LONDON (Standard & Poor's) July 26, 2006--Standard & Poor's Ratings Services said today that the pledge of $1.5 billion made by Saudi King Abdullah yesterday to the Republic of Lebanon (B-/Watch Neg/C) signals the Kingdom's continued commitment to Lebanese economic and political stability, and assists the country's near-term rating prospects. The sovereign credit ratings on Lebanon were placed on CreditWatch with negative implications on July 13, 2006, due to the economic and fiscal impact of the current conflict. Of the Saudi pledge, $500 million will go toward the cost of restoring Lebanon's devastated infrastructure, helping to ease the immediate fiscal impact of the fighting.

More importantly, however, King Abdullah committed a further $1 billion to be deposited with the Banque du Liban, the central bank. This signals the Kingdom of Saudi Arabia's (A+/Stable/A-1) solidarity with Lebanon, and its willingness to act as a quasi-lender of last resort to the Lebanese economy and banking system, providing foreign currency liquidity at a time of pressure on the Lebanese pound. In this regard, depositors have been converting Lebanese pound deposits into U.S. dollars, or withdrawing funds from Lebanon altogether (albeit reportedly on a smaller scale than in the immediate aftermath of the assassination of former prime minister Rafik Hariri in February 2005). Although the demand for U.S. dollars has been comfortably met by the central bank, which had accumulated reserves of $12.9 billion prior to the current crisis, the additional $1 billion pledged by the Saudi government will help to bolster depositor confidence in the Lebanese banking system.