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12 November 2019

Banque du Liban offers banks dollars, rules out ‘haircut’ on deposits

Lebanon relies on inflows from citizens living abroad to keep its lenders stable and defend the dollar peg, however, capital inflows needed to finance the large current account as well as fiscal deficits have slowed as confidence has dwindled, while, outflows have gathered pace.


Banque du Liban (BdL) Governor said that the central bank has no plans to impose formal restrictions on the movement of money or force depositors to accept losses, but will offer ‘unlimited’ dollars for commercial lenders to finance trade and meet customer demand through weeks of protest, reported Bloomberg.

Riad Salameh, BdL Governor, announced a series of banking measures to ease the sense of crisis and avoid a shortage of goods in the market. Lenders will now accept Lebanese pounds from clients repaying dollar loans, re-evaluate credit facilities cut as the anti-government uprising began as well as cover cheques that bounced as a result and restore credit-card limits.

“Banks will meet and approve and execute these measures immediately because they are important for the Lebanese economy,” said Salameh.

Banks had imposed their own restrictions on the transfer and withdrawal of dollars in order to minimise capital flight after the protests forced them to close for a week. Since reopening, some banks have frozen credit facilities for importers, leaving them unable to settle payments for goods already in transit to Lebanon and causing a public outcry and fears of shortages, among other measures.

Salameh, who’s been at the helm of the central bank since 1997, said lenders could borrow dollars at an interest rate of 20 per cent to ensure that they were able to give depositors ready access to their money—on condition that the funds are not transferred abroad.

The Lebanese central bank governor reassured that deposits are safe, and banks are able to cover them if needed.

Salameh also referred to a recent circular by the central bank, asking lenders to boost capital by 20 per cent next year, adding that the hike in liquidity should help banks work on reducing interest rates.

“This is important to protect the continuity of banks—they have an interest in that—and to preserve the solvency of sectors in Lebanon’s economy,” added Salameh.

Lebanese banks are expected to meet with businesses and traders to help them cover imports and facilitate their loan repayments.

Prime Minister Saad Hariri resigned in the face of public protests last month, but political bickering means no replacement has been named while the caretaker government is unable to take measures needed to pull the economy back from the brink.

Acknowledging talk of officially sanctioned capital controls, the central bank chief said they were not being considered. “The central bank doesn’t have the power to do this and it does not want to. We are a country that lives off transfers and we cannot put Lebanese in a situation where they transfer their money into the country and cannot get it out,” said Salameh.

Calls have mounted for Lebanon to impose formal restrictions on the transfer of dollars abroad in order to defend its dollar peg as the country enters its third week without a prime minister.

Salameh said that some $2 billion had been withdrawn from the banks during the crisis, mostly by panicky depositors storing emergency cash at home. A lack of access to dollars at the banks has forced importers and ordinary people to turn to exchange bureaus creating a parallel exchange rate and pressuring the peg.

The central bank has repeatedly said that Lebanon’s peg of LBP 1,507.5 to greenback was a guarantor of social stability and would be not be compromised to ease the financial crisis. But on the street, it now costs at least LBP 1,800 to buy a single dollar, forcing up prices in a country that relies heavily on imports.

Salameh said the rise of a parallel dollar exchange rate was a natural response to the crisis but the measures announced should help restore some balance.






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