Banks draw fresh dollars to Lebanon with high interest deposits

Bloom Industries

11/07/2019 17:38

BEIRUT, July 11 (Reuters) - Lebanese banks are drawing fresh
dollars to the country by offering high interest rates on large
sums blocked for three years, bank economists said on Thursday,
a move aimed at supporting central bank reserves that have been
in decline.
    The Lebanese banking sector has in recent years conducted
similar operations in coordination with the central bank. The
operations have been dubbed "financial engineering", with the
fresh dollars deposited at the central bank.
    The latest operations began around two weeks ago and
continue.
    "We will see an improvement in deposit growth on one hand,
and an improvement in the foreign currency reserves of the
central bank as a result of those operation," Marwan Barakat,
chief economist and head of research at Bank Audi, said.
    Marwan Mikhael, head of research at Blominvest Bank, said:
"At least it will stabilise the reserves because what we are
passing through is a deterioration of confidence and the main
task of the government now is to be able to restore confidence."
    The International Monetary Fund, in the concluding statement
of a mission visit to Lebanon last week, said deposit inflows to
Lebanon had virtually stopped and the central bank's foreign
reserves had decreased by around $6 billion since early 2018.
    This was despite continued central bank financial operations
and partly due to Eurobond principal and coupon payments made by
the central bank over the same period, it said.
    Nassib Ghobril, chief economist at Byblos Bank, said banks
were offering incentives to large depositors to attract fresh
capital from abroad.
    Banks are offering an annual 14% interest rate on the
deposits, Barakat said. The minimum deposit had initially been
$20 million but was subsequently reduced to $5 million, Barakat
said.
    Mikhael said Blom Bank was offering an interest rate of
13.5% on a minimum investment of $20 million.
    The IMF statement said the central bank should gradually
phase out its financial operations once fiscal adjustment and
the subsequent decline in yields demanded by investors allow it
to do so.
    The Lebanese government, which has one of the world's
heaviest public debt burdens, aims to cut the deficit to 7.6% of
gross domestic product in 2019 from more than 11% last year in a
budget that will be voted on in parliament next week.        

 (Reporting by Tom Perry and Angus McDowall, Editing by William
Maclean)
 ((mailto:thomas.perry@thomsonreuters.com; Reuters Messaging:
rm://thomas.perry.reuters.com@reuters.net))