Outlook changed to Positive from Stable

- Subordinated debt rating: affirmed at B1 (unconstrained); Outlook Stable NSRs: affirmed at Aa2.lb/LB-1; Outlook: Stable

Bank of Beirut

- BFSR: affirmed at D-; Outlook Stable

- GLC deposit ratings: affirmed at Ba3/NP; Outlook Stable

- FC deposit ratings: affirmed at B2/NP (constrained); Outlook changed to

Positive from Stable

- NSRs: affirmed at Aa2.lb/LB-1; Outlook: Stable

Moody's previous rating action on Bank Audi, BLOM Bank and Byblos Bank was implemented on 27 May 2009 when the rating agency placed their GLC deposit ratings on review for possible downgrade. Moody's previous action on Bank of Beirut was implemented on 2 April 2009 when the rating agency upgraded the constrained long-term foreign currency deposit rating of the bank subsequent to Moody's upgrade of the Lebanese foreign currency deposit ceiling.

The principal methodologies used in rating Bank Audi, BLOM Bank, Byblos Bank and Bank of Beirut are "Bank Financial Strength Ratings: Global Methodology" and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these banks can also be found in the Rating Methodologies sub-directory on Moody's website.

All four Moody's-rated banks are headquartered in Beirut:

- Bank Audi had total assets of LBP37.2 trillion ($24.3bn) at September 2009.

- BLOM Bank had total assets of LBP30.5 trillion ($20.3bn) at September 2009.

- Byblos Bank had total assets of LBP19.7 trillion ($13.0bn) at September 2009.

- Bank of Beirut had total assets of LBP9.7 trillion ($6.5bn) at September 2009.