In limbo as crisis rages, Lebanese banks remain shut (updated)

Bloom Industries

22/10/2019 18:40

* Banks closed since protests erupted
    * Hariri govt announced emergency reforms
    * Bankers say branches will stay shut amid uncertainty

 (Recasts with ongoing closure of banks, quotes from bankers)
    By Ellen Francis and Tom Perry
    BEIRUT, Oct 22 (Reuters) - Lebanon's banks will remain
closed for a fifth working day amid uncertainty over how Prime
Minister Saad al-Hariri plans to extract billions of dollars
from the financial sector to help ease an economic crisis that
has ignited national protests.
    Under pressure to convince foreign donors he can slash next
year's budget deficit, Hariri has said the central bank and
commercial banks would contribute 5.1 trillion Lebanese pounds
($3.4 billion) to help plug the gap, including through an
increase in taxes on bank profits.
    Five bankers interviewed by Reuters said details of the
measures had not been explained to them and they were awaiting
the return of central bank governor Riad Salameh from
Washington, where he has been attending IMF and World Bank
meetings, to shed light.
    Lebanese government officials could not immediately be
reached for comment.
    In the meantime, banks will remain shut on Wednesday,
"waiting for the general situation to stabilise in the country",
the Association of Banks in Lebanon (AbL) said in a statement on
Tuesday.
    It did not say when the lenders might reopen and did not
respond to a request for further comment.
    Four of the bankers said it made sense to keep branches
closed while there was concern among savers about the situation
and whether reforms would restore confidence.  
    They all requested anonymity given the sensitivity of the
situation.
    "All the banks are saying the same thing to each other. So
we are thinking we need to postpone (reopening) until we take
measures, all of us. We are waiting for the governor to say what
we have to do," one of the bankers said.
    A central bank source said the shuttering was a practical
response to street protests. Roadblocks have made it difficult
for bank employees to get to work, the source said.
    Analysts at Bank Audi said the government's plans would
involve the central bank contributing 4.5 trillion Lebanese
pounds ($2.99 billion) to halve Lebanon's debt servicing costs
and the imposition of an exceptional income tax for one year on
Lebanese banks to raise a further 600 billion.
    Other emergency measures, including long-delayed reforms to
fight corruption and waste, have so far failed to revive
investor confidence seen as critical to steering Lebanon away
from a financial meltdown. Lebanese bonds slumped on Monday.
    In a statement on Tuesday, the French government urged
Beirut to carry out reforms, which are key to unlocking some $11
billion in financing pledged by France and other countries and
lending institutions last year.
    "France stands alongside Lebanon. It is in this perspective
that we are committed, with our international partners, to the
rapid implementation of the decisions taken at the CEDRE
conference in Paris in April 2018."
    A second banker said foreign states should now help with
moves to support Lebanon. "You need a stability plan from the
international community to answer the fear of the people to be
able to stabilise the situation," he said.
    Lebanon has been swept by days of protests against a
political elite blamed for leading the country into an economic
crisis that is entwined with strains in the financial system not
seen since the 1975-90 civil war.
    Hariri's senior adviser Nadim Munla said he expects foreign
donors to react positively to the reforms, which he said show
Lebanon was serious about cutting its budget
deficit. urn:newsml:reuters.com:*:nL5N2772WM
    Lebanon's banking sector has been a major lender to the
government with deposits sent into the country from its diaspora
a critical source of financing for the heavily indebted state
and the import-dependent economy.
    But capital inflows have been slowing for a number of years.
This strain has surfaced in the real economy of late where
dollars have been harder to obtain at the official exchange rate
and the Lebanese pound has weakened on a parallel market.
    Banks voiced criticism earlier this year when the government
raised the tax on interest as part of efforts to reduce the
deficit in the 2019 deficit.
    Garbis Iradian, chief MENA economist, Institute of
International Finance, said "most of the adjustment burden is
falling on the banking system in Lebanon".
    "The banks may cope but their profitability, if any, will be
adversely impacted. I think the banks are overburdened with
taxes and they're the ones who are contributing the most to the
increase in tax revenues."

($1 = 1,505.7000 Lebanese pounds)

 (Additional reporting by Samia Nakhoul in Beirut and Tom Arnold
in London
Editing by Carmel Crimmins)
 ((thomas.perry@thomsonreuters.com; Reuters Messaging:
thomas.perry.reuters.com@reuters.net))