تشرين الأول 05, 2015
Citi, the global financial services group, indicated that the risks from the recent slowdown in the growth of bank deposits in Lebanon are limited, and that the slowdown is unlikely to pave the way for capital flight.
It added that the Lebanese banking system has the capacity to keep financing the government before the banks’ balance sheets start coming under stress. It noted that the government’s dependence on banks for its elevated financing needs makes deposit growth a key indicator for the banks’ ability to continue buying government securities.
It said that total deposits in the Lebanese banking system grew by 6 percent year-on-year in June 2015, well below the average annual growth rate of the past decade. The slowdown in deposit growth, it says, reflects global economic uncertainty and the subdued growth in key diaspora markets, especially in commodity-exporting countries, rather than a decline in the diaspora’s confidence in Lebanon from deteriorating economic and political conditions in the country.
It noted that the deceleration in deposit growth picked up in the third quarter of 2014 when global oil prices started to fall. It also expressed concerns about the risk of a decline in remittance inflows from Gulf Cooperation Council countries because of lower oil prices, as reported by Lebanon This Week, the economic publication of Byblos Bank.
Further, it estimated that remittance inflows from West Africa and Latin America are likely to come under pressure due to falling commodity prices. In parallel, it indicated that banks’ deposits have been resilient to serious political and economic distress, while the dollarization rate of deposits has been broadly stable in recent months.
Citi expected the slowdown in deposit growth to continue as long as global economic uncertainties persist. But it noted that bank deposits grew by about $8 billion in the 12 months leading to June 2015 relative to an increase of around $3 billion in the public debt, which suggests an ample and sustainable source of financing, even in current conditions.
Also, it considered that the high double-digit growth rate of deposits in past years significantly exceeded the level needed to allow banks to finance the government’s financing needs, without negative implications on their balance sheets. It added that the extraordinarily high rates of deposit growth in the past have lowered the loan-to-deposit ratio and reduced the share of the government’s debt in total assets, which has increased the banks’ capacity to finance the government.
Overall, it estimated that the banking sector’s deposits have to grow by 1.6 percent annually in order to finance the government’s needs, without pressuring their balance sheets. It noted that even if deposit growth falls to less than 1.6 percent yearly, it would take many years before the stress on balance sheets becomes critical, given the current excess liquidity in the banking system. Also, it estimated that a slowdown in deposit growth to about 3 percent per year would be sufficient to preserve the Central Bank’s foreign currency reserve coverage.
The Daily Star