BEIRUT: The aftershocks of the subprime mortgage crisis in the United States have reached Lebanon, with Lebanese financial institutions reporting a drop in liquidity. "The defaults on subprime loans have led to a decrease in the risk appetite of financial institutions and private banks," said Nassib Ghobril, head of economic research and analysis at Byblos Bank.
With less confidence, lending institutions fear extending loans further and have grown more aware of who the funds are lent to, Ghobril told The Daily Star on Monday.
Businesses seeking funds, particularly banks wanting to expand into new markets, are being met by investors with tighter fists. "The investors now demand higher premiums for the loans," Ghobril added.
The tighter financial market comes at a time when Lebanon is expected to finance 12.8 percent of its GDP from external funds in 2008, noted a report in Byblos Bank's Country Risk Weekly Bulletin.
Lebanon, already rated a risky borrower, will have difficulty raising external funds given its credit history, default risk and huge public debt, a recent report by Credit Suisse said.
However, the effects of the US crisis on Lebanon are mostly indirect, said Nagy Rizk, manager of the private-equity Building Block Equity Fund and Initiative. He said he believed that most Lebanese institutions stayed away from risky subprime mortgages.
"If Lebanese institutions were to be directly affected, Solidere and the Sannine project would have been on the receiving end, because they usually have large [amounts] in foreign investments," said Rizk.
With less confidence, lending institutions fear extending loans further and have grown more aware of who the funds are lent to, Ghobril told The Daily Star on Monday.
Businesses seeking funds, particularly banks wanting to expand into new markets, are being met by investors with tighter fists. "The investors now demand higher premiums for the loans," Ghobril added.
The tighter financial market comes at a time when Lebanon is expected to finance 12.8 percent of its GDP from external funds in 2008, noted a report in Byblos Bank's Country Risk Weekly Bulletin.
Lebanon, already rated a risky borrower, will have difficulty raising external funds given its credit history, default risk and huge public debt, a recent report by Credit Suisse said.
However, the effects of the US crisis on Lebanon are mostly indirect, said Nagy Rizk, manager of the private-equity Building Block Equity Fund and Initiative. He said he believed that most Lebanese institutions stayed away from risky subprime mortgages.
"If Lebanese institutions were to be directly affected, Solidere and the Sannine project would have been on the receiving end, because they usually have large [amounts] in foreign investments," said Rizk.
There have been no reports of either venture being affected.
The secondary effects will likely come in the form of tighter liquidity resulting from more careful foreign investors abroad, Rizk added.
"Dubai and Jordan are more prone to be the prime receivers of the financial blow," said Rizk. With their larger markets, they are key players in the world economy, and, in an effort to diversify funds, their businesses are more likely to have foreign investments.
Higher interest rates could also be an indirect effect in Lebanon. "If American interest rates do increase, so will the Lebanese interest rates, because Lebanon is a dollar-based economy," said Fadi Abboud, president of Lebanese Industrialists Association.
As the cost of financing increases, he added, investment opportunities in Lebanon become less attractive and Lebanese goods become more expensive in the Greater Arab Free Trade Area (GAFTA), where most Lebanese goods are sold.
In the financial markets, Lebanon did witness a general decline in the prices of securities as a result of the subprime mortgage crisis, said an investment banker who asked to remain anonymous.
On the global scene, US financial markets have been rocked by the subprime crisis. Companies that heavily invested in hedge funds consisting of subprime mortgages filed for bankruptcy. Also plunging into bankruptcy were several European companies which had invested in these hedge funds.
The secondary effects will likely come in the form of tighter liquidity resulting from more careful foreign investors abroad, Rizk added.
"Dubai and Jordan are more prone to be the prime receivers of the financial blow," said Rizk. With their larger markets, they are key players in the world economy, and, in an effort to diversify funds, their businesses are more likely to have foreign investments.
Higher interest rates could also be an indirect effect in Lebanon. "If American interest rates do increase, so will the Lebanese interest rates, because Lebanon is a dollar-based economy," said Fadi Abboud, president of Lebanese Industrialists Association.
As the cost of financing increases, he added, investment opportunities in Lebanon become less attractive and Lebanese goods become more expensive in the Greater Arab Free Trade Area (GAFTA), where most Lebanese goods are sold.
In the financial markets, Lebanon did witness a general decline in the prices of securities as a result of the subprime mortgage crisis, said an investment banker who asked to remain anonymous.
On the global scene, US financial markets have been rocked by the subprime crisis. Companies that heavily invested in hedge funds consisting of subprime mortgages filed for bankruptcy. Also plunging into bankruptcy were several European companies which had invested in these hedge funds.
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