Financial inflows to Lebanon in 2017 could jump by 20 percent thanks to the positive political and economic conditions, Bank Audi said Wednesday.
“The improvement in Lebanon’s politico-economic conditions could generate no less than a 20 percent rise in financial inflows in 2017, following the noticeable double-digit growth that was reported in 2016 and that was driven by the financial engineering operations of the Central Bank. A net surplus in the balance of payments would be realized for the second year in a row after the five-year cumulative deficits that were realized between 2010 and 2015,” Bank said in a report on the performance of the fixed income market in Lebanon.
Lebanon counts heavily on capital and financial inflows to inject new cash into the market as well as achieve a surplus in the balance of payments. Most of these inflows are in the form remittances from Lebanese expatriates in Arab Gulf states and Africa.
The report also projected a growth in the money supply in 2017.
“In parallel, we project a 7 percent growth in Money Supply for the year, driven both by domestic money creation and the positive change in net foreign assets. This moderate money supply growth is likely to yield a deposit growth of close to $10 billion in 2017 (15 percent more than the average of the past three years), with total banking sector deposits exceeding the threshold of $170 billion,” Audi said.
This expected rise in both financial inflows and would also increase loans to the private sector, according to the report.
“At the uses level, bank loans to the private sector are likely to benefit from rising financing needs in a faster growth economy. We forecast a circa $4 billion growth in bank lending to the private sector (25 percent more than the average of the past 3 years), driven by growing lending opportunities to finance new projects, corporate expansion and working capital,” Audi said.
It stressed that the expected rise in deposit growth and liquidity may provide some support for the eurobond market in Lebanon.
“The current year started with a sound reflection of an improving domestic financial environment. Bank deposits grew by $1.4 billion over the first two months of 2017 (against a net decline over the same period of 2016).
Such deposit growth is in line with our annual projection for 2017 ($10 billion), mainly accounted for by FX deposits. It is enough to ensure a healthy demand for Lebanese eurobonds, especially that the Lebanese banks FX sovereign exposure has declined recently in both absolute and relative terms,” the report said.
Audi noted that although the foreign currency liquidity held by commercial banks fell to $8.5 billion in August 2016 due to the Central Bank’s financial engineering, it is expected that FX primary liquidity in foreign banks to reach $11.7 billion in 2017.
But Audi warned of looming risks to the economy if the spillover effects of the war in Syria continued and the tension between Israel and Hezbollah degenerated into an open war.
“Still, we believe strengths and opportunities outpace threats and challenges, with risks tilted to the upside,” the report said.
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