JP Morgan highlights Lebanon’s resilience to neighboring conflicts

JP Morgan issued a note on Lebanon in which it indicated that the civil strife in neighboring countries does not seem to have impacted international arrivals through Beirut airport or non-resident deposits.
For instance, while total non-resident deposits have leveled off on the back of regional upheavals, the Syrian crisis does not appear to have led to any notable inflows into the banking system. Consolidated accounts of Lebanese banks operating in Syria show that deposits were down up to 60% year-on-year in the first quarter of 2012 but these deposit outflows have not shifted into the Lebanese banking sector so far. Lebanese banks are also relatively well insulated to this exposure especially following the Central Bank's conservative measures requiring banks to stress test and provision their exposure to Egypt and Syria, as per JP Morgan.
Meanwhile, a combination of higher energy cost bill, a challenging global backdrop, and the intensification of the crisis in neighboring countries has pushed the country’s trade deficit to new highs. Indeed, total exports remained weak despite the fact that most of Lebanon’s trade is channeled through the port and not by land. Also, oil prices are still pushing imports higher and accordingly, the trade deficit has reached US$ 1.3 billion in June 2012, as per JP Morgan.
JP Morgan noted that most indicators do confirm the notable slowdown in economic growth. Against this background, Lebanese sovereign spreads have largely underperformed the region since early June. While regional developments could have affected the country's outlook, this temporary trend was mainly driven by a campaign, later denied by Lebanese officials, calling on international investors to divest their holding in sovereign government bonds which largely explain this underperformance, deemed temporary.
J.P. Morgan, Bank Audi's Group Research Department
7 August