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source: english.al-akhbar.com
Bankers who had hoped that Lebanon would be spared the repercussions of the crisis in Cyprus would soon be disappointed.
At the last monthly board meeting of the Association of Banks in Lebanon, the governor of Banque du Liban, Riad Salameh, rejected the Central Bank of Cyprus’ (CBC) suggestion that foreign parent banks provide guarantees equivalent to 20 percent of their deposits in Cypriot branches.
If the Cypriot measures are passed, estimates reveal that the guarantees required of Lebanese banks operating in Cyprus would amount to 500 million Euros ($655 million). Lebanese banks operating in Cyprus have been caught in the crossfire, specifically 11 banks with deposits worth 2.5 billion Euros ($3.2 billion).
The Cypriot government has imposed tight controls on transactions, preventing depositors from transferring cash abroad. It has also taxed deposits above 100,000 Euros, but only in two Cypriot banks. While the first measure applies to all banks operating on the island, whether Cypriot or foreign, the second measure does not include Lebanese banks.
As a result, Lebanese bankers argued that there will be little impact on Lebanese banks. In a March meeting between Salameh and the banks, Salameh downplayed the effects of the Cypriot crisis.
Only weeks after Salameh’s reassurances, it was revealed that Lebanese banks are not immune to the measures taken by Cyprus.He said, “There are no significant repercussions for us because of the Lebanese banks’ liquidity, solvency...and finally, because unlike their Cypriot counterparts that lent more than their deposits, the rate of loans to the private sector to total deposits is still low in Lebanon.”
In the process of offering reassurances, Salameh also tried to set controls and prohibitions that would limit any effects on Lebanese banks. He warned Lebanese banks operating in Cyprus against “engaging in any book-entry operations,” meaning money transfer operations in book-entry form between parent banks in Lebanon and their branches in Cyprus. This would be in “flagrant violation” of the laws and regulations.
Only weeks after Salameh’s reassurances, it was revealed that Lebanese banks are not immune to the measures taken by Cyprus.
At the ABL meeting, Salameh said, “If the CBC uses these guarantees for its own interests, how will the banks in question be able to recover them...The issue now is in the hands of the European Central Bank, which has not decided yet whether to provide the liquidity needed by the CBC.”
Cypriots were allegedly informed of the Lebanese Banks’ rejection of these measures. Salameh received an invitation to visit Cyprus, but he is reluctant to go. He is hoping that the European Central Bank will also reject these conditions, which some bankers consider a violation of sovereignty.
image: soundmoneyproject.org
