Lebanon inflows ease, lending strong -Audi CFO

Lebanon inflows ease, lending strong -Audi CFO

Only "minority" selling Lebanese pound.

October 19, 2010 8:42 by Reuters

Capital inflows into Lebanon fell around 8 percent in the first eight months of the year to around $11.9 billion, a senior banker said on Monday, but current levels remain sufficient to support strong domestic growth. Freddie Baz, chief financial officer for Bank Audi told the Reuters Middle East Investment Summit that Lebanon had seen cumulative inflows of $60 billion since the start of 2007.

Some of that money came from Lebanese residents and expatriates moving money back to Lebanon’s banks, seen as relatively safe havens during the global economic downturn.

The inflows helped support bank loans for Lebanon’s private sector and sustain recent GDP growth of around 8 percent.

“We indeed witnessed in the first eight months of 2010 an 8 percent decrease in inflows,” Baz said, citing Bank Audi figures extrapolated from official balance of payment and trade balance figures.

But he said Lebanon, which last year saw $20.6 billion of inflows, could afford a 40 percent drop in that figure without affecting liquidity or the ability of domestic banks to supply the required financing for the domestic economy to ensure a 5 to 6 percent real growth in GDP.

Loans to the private sector actually increased in the first eight months of 2010 by $4.9 billion, more than double the increase in the corresponding period of last year, he said.

Baz said remittances from Lebanese citizens abroad accounted for a little over 40 percent of the inflows, with foreign direct investment (FDI) another 40 percent and “unilateral transfers” from Lebanon’s huge overseas diaspora accounting for the rest.

POLITICAL TENSIONS

“The most stable parts (of the inflows) are remittances and the unilateral transfers,” he said. “The buffer which increases or decreases according to the political environment is FDI.”

Tensions have been rising in Lebanon since media reports that indictments are expected against members of the militant Shi’ite group Hezbollah for alleged involvement in the 2005 assassination of former prime minister Rafik al-Hariri.

Bankers say Lebanon’s central bank intervened two weeks ago for the first time in two years to buy Lebanese pounds, after fears that the political row could escalate pushed the dollar to the outer limits of its exchange rate against the pound.

Baz said only a “very little minority” had been selling the pound, and the country’s economy was sound — pointing to a reduction in foreign debt, a build-up of foreign reserves and cumulative growth of 25 percent over the last three years.

“There has been some buying of hard currency … but it doesn’t represent a trend in the system,” he said.

“The Lebanese pound is still the currency of saving and there are a lot of people who have shifted their holdings into Lebanese pounds, who are quite happy and comfortable.”

He said the Central Bank should consider easing the peg on the Lebanese pound, which is set at around 1,507.5 pounds to the dollar and trades at between 1,501 and 1,514 pounds.

He said a 5 percent “corridor” would help the Lebanese get used to “a certain volatility in the exchange rate”, and prevent an exaggerated response to a minor fluctuation.

(Editing by Greg Mahlich)