Banks facing storms
Deposits in a free fall mainly in fourth quarter
Lending rate cuts follow Central Bank’s interest cap
Three banks downgraded on rising sovereign risk
The banking sector continues to reel under the current challenges. Deposits plunged by $12 billion during the first 11 months of 2019. This is accompanied by cuts in interest rates on deposits that will be applied to lending as well.
Lira deposits plunge $10 billion
Customer deposits at commercial banks decreased by $12 billion, or seven percent, during the first 11 months of 2019. They stood at $161 billion at the end of November. Most of the decline, $10 billion, consisted of deposits denominated in lira, as banks have been imposing tighter restrictions, Governor of the Central Bank (BDL), $4.5 billion of withdrawals carried out between the end of September and the end of November was used for settling loans. Nearly $3 billion was withdrawn as banknotes in dollars and lira. The amount transferred abroad is around $2.67 billion. This amount includes $1.6 billion withdrawn from foreign fiduciary accounts in local banks and one billion dollars transferred abroad from the accounts of bank customers. Non-resident deposits also witnessed a significant decline. They fell by 12 percent over the same period to $33 billion. The only category of deposits that didn’t decrease during the 11-month period was resident deposits in foreign currencies which increased by two percent ($1.8 billion) to $91 billion. Global investment bank Goldman Sachs said in a report released in December: “Sustained net capital outflows in the balance of payments have led to a sharp deterioration in the foreign exchange liquidity position of the monetary sector over the past few years. This has eroded already weakening depositor confidence and necessitated the implementation of de facto capital controls.” According to Goldman Sachs’ report, ‘Is External Default in Lebanon Inevitable’, “The persistence of Lebanon’s fiscal imbalances is adding to depositor and investor concerns regarding the economic outlook and reducing growth prospects. Importantly, we think it is also aggravating external imbalances.”
