BEIRUT: With the mass protests well into their second week, Lebanese banks have remained shuttered for fear of a panic-driven rush for dollars.
The banks are to re-open “once normalcy is restored,” the Association of Banks in Lebanon said Friday, offering no timetable as confidence in the sector remains shaken.
The small Mediterranean country has been rocked by nationwide protests, characterized by largely peaceful civil disobedience blocking roads across the country in an attempt to topple the current government. The protests, in their 12th day, are directed at the political elites which have dominated the country since its 1975-1990 war, and which many accuse of corruption and economic mismanagement.
Despite retail banks on lockdown, a number of banking operations have remained functional.
This includes internal same currency transfers, card issuance, and ATM fund replenishment.
"A small number of employees are steering the ship," a prominent banker told Annahar, adding that each bank has its own sets of mechanisms in place.
Banks have made a consorted effort to try and issue debit cards to customers who lacked them, in an attempt to enable public and private sector employees to withdraw their salaries, he said.
Businesses and the bulk of economic activities have been stifled while black market rates surged as banks imposed daily limits on dollar withdrawals in the lead up to the protests.
Businesses have been unable to pay their suppliers with the majority of transfers on hold until the situation clears up.
"The majority of international suppliers aren't able to receive payments for orders already placed and approved," he said, with letters of credit suspended upon the request of the central bank.
Customers are also incurring fees on their late payments, which they haven't been able to settle unless the requisite funds are already available in their accounts.
"Interests and fees are being applied, but these will most likely be reversed once normal operations are up and running," he said.
The peg of the Lebanese pound to the dollar has been put in question in recent months, as the cash strapped country struggled to secure the requisite dollar liquidity needed to ensure the import of fuel, wheat, and medicine without the intervention of the central bank.
Earlier this month, $1 could be purchased for 1,650 Lebanese pounds at exchange shops after the currency had been stable at 1,500 to the dollar since 1997. Although the official price is still pegged at 1,500 pounds to the dollar, people find it difficult to get hard currency at this rate from local banks.
Meanwhile, Lebanon's credit rating was downgraded to junk in August by Fitch while Standard and Poor maintained their rating of B-, warning of a possible default on its debt if hard-hitting reforms weren't implemented.
Certain reforms have been included in Prime Minister Saad Hariri's rescue plan, which he announced last week in an attempt to appease demonstrators. Along with a number of measures to curb spending, the plan also requires the central bank, as well as the private banking sector, to contribute more than $3 billion to reduce Lebanon’s 2020 deficit.
"Commercial banks profited a lot from the Central Bank's financial engineering operations," the source said, yet he expressed reservations over their willingness to fork up such massive amounts.
"This will be dealt with at the negotiating table if it comes to that," he said.
To limit capital outflows, State Prosecutor Ghassan Oueidat banned Sunday exchange dealers and businessmen from taking large amounts of dollar cash out of Lebanon, either through the airport or other border crossings until the central bank implements a new mechanism for the operation.
This was done in response to the transfer of around one million dollars every 48h in the lead up to the protests, he said.
In a statement issued Sunday, the Central Bank said that 'Lebanon's exchange market will remain a free market" in line with its current laws and regulations.
Despite these assurances, the source expressed skepticism over how much longer this would stand.
"I expect the central bank to expand on these capital controls to include bank transfers abroad," the source said.
--- With AP
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