Lebanese Bank Deposits Slump $15bn In 2020 As Confidence Sinks

Lebanese banks have signalled a $31 billion drop in deposits since early 2019, the largest drop for decades, as confidence in banks sinks as the country's economic crisis continues to deteriorate.

Banking sector statistics for the first seven months of 2020 showed a significant year-to-date contraction in deposits of $15.6 billion, almost equivalent to the 2019 full-year contraction.

Banking sector deposits have fallen from $174.3 billion in late-December 2018 to $158.9 billion in December 2019 and to $143.3 billion in July.

Nassib Ghobril, chief economist and head of Economic Research and Analysis Department at Byblos Bank, told Arabian Business: "Contrary to what some people claim and what many believe, the decline in bank deposits of $31 billion since the beginning of 2019 does not necessarily mean that all this money has left Lebanon."

He said about half of the decline in deposits went towards the repayment of bank loans before they matured. These include loans to businesses and institutions in US dollars and also "retail, residential and personal loans" to reduce risks to borrowers and individuals as well as to banks.

As a result, bank lending to private sector institutions and businesses and individuals declined by $9.5 billion in the first seven months of 2020 after a $9.6 billion decline in 2019.

"The ongoing withdrawal of cash deposits, first in foreign currencies and later in Lebanese pounds, has led to a decline in deposits of about $8 billion, and this trend continues, but only in Lebanese pounds," Ghobril added.

"Financial transfers abroad amounted to about $7 billion over the same period, of which about half went to cover Lebanese banks' obligations to correspondent banks and to cover credit lines to Lebanese companies. According to this approach, transfers of individuals outside Lebanon are estimated at approximately $3-4 billion, based on official figures," Ghobril noted.

Analysis of deposits by residence suggests that 71.3 percent of the deposit contraction in 2020 was due to resident deposits (-$11.1 billion), while the remainder was driven by non-resident deposits (-$4.5 billion).

A significant year-to-date contraction of $9.5 billion in loans was also seen over the first seven months of 2020, with 90.3 percent of the total being resident loans.