Lebanese banks are liquid but operating in a very strong “wave of uncertainty”, the banking association head said, describing temporary controls introduced this week as “a fence to protect the system” until the situation normalizes, Trend reports citing Reuters.
Salim Sfeir dismissed the suggestion of a haircut on bank deposits, mooted by some observers in the financial industry, as “insane”, telling Reuters it would badly hurt the future stability of a country dependent on capital inflows.
He said he was being told depositors were already estimated to have withdrawn $3 billion or more and put the cash at home in the last six months.
He said a central bank request for banks to raise their capital by 10% by the end of 2019 was also unrealistic unless a new government was formed and a more positive climate emerged. “If the situation stays as it is, it is not realistic,” he said.
Facing the worst economic crisis since its 1975-90 civil war, Lebanon has slid even deeper into trouble since the eruption of protests against the ruling elite last month.
The protests have ignited a major political crisis, leading to the resignation of Prime Minister Saad al-Hariri and deadlock over what kind of government should take office.
Lebanese banks have been shut for the most of time since the protests began. They reopened on Tuesday from a second period of closure after agreeing temporary controls which include a $1,000 weekly cap on withdrawals from U.S. dollar accounts and restricting transfers abroad to urgent personal spending.
“In view of the political situation, you need a certain fence to protect the system itself until the situation comes back to normal,” Sfeir said.
“The positivity of these controls is that it should motivate our politicians to make a wise decision and come up with a political equation that satisfies the (people on the) ground,” he said. “It should also alleviate the pressure towards the withdrawal of deposits that are being placed at home.”