by dailystar.com.lb

Financial inflows to Lebanon in 2017 could jump by 20 percent thanks
to the positive political and economic conditions, Bank Audi said
Wednesday. “The improvement in Lebanon’s politico-economic
conditions could generate no less than a 20 percent rise in financial
inflows in 2017, following the noticeable double-digit growth that was
reported in 2016 and that was driven by the financial engineering
operations of the Central Bank. A net surplus in the balance of payments
would be realized for the second year in a row after the five-year
cumulative deficits that were realized between 2010 and 2015,” Bank said
in a report on the performance of the fixed income market in Lebanon. Lebanon counts heavily on capital and financial inflows to inject new
cash into the market as well as achieve a surplus in the balance of
payments. Most of these inflows are in the form remittances from
Lebanese expatriates in Arab Gulf states and Africa. The report also projected a growth in the money supply in 2017. “In parallel, we project a 7 percent growth in Money Supply for the
year, driven both by domestic money creation and the positive change in
net foreign assets. This moderate money supply growth is likely to yield
a deposit growth of close to $10 billion in 2017 (15 percent more than
the average of the past three years), with total banking sector deposits
exceeding the threshold of $170 billion,” Audi said. This expected rise in both financial inflows and would also increase loans to the private sector, according to the report.

“At the uses level, bank loans to the private sector are likely to
benefit from rising financing needs in a faster growth economy. We
forecast a circa $4 billion growth in bank lending to the private sector
(25 percent more than the average of the past 3 years), driven by
growing lending opportunities to finance new projects, corporate
expansion and working capital,” Audi said. It stressed that the expected rise in deposit growth and liquidity may provide some support for the eurobond market in Lebanon. “The
current year started with a sound reflection of an improving domestic
financial environment. Bank deposits grew by $1.4 billion over the first
two months of 2017 (against a net decline over the same period of
2016).

Such deposit growth is in line with our annual projection
for 2017 ($10 billion), mainly accounted for by FX deposits. It is
enough to ensure a healthy demand for Lebanese eurobonds, especially
that the Lebanese banks FX sovereign exposure has declined recently in
both absolute and relative terms,” the report said.

Audi noted
that although the foreign currency liquidity held by commercial banks
fell to $8.5 billion in August 2016 due to the Central Bank’s financial
engineering, it is expected that FX primary liquidity in foreign banks
to reach $11.7 billion in 2017.

But Audi warned of looming risks
to the economy if the spillover effects of the war in Syria continued
and the tension between Israel and Hezbollah degenerated into an open
war.

“Still, we believe strengths and opportunities outpace
threats and challenges, with risks tilted to the upside,” the report
said.