|Lebanese bank deposits fall 2 percent
|Central Bank governor confident of imminent recovery
Deposits of Lebanese commercial banks fell by $1.5 billion following the assassination of former Premier Rafik Hariri, the governor of the Central Bank said on Thursday.
"This 2-percent drop in customer deposits remains reasonable. All indications show that growth in deposits will be back to normal in Lebanon," Salameh told bankers and businessmen at a conference promoting economic recovery in Beirut's recently re-opened Phoenicia Inter-Continental Hotel.
Prior to Hariri's assassination on February 14, total customer deposits in Lebanese banks stood at $59 billion, or three times over the country's Gross Domestic Product.
Salameh added that the psychological shock of the assassination had a negative impact on investor confidence and this was translated into higher rate of dollarization in bank deposits.
The governor said dollar deposits rose from 70 percent to 80 percent of total deposits in Lebanon after the assassination.
"This means that LL9 trillion in Lebanese denominated Lebanese currencies were converted into dollar accounts."
The Central Bank was compelled to intervene heavily in the market to keep the Lebanese pound stable.
Due to this intervention, the Central Bank's gross foreign-currency reserves fell from $11.5 billion to almost $10 billion. But pressure on the pound has eased significantly in the past few weeks as the Central Bank adopted more measures to boost its dollar reserves through the release of a $2 billion, 10-year certificate of deposit issue.
The new dollar denominated CD was quickly snapped up shortly after being issued mainly by local banks and financial institutions.
The issue helped the Central Bank boost its foreign currency reserves as well as encourage investors to increase capital inflows into Lebanon.
Salameh said that the Central Bank has been buying dollars from the local market over the past three weeks.
He added that the formation of Najib Mikati's government relieved the market's concerns.
But Salameh warned that financing the public debt in remains the biggest problem facing Lebanon.
"When confidence in the economy and the country recede, we notice that the demand for local instruments (i.e. treasury bills and Eurobonds) issued by the government declines and this happened," Salameh said.
The Central Bank holds $10 billion of the $36 billion public debt in the form of gross foreign-currency reserves, Salameh said.
"In other words, the total public debt, excluding those held by the Central Bank, is $26 billion," he added.
Salameh said the local market can finance the public debt easily this year thanks to the high rate of liquidity in banks.
"The International Monetary Fund (IMF) has reduced its GDP projection for Lebanon to 3 percent to 4 percent this year due to the situation. But the Central Bank has not made any projections until we wait for an assessment from international organization."
Salameh suggested that the tourist season this summer may not be as good as other previous years which will reflect on the economy in general.
Most hotel owners agree that room bookings from wealthy Gulf Arabs will not be as high as last year although the situation in Lebanon appears to be stabilizing.
Salameh also said that the Central Bank is seriously studying the possibility of rescheduling private sector debt.
He urged commercial banks to keep interest rates on loans to reasonable levels to help the private sector.
The Daily Star