Lebanese bank deposits grow against all odds
Record-setting first half of 2006 buoys figure

By Osama Habib
Daily Star staff
Saturday, October 07, 2006

BEIRUT: Lebanese commercial banks are increasing customer deposits compared to last year despite a slight fall in deposits in the months of July and August, the secretary general of the Association of Banks in Lebanon said on Friday. "We have seen some growth in customer deposits up to August of this year and I believe that the banks are still very liquid," Makram Sader told The Daily Star.

According to monetary and banking statistics issued earlier this week, some year-to-date growth was achieved in the banks' consolidated balance sheets, with the war's impact having been more than offset by record-high growth recorded in the first half of 2006.

Total assets amounted to LL108.6 trillion, or $72 billion, at the end of August 2006, up by 7.1 percent from the corresponding period of the previous year and by 2.4 percent from the end of 2005.

Bank assets in Lebanon are more than three times the GDP of the country, giving Lebanon one of the highest such ratios in the world.

The banks turned in a favorable performance compared with 2004-2005, when customer deposits declined by 0.8 percent due to the impact on the economy of the assassination of former Prime Minister Rafik Hariri.

Bankers in general agree that the panic in the market during the first days of the Israeli war was relatively contained, noting that most of the deposits that left the country were actually transferred to Lebanese branches abroad.

One banker said that Hariri's assassination had more effect on the economy and banking sector than had the Israeli war and blockade.

Customer deposits fell by LL4.65 trillion, or $3.1 billion, in July and August, due to a drop of LL2.1 trillion in non-residents' deposits.

The Central Bank does not disclose the names or nationality of depositors who pull their money out of Lebanese banks under any circumstances.

The cherished banking secrecy law prevents the disclosure of any information on any depositor unless countries or organizations file a request to the Special Investigation Commission, which is in charge of any money laundering activity in Lebanon.

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The 5.1 percent drop in deposits compares with a 2.6 percent rise in the same period for a year earlier.

Bankers said that in the first eight months of 2006, deposits jumped by LL847.2 billion, or $526 million, due to an increase of LL1.67 trillion in residents' deposits and a fall of LL819.6 billion in non-residents' deposits.

Foreign currency deposits rose by $1.5 billion over the eight-month period, while Lebanese pound-denominated deposits rose by LL1.51 trillion.

Nevertheless, the variation in deposits by currency during the war period reflects the increased pressures on the foreign exchange market.

Foreign currency deposits dropped by $877.9 million over the two months period, while Lebanese pound-denominated deposits fell by LL3.33 trillion.

Sader said that Lebanese banks are very liquid and that there is no need to chase for more money.

"Deposits are costing the banks lot of money these days because the cost of interest rates on each deposit is very high," Sader said.

Interest rates in the United States rose sharply this year and this has to some extent affected Lebanese banks that usually offer reasonably higher interest rates on deposits to attract more customers," another banker said.

He added that many banks are looking for new investment instruments after the cost of interest on deposits started to grow too high.

Sader said that Lebanese banks have made impressive profits after they opened new branches in the Middle East.

"Lebanese banks are exporting their services to the Arab states and they are making a good return from them," the banker said.