BLOM Lebanon PMI Signals Further Deterioration Across Lebanese Private Sector

The second month of this year witnessed a dual pressure on the banking sector and the Lebanese economy as the Central Bank and the commercial banks underwent several juridical attacks at a time the war in Ukraine weighed further on the national economic outcome. Potential food and goods shortages, higher energy prices and pre-electoral chaos in Lebanon are pushing the situation in Lebanon to deeper deteriorations levels.

Accordingly, Lebanon’s monthly inflation rate registered a high of 214.59% in February 2022 up from 155.40% in February 2021. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels added a yearly 95.61% by February 2022 and prices of “Food and non-alcoholic beverages” surged by 396% yearly. Worth mentioning that further devaluation of the national currency in addition to the global supply chain disruptions as well as unexpected high energy costs due to the geopolitical developments would have a considerable impact on the inflation outlook in the upcoming period.

Real estate transactions witnessed an annual jump of 769% to reach 17,997 transactions by the month of February 2022. In its turn, the value of total RE transactions stood at $2.69B by February 2022, compared to $290.26M in the same period last year, up by 829.31%. As for airport passengers, the activity at Rafic Hariri International Airport improved in the second month of the year 2022, to reach 691,226 passengers by February up by 98.70% in February 2021. The total arrivals added 132.91% year-on-year (YOY) to stand at 313,200 passengers in February 2022. By the same token, the number of departing passengers climbed by a yearly 85.04% to reach 373.561 over the same period. Worth noting that Lebanon was under a strict lockdown for the first two month of year 2021 which explain the cause of remarkable increase witnessed in the volumes of passengers for the same period this year.

According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 6.83% compared to last year, to reach $161.92B by mid of March 2022. The increase was mainly due to the 30.63% year-on-year (YOY) rise in other assets, grasping 37.11% of BDL’s total assets and reaching $60.08B by mid of March 2022. Hence, a very rare fall by $1.01B in other assets was registered in the first half of March representing the second drop in this year, most likely as a result of reduction in seigniorage.

Meanwhile, the gold account, composing 10.99% of BDL’s total assets, increased by 11.62% yearly to reach $17.79B by the same period as the international gold price is increasing globally amid war in Ukraine and universal uncertainty. BDL’s foreign assets (grasping 10.24% of total assets) decreased by 26.42% YOY to stand at $16.58B by mid of March 2022. In more details, BDL foreign assets dropped by 6.98% since year start with $350.32M drop in only 2 weeks by mid of March 2022 while total volume of dollars injected into the system through Sayrafa platform amounted to $890M for the same period. Hence, the Central Bank is most likely taking measures to absorb dollars from the market while Lebanese liquidity is shrinking. On the liabilities front, financial sector deposits (67.62% of BDL’s total liabilities) slightly increase by 1.66% and reached $109.50B by mid of March 2022; and Currency in Circulation outside of BDL increased by 2.56% and reached $24.47B by mid of March 2022. However, since the Circular 161 was introduced in last December, the money in circulation has been dropping considerably to record a fall by 19.35% YTD till mid-March.

The data published by the association of Lebanese Banks’ showed that the total number of cleared checks in the Lebanese financial system slumped from 469,569 checks by February 2021 to 356,777 checks by February 2022. Moreover, the value of total cleared checks increased yearly by 11.54% to reach $5.51B by February 2022. In details, the value of checks in LBP almost doubled on year-on-year (YOY) to reach $3.52B, while value of checks in foreign currencies decreased by 29.86% YOY to reach $1.98B by February 2022. Accordingly, the dollarization of cleared checks in terms of value went down from last year’s 57.35% to 36.06% by February 2022. Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $99.79B in October 2021, thereby recording an annual increase of 5%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 3.76% and 7.08%, respectively. As such, domestic debt constituted 61.78% of the total public debt.

It is worth noting that BOP recorded a deficit of $353M by the first month of 2022, compared to a deficit of $410.6M by January 2021. Accordingly, Net foreign Assets (NFAs) of BDL fell by $609M, while the NFAs of commercial banks added $255.9M by January 2022.

As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased by 7.48%, and stood at $174.25B in January 2022. In details, resident customers’ deposits (which grasp 59.18% of total liabilities) decreased by 6.29% to $103.11B in January 2022, with deposits in LBP down ticked by 2.62% to $24.01B while the deposits in foreign currencies declined by 7.35% to stand at $79.10B.

PMI dropped further below the 50-threshold and stood at 47.4 in March 2022 amid uncertainty burdening the Lebanese economy. Lebanon has a lot to consider in the period ahead, including development associated with the war in Ukraine and additional disruptions that may occur. That is in addition to putting the banking sector as a whole in front of confrontation with depositors by delaying the legislations of the capital control law and an agreement with the IMF. The Lebanese authorities must be pledged to extensive works and steps that require time and commitment to put the Lebanese economy on the right path for recovery.  Meanwhile, it seems the Lebanese currency could remain floating pending a preliminary program with the IMF.

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