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Lebanon This Week 627

May 13, 2020

  • Outlook on banking sector revised to 'negative' on elevated economic and fiscal pressures
    Moody's Investors Service revised the outlook on the Lebanese banking sector from 'stable' to 'negative', to reflect the deterioration in economic and financial conditions in the country, as business activity weakens and the economy slides into paralysis following the government's default on its foreign debt obligations in March 2020. As such, it expected the banking sector to face large losses given its elevated exposure to the Lebanese sovereign. Also, it noted that the outbreak of the coronavirus is adding to the challenges that the country is facing at a time when the latter has few resources to provide support to vulnerable businesses and individuals.

    The agency indicated that the outlook revision reflects its expectations of a deterioration in the operating environment and a weakening in the banks' asset quality, capitalization, profitability, funding and liquidity over the next 12 to 18 months. It also projected the level of government support to the banking sector to remain low in the context of the sovereign's commitment to restructure its public debt, as well as mounting fiscal and external headwinds. 
     

  • Remittance inflows to Lebanon up 10% to $5.8bn in first nine months of 2019
    Figures released by Banque du Liban show that the inflows of expatriates' remittances to Lebanon totaled $5.8bn in the first nine months of 2019, constituting an increase of 10.2% from $5.26bn in the same period of 2018, and a rise of 8.3% from $5.36bn in the first nine months of 2017.
     
    Remittance inflows to Lebanon increased by 6.6% year-on-year to $1.91bn in the first quarter of 2019, while they rose by 11.5% annually to $1.97bn in the second quarter, and grew by 12.8% year-on-year to $1.93bn in the third quarter of the year. The figures include workers' remittances and the compensation of employees, according to the World Bank's definition of remittances. Banque du Liban's figures are the only official data on remittance flows to and from Lebanon.
     
    In addition, remittance inflows to Lebanon in the first nine months of 2019 reached their highest level in the first nine months of a year between 2002 and 2019. Remittance inflows to the country averaged $5.4bn during the first nine months of each year between 2009 and 2019.

    In parallel, remittance outflows from Lebanon amounted to $3.48bn in the first nine months of 2019, down by 6.8% from $3.74bn in the same period of 2018, and up by 6.1% from $3.28bn in the first nine months of 2017. Remittance outflows from Lebanon declined by 1.3% year-on-year to $1.2bn in the first quarter of 2019, while they decreased by 4.5% annually to $1.18bn in the second quarter, and dropped by 14.2% year-on-year to $1.1bn in the third quarter of the year. 
     
    As such, net remittance inflows to Lebanon totaled $2.33bn in the first nine months of 2019, constituting a jump of 51.8% from $1.53bn in the same period of 2018, and an increase of 11.8% from $2.1bn in the first nine months of 2017.
     

  • Banque du Liban exempts "fresh funds" from mandatory reserve requirements
    Banque du Liban (BdL) issued Basic Circular 150 on April 9, 2020, about exceptional exemptions for banks from reserve requirements and from mandatory placements at BdL. Specifically, the circular exempted banks from placing mandatory reserves at BdL on transfers received from abroad or on cash deposits in Lebanese pounds and in foreign currency. It pointed out that banks can benefit from these exemptions if they meet two conditions. First, the banks must allow holders of accounts funded through foreign transfers or cash deposits to benefit from all banking services, which include the ability to transfer these funds abroad, to withdraw banknotes, and to access these funds through payment cards in Lebanon or abroad. Second, banks should implement the needed procedures, such as opening a specific account for these funds, so that banks can track the operations related to these funds. 

    Further, the circular indicated that the exemptions and conditions will be valid even if holders of these accounts convert, in part or in full, the funds to any other currency. Also, it noted that, in case the client transfers these funds to another bank operating in Lebanon, the latter bank will benefit from the exemptions instead of the bank that initially had received the funds. 

    In addition, the circular stipulated that the bank that does not abide by these measures will be subject to administrative penalties according to the Code of Money and Credit, and will have to place at BdL an amount equivalent to two times the funds that were exempted from the reserve requirements without benefiting from any interest on this amount. Also, the bank will have to pay a compensation equal to 15% of the fresh funds.  
     

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