Home BusinessFinance Lebanon – Revenue remits


Lebanon – Revenue remits

Cash streams from diaspora slimming to a trickle in 2009

by Executive Staff

As commercial banks in Lebanon reported an astonishing 9- month growth of 44 percent in 2008 and customer deposits increased by $7.5 billion in the first 10 months, it looked like the banking sector was not affected by the global financial crisis. But as time passes, inescapable challenges are beginning to emerge. “The Lebanese economy could be affected by what happens to the economies of the region,” said Lebanese Finance Minister Mohamad Shatah. The Lebanese economy will undoubtedly be affected by the ongoing global financial crisis, however, the question remains as to how these effects will take shape and to what extent they will impact the banking sector and economy at large. While some are saying Lebanon has benefited from the global turmoil, others are more cautious and waiting for the inevitable effects of the crisis to hit home. CEO of Standard Chartered Bank, Foong Pik Yee, asserts that, “It would be complacent to expect the economy of Lebanon to remain unaffected by the global slowdown, however this will be relatively unnoticed compared to the severe impact suffered by Western economies and also being noticed by Asia and some countries in the GCC.” The majority of observers seem to believe that the financial calamity affecting millions of Lebanese expatriates in the Gulf, the US, Europe and elsewhere, will reduce the amount of foreign remittances to Lebanon.


The money sent home
In 2008, the remittances that poured into Lebanon reached $6 billion, “constituting an increase of four percent from $5.57 [billion] in 2007, and compared to $5.2 [billion] in 2006 and $4.9 [billion] in 2005,” stated Byblos Bank. The finance house claims that Lebanon was the 18th largest recipient of remittances in the world, coming immediately behind Indonesia, Morocco and Pakistan. Lebanon came in ahead of Serbia & Montenegro, Vietnam and Ukraine. Foreign remittances to Lebanon made up 17.4 percent of total remittances to the MENA region in 2008. According to the World Bank, estimated expatriate remittances to Lebanon in 2007 were equal to 24.4 percent of the country’s GDP — making it the fifth highest ratio in the world. Due to the global financial crisis, the influx of foreign remittances into Lebanon began to slow during the third quarter of 2008. As remittances were a major contributor to the banking sector’s sound performance in 2008, the new year “might not be as good as 2008, in view of the global recessionary environment and its potential impact on Lebanese remittances that constitute a major support for Lebanon’s economy and financial system,” noted Dr. Marwan Barakat, head of the research department at Bank Audi – Audi Saradar Group. On the bright side, the worst-case scenario, he says, is that remittances in 2009 will continue to make up more than 20 percent of Lebanon’s GDP. The World Bank, however, stated that inflows of foreign remittances “are expected to regress by 6.7 percent in 2009 in a base case scenario and to drop by 13.2 percent in a worst case scenario.” While remittances may slightly decelerate in 2009, the Lebanese banking sector is still awash with liquidity.
Lebanese commercial banks possess a high level of liquidity in foreign currency, “making them able to roll over and buy new government paper in both local and foreign currency,” said Moody’s Investors Service. The foreign currency reserves at Banque du Liban jumped 57 percent in the first nine months of 2008, totaling $15.3 billion. This increase in foreign currency is largely due to the massive inflow of funds into Lebanese banks by the sizable Lebanese diaspora abroad, who consider the banks as sound financial sanctuaries. The boost in foreign currency reserves is also due to the central bank’s purchasing of $1 billion in US dollars in October 2008 and an additional $900 million in November. Nassib Ghobril, head of economic research and analysis department at Byblos Bank, believes that another challenge for Lebanese banks “is to see how much the inflow of deposits can continue given the growth slowdown in the Gulf and in major countries where Lebanese expatriates are.” With its best financial year in history, the Lebanese banking sector and economy at large naturally await an imminent slowdown.
Moody’s warned that because of the ongoing international financial crisis, Lebanon’s economy is expected to be negatively impacted “as external demand falls and inward investment and remittances decline, with remittance inflows from Lebanese workers in the Gulf already reported to be falling.” Auguste Tano Kouame, the World Bank’s lead economist for the Middle East and North Africa, asserts that Lebanon will definitely experience a decline in economic activity, which will consecutively affect the financial magnitude of the nation’s banking sector. According to Kouame, “The impact of the crisis in Lebanon is going to start first in the real economy, then move to the banking sector — unlike what happened in the United States, Europe and the Gulf region where the stock market was first hit — because Lebanon’s economy is mostly dependent on tourism receipts, remittances and on exports to some extent.” Principally, economic success heavily depends on the political situation in 2009.

Don’t rock to boat
Pik Yee found that, “overall, the key issue and concern for Lebanon remains political stability.” Everyone is keeping their fingers crossed that the approaching parliamentary elections in May 2009 will run smoothly. Moody’s contended that “a return to serious political turmoil would quickly set back the economy and could lead to a withdrawal of bank deposits, although these have been highly resistant to political shocks in the past”.
In brief, confidence levels in the Lebanese banking sector are “strong, despite the global turmoil,” mentioned Barakat. Due to the conservative regulatory and supervisory policies by the central bank, inflows of remittances and high liquidity, the Lebanese banking sector is poised to perform well — if even at a slower rate than last year — in 2009. While the Institute of International Finance (IIF) expects Lebanon’s GDP growth to decrease to 3.5 percent in 2009 from 5.5 percent in 2008, the World Bank estimates the country’s economic growth for 2008 to be at 5.5 percent and 4 percent in 2009. With the incessant regional effects of the global financial crisis on the horizon, IIF forecasts are the most realistic. Despite the upcoming, unavoidable economic slowdown, Lebanese banks are positioned to perform well.

Support our fight for economic liberty &
the freedom of the entrepreneurial mind
DONATE NOW

Executive Staff


--------------------------------------


View all posts by

You may also like