According to a new report by Fitch Solutions, the Lebanese financial services industry in 2025 is cautiouslyoptimistic, driven by a post-war reconstruction boost, with GDP growth anticipated at 6.0% following an 18%decline in 2024. The banking sector remains strained due to unresolved structural issues, while the insuranceindustry benefits from increased demand for risk coverage amid reconstruction activities. Asset management islikely to stabilise as overseas investors cautiously return to the market, supported by falling inflation. Activity onthe Beirut Stock Exchange remains limited, hindered by political instability and inadequate corporate governance,although recovery efforts are beginning to show incremental progress. Risks include potential ceasefire violationsand political deadlocks that hinder necessary reforms.  Despite a fragile ceasefire that has raised hopes for economic stability, Lebanon's banking sector remains severely strained. Assets have fallen 58% since 2018, with loans falling 90% owing to currency devaluation and capital constraints. Postwar reconstruction and greater foreign finance may temporarily enhance bank earnings through fees, commissions and import financing, but lending activity is still hampered by unresolved financial sector reforms, US$ 66.7bn in losses and ongoing political deadlocks. Lebanon's presence on the Financial Action Task Force (FATF)'s grey list adds to the sector's challenges, hindering international transactions and undermining confidence. While selective corporate lending has resumed, the lack of structural change, uncertain political conditions and higher security threats cloud the outlook for recovery, keeping credit growth much lower than pre-crisis levels.  Lebanon's banking sector assets are forecast to fall by 2.6% in 2025 before rebounding by 28.8% in 2028, indicating anticipated exchange rate stabilisation and increased investor confidence; however, systemic vulnerabilities remain, with assets accounting for more than 250% of GDP. They forecast client deposits to fall to LBP7,105trn (US$ 79 bn) in 2025, a 10% drop y-o-y, suggesting low depositor confidence and persistent unofficial capital controls.  Deposits are forecast to rebound marginally to LBP5,307trn (US$ 59 bn) by 2028, with a 15.3% annual growth rate led by gradual stabilisation. The loan-to-deposit ratio remains low but improves from 5.46% in 2025 to 9.81% in 2028, reflecting limited lending activity despite a minor recovery. Similarly, the loan-to-asset ratio falls marginally from 4.31% in 2025 to 3.31% in 2028, indicating limited credit availability and a banking industry that relies largely on non-lending operations for revenue as per the report.  Despite significant economic stabilisation following the cease-fire , Lebanon's asset management sector is forecast to confront a tough climate by 2025. The sector's recovery will be hampered by ongoing political uncertainty, unresolved banking sector changes and low investor confidence. While postwar reconstruction efforts and a GDP growth comeback may give some possibilities for asset managers, they are unlikely to outweigh the effects of hyperinflation, currency volatility and constricted capital flows. If international finance is made available it may help institutional investments, but individual investment activity is projected to remain low due to lower purchasing power and increased dangers.  Lebanon's stock market is likely to face major challenges in 2025, despite a GDP improvement following the peace . The market's recovery will be hampered by low investor confidence, tight liquidity and structural economic risks. High inflation and currency volatility will continue to undermine the real value of investments, while the protracted political deadlock and lack of financial reforms impede market stability and expansion. The Beirut Stock Exchange (BSE) may experience modest gains from reconstruction-related operations and potential international funding, but these are unlikely to result in large increases in trading volumes or prices according to Fitch Solutions. (ICE BEIRUT)

Fonte notizia: Bank Audi, Lebanon Weekly Monitor, 20 - 26 Jan 2025