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French Version

Salameh says deposits flowing back

'Fifty percent of the sums that left' during war 'have returned'

Half of the deposits that fled Lebanon during the recent war with Israel have returned to Lebanese banks since a cessation of hostilities was declared in mid-August, Central Bank Governor Riad Salameh said on Thursday.

Salameh also said that Lebanon's balance of payments through August of this year recorded a surplus of $1.6 billion, thanks to cash flow from Arab states keen to maintain stability in the country.

Salameh, who made the remarks in talks with representatives of the Association of Banks in Lebanon during their monthly meeting, said that the Central Bank had stopped intervening in the market as demand for the Lebanese pound had begun to outstrip demand for the dollar.

"Fifty percent of the sums that left the banks have returned to the sector and today the demand for the pound is increasing," he said, according to the official minutes of the meeting.

The Central Bank customarily injects dollars into the local market to keep the Lebanese pound stable.

The aim is to keep the exchange rate between LL1,507 and LL1,514 to the dollar.

Customer deposits fell by LL4.65 billion, or $3.1 billion, in July and August of this year due to the panic that struck the country during the Israeli attacks.

But most of these deposits, according to bankers, were transferred to other Lebanese banks abroad. The banks turned in a favorable performance compared with 2004-2005, when customer deposits declined by 0.8 percent due to the impact on the economy of the assassination of former Prime Minister Rafik Hariri.

Bankers in general agree that the panic in the market during the first days of the Israeli war was relatively contained, noting that most of the deposits that left the country were actually transferred to Lebanese branches abroad.

Lebanese banks, with assets of more than $72 billion, are the mainstay of the economy.

The consolidated balance sheets of commercial banks are expected to grow by 7 percent or more at the end of the year despite the short-term effect of the 34 day war.

Salameh said that gross foreign-currency reserves are currently standing at $13 billion, excluding the gold reserve.

The gross foreign-currency reserves during the war fell by $2.5 billion as demand for US dollar increased in the first week of the conflict.

"The Central Bank has been continuously intervening to buy dollars since the cessation of hostilities," Salameh said.

Salameh said the Central Bank had no intention of altering interest rates, having kept them steady throughout the war.

Saudi Arabia and Kuwait have deposited $1 billion and $500 million, respectively, in the Central Bank to beef up foreign currency reserves.

Salameh said that interest rates on the Lebanese pound and treasury bills did not change while the rates of dollar deposits rose slightly due to the small increase in the international markets.

Salameh also announced that a donor conference will be held outside Lebanon before the end of the year.

Lebanon hopes to fetch $3.5 billion in grants and more than $5 billion in soft loans during the international conference.

Beirut 13-10-2006
Osama Habib
The Daily Star

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