Lebanon relies on remittances from millions of citizens living abroad to prop up its banking system/Bloombergby Kudakwashe Muzoriwa
The Governor of Banque du Liban (BdL) said that the central bank is seeking extra powers to regulate and standardise controls that commercial banks are imposing on depositors to ensure fair relationships between banks and customers.
Lebanese banks have been tightly controlling access to deposits and blocking most transfers abroad to prevent capital flight since October 2019 anti-government protests. However, the government have not introduced formal capital controls regulating commercial banks’ measures.
Riad Salameh, Banque du Liban Governor, said, “We can regulate the transfers and find a procedure to have everyone dealing with the banks on equal grounds.”
Bloomberg reported that allegations about politicians sending funds abroad during the closure of banks in October 2019 have stirred public anger and the central bank governor said that the regulator will investigate the issue.
In a letter to Ali Hassan Khalil, the Lebanese caretaker Finance Minister, Salameh said that implementation of the controls by commercial banks had on several occasions prejudiced the rights of some clients, particularly with respect to the unequal approach with other clients.
Additionally, the Lebanese central bank wants local holders of a $1.2 billion eurobond maturing in March 2020 to swap into new notes as part of an effort to manage its debt crisis.
Salameh said that the BdL is making pre-emptive proposals that are voluntary and dependent on the consent of Lebanese banks. The central bank has not taken any decision yet because Lebanon does not have a government.
The plan would help Lebanon, one of the world’s most indebted countries, as it struggles with its worst economic crisis in decades.
The Treasury should move local holders of the March 2020 eurobond into longer-dated instruments at higher rates, said Salameh, without saying what would happen to foreigners. According to Oxford Economics, foreigners owned around 40 per cent of Lebanon’s Eurobond bond in December 2019 but may have since reduced their exposure.
Beirut-based Byblos Bank said that Salameh told Lebanese bankers that the exchange would pave the way for a similar swap operation with an external fund that is open to execute such transactions.
The central bank helped the government repay nearly $5 billion of dollar bonds. The most recent payment—of $1.5 billion in November—was criticised by some local politicians, who said Lebanon should use its dwindling reserves to buy much-needed imports instead of paying creditors.
Salameh said that the country’s foreign reserves are still at acceptable and comfortable levels, adding that Lebanon needs financial aid from friendly countries or the International Monetary Fund.
Lebanon relies on remittances from millions of citizens living abroad to finance its current-account deficit, prop up the banking system and bolster the pound’s peg to the dollar.