Salameh: Capital control
to ease starting from June
No haircut on deposits in the horizon
The restrictions imposed by the banks on outbound transfers will be lifted gradually starting from June, said Riad Salameh, Governor of the Central Bank (BDL).
“Capital control changes the nature of the economy. It is a decision taken by the government and requires a law that must be ratified by Parliament,” said Salameh in a TV interview.
He said that BDL has asked the Ministry of Finance and the caretaker Prime Minister to give it the green light to regulate the existing bank restrictions. BDL will issue a circular in this regard if it gets the approval.
Salameh said that the exchange value of the lira will remain stable as this is a State policy and BDL agrees with this policy. The stability of the currency costs less to the economy than a floating rate which will cause high inflation as exports are negligible, he said.
Deposits are safe and BDL will continue to provide liquidity to banks in dollars and liras to help them meet the needs of their customers, according to Salameh.
He said that the foreign currency liquidity that BDL can use is $31 billion.
Salameh reiterated that no haircuts will be carried out. BDL has not the prerogatives to do a haircut operation which requires the enactment of a new law.
Most of the banks have started the process of increasing their capital as required by BDL through cash contributions. This will add $4 billion to the consolidated equity of the banks, according to Salameh. The capital increase must be completed by June 2020. BDL will enter as a shareholder in a bank if it was not able to raise its capital, he said. Besides the $4 billion, the $1.5 billion in dividends that will not be distributed, and the $10 billion to $15 billion reductions achieved in bank loans, will create new liquidity in the banking system, he said. This will activate the sector gradually, Salameh said.
The banks’ solvency ratio will remain above the Basel III requirements, even in difficult scenarios, because BDL, as a precautionary measure, had required a much higher solvency ratio in the past, he said.
Deposits declined by $10.1 billion between the end of September and the end of November. According to Salameh, $4.5 billion of these withdrawals was used for settling loans. Nearly $3 billion was withdrawn as banknotes in dollars and lira. The amount transferred abroad is around $2.67 billion. This amount includes $1.6 billion withdrawn from foreign fiduciary accounts in local banks. The remaining $1.07 billion was transferred abroad from the accounts of bank customers.
Between $300 million and $400 million of dollar banknotes are being shipped by the banks to Lebanon on a monthly basis in order to meet the exceptional demand of their customers, according to Salameh.
He said that BDL has asked the banks to be flexible regarding loans (including housing loans) and that the Banking Control Commission will not rate these loans until the situation improves. There is a draft law in Parliament that will legalize this for six months, he said. BDL will also talk with the Association of Banks to reduce further the Beirut Reference Rate (BRR) on lending. Salameh said that the interest subsidies allocated last year for housing loans have not been used up and so there is a subsidy package for 2020.
Reported by Shikrallah Nakhoul
Date Posted: Jan 10, 2020