In limbo as crisis rages, Lebanese banks remain shut
BEIRUT – 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.
A day after Hariri unveiled a set of measures aimed partly at addressing protester demands, people poured into the streets once again on Tuesday, sustaining the historic wave of dissent against politicians blamed for leading Lebanon into crisis.
A source close to Hariri, who heads a cabinet grouping all Lebanon’s main parties, denied rumours on social media that he was resigning.
The moves he announced on Monday included the symbolic halving of the salaries of ministers and lawmakers, as well as steps toward implementing long-delayed measures vital to fixing the finances of the heavily indebted state.
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. They all requested anonymity given the sensitivity of the situation.
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 whether reforms would restore confidence.
“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 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 the 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.
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.
Lebanon’s banking sector has been a major lender to the government with deposits sent from its diaspora a critical source of financing for the 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.”
(Content & Photos Syndicated Via Reuters)
(Additional reporting by Samia Nakhoul in Beirut and Tom Arnold in London; Editing by Carmel Crimmins and Sonya Hepinstall)