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The April 2023 issue, closing the first series, examined why Lebanon had never developed a regulated domestic rating industry and what that absence had cost. International agency ratings were too expensive for SMEs and those agencies showed little interest in small, family-owned Lebanese companies; regulation of local agencies, contemplated after the Capital Markets Authority was created, never materialised. Any firm could issue a rating, so SMEs faced a choice between unaffordable credibility and affordable ratings of doubtful value.
The authors linked this gap to a series of consequences: SME access to finance reduced to overdrafts and short-term loans secured on real estate, all companies implicitly capped at the sovereign's Selective Default rating, opaque financial statements deterring local and foreign investors, no corporate bond market, no specialised SME funds and a higher risk of de-risking for importers and exporters. Banks had adopted internal ratings under Basel II and III but, in the authors' view, applied uniform collateral requirements regardless of borrower quality.
The issue explained what a rating is and is not, the business and financial risk framework, and the four-step process of management meeting, rating committee, surveillance and rating changes. It argued that national-scale ratings, which ignore the sovereign ceiling, together with legislation setting CMA licensing criteria and a proportionate minimum report content, were the shortest path to reconnecting SMEs with investors and to making the Electronic Trading Platform work.
Key findings
- The issue held that the absence of a mandatory rating requirement was a major cause of the under-development of Lebanon's debt capital markets.
- Qualitative factors account for more than half of a typical corporate rating analysis, as they drive the financial profile.
- It cited Jordan, where a JICA-led programme established a EUR150 million SME financing fund conditioned on rating reports and supported regulation of local rating agencies.
- The authors argued that the Electronic Trading Platform would not be as active as designed without mandatory ratings and regulated local agencies.
Archive: written in Apr 2023; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.