Less than 1 percent of depositors control 50 percent of all customer deposits in Lebanese banks, the IMF said this week. “For the domestic banking system at end-2015, it is estimated that 16,000 accounts (less than 1 percent of all deposit accounts) held 50 percent of total deposits, while 1,600 accounts (less than 0.1 percent of all accounts) held 20 percent of total deposits,” the report from the International Monetary Fund said.
“Classified by bucket sizes, 84.6 percent of total deposits are in accounts with balances greater than $100,000, 50.2 percent in accounts with balances greater than $1 million, and 3.7 percent of deposits in accounts with balances greater than $100 million. The concentration is higher in foreign currency than [Lebanese pound] accounts,” the report said.
It is estimated that there are over 1 million depositors in Lebanon.
Lebanon’s banking sector is seen as the backbone of the country’s economy and the assets held by the lenders are more three times the size of economy.
A financial source told The Daily Star the Central Bank had not disclosed the concentration of deposits in Lebanon for nearly eight years.
The IMF document, which reported the results of the group’s yearly “Article IV” consultations with the Central Bank, Finance Ministry and other government bodies, did not disclose the names of big depositors or their nationalities.
Lebanon is one of the few countries with strict banking secrecy, and for this reason it is nearly impossible to identify depositors and the amount of cash they have in banks.
Banks can only lift secrecy at the request of the Special Investigation Commission on accounts suspected of involvement of money laundering or terrorism financing.
Lebanese banks have lifted secrecy for dozens of accounts over the past few years in response to requests from authorities keen to illegal financial activities in the country.
The concentration of deposits in fewer accounts has grown in recent years, the IMF noted.
“Between end-2008 and end-2015, deposits in ‘smaller accounts’ (less than $1 million) have grown by 55 percent, whereas deposits in ‘large accounts’ (more than $1 million) have grown by 185 percent,” the report said. “Much of the slowdown in deposit growth in 2015 can be attributed to large depositors. While, in recent years, accounts with balances greater than $1 million had grown by about 12-14 percent per year, in 2015, their growth rate declined to about 5.8 percent, driving much of the decline in deposit growth observed in 2015.” The fund also took note of last year’s financial engineering operation, saying that the Central Bank had managed to beef up its foreign currency reserves, but had also brought excess liquidity in Lebanese pounds to banks.
“As of mid-October, the operation had resulted in sizable liquidity (equivalent to a third of GDP, some of which is being mopped up and already been invested in newly-issued LL T-Bills). The BdL has taken various steps to reduce this liquidity further, and thus mitigate possible dollarization risks: (i) it is issuing long-maturity term deposits (of five years or more) at rates slightly below the prevailing LL rates, provided that participating banks subscribe 14 percent of any placement with the BdL in five-year, 5-percent government bonds; and (ii) it has asked banks to extend additional LL lending (though in the current economic climate, asset quality may be affected in the future),” the IMF said, using the Central Bank’s French initialism.
At the same time the operation dramatically increased banks’ portfolios in Lebanese currency, it also shrunk the amount of dollars they hold.
“Lower FX liquidity has led to increased FX deposit rates, narrowing the spread between LL and FX deposit rates and reducing the attractiveness of LL deposits. Moreover, since the incentives offered by banks to depositors focused on giving them one-off upfront income (instead of higher interest rates), prospects for keeping the new inflows in the system remain uncertain,” it warned.
The IMF praised the role of BdL and the banks in maintaining the financial stability of the country, thanks to the financing of the public debt and local economy. But it cautioned the Lebanese government not to assume that local banks will continue to finance the public debt indefinitely.
“Deposit inflows could decelerate further. The willingness and ability of depositors to fund Lebanon cannot be taken for granted, especially with the prospect of tighter regional and global financial conditions, and in light of shifting geopolitical tensions. The concentration of deposits, short-term maturity structure, and share of nonresident depositors in the Lebanese banking system all add to Lebanon’s vulnerability,” the fund warned.
“Growth could weaken further. Lower growth would compound Lebanon’s adverse debt dynamics and imbalances, and ultimately impair banks’ asset quality. Fiscal imbalances could widen. Increased spending pressure, or continued inertia, would increase public debt, possibly leading to financing pressures and lower investor confidence. This could, in turn, spread into the macrofinancial sphere – triggering lower deposits, higher financing costs, deteriorating bank finances, and falling reserves.”
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