In the weeks leading up to Christmas and the Holidays, Lebanon experienced a notable economic upturn though far from any trajectory towards stabilization. The Lebanese market saw a surge in business activities as people engaged in festive shopping, contributing to a boost in the overall economic situation. Businesses, particularly in the retail, thrived during this period, taking advantage of increased demand for holiday-related goods and services. The heightened commercial transactions and seasonal promotions could lead to job creation and additional income streams for many in December. However, it’s important to note that this economic flourishing can be heavily dependent on consumer sentiment and external factors influencing spending patterns during the holiday season such as the armed conflicts in the South of Lebanon and the broader regional geopolitical distresses.
Moreover, during the month of November, discussions between IMF and Lebanese officials regarding economic developments and policies have been revived. Talks about a proposed solution have been conveyed – though yet still unofficial and not publicly disclosed — involving the creation of a public assets fund. This fund aims to facilitate the gradual return of bank deposits over the next two decades, according to unconfirmed reports. It’s important to note that this information has not been officially announced by the IMF or the Lebanese government, and discussions surrounding this potential resolution are currently circulating through informal channels.
As for the exchange rate, the Lebanese currency has been hovering consistently around 89,700 USD/LBP over the past month. This follows a prolonged period of depreciation that began in 2019, marking a notable departure from the previous trend. It is important to note that the Lebanese currency has showed stability recently though it is not stable as its not backed by strong fundamentals due to the uncertainty and worries that still looming with no recovery plan has been put on table to solve the ongoing financial crisis in the country. Moreover, the current steadiness could be attributed to the halt of the Sayrafa platform as the ending of BDL’ intervention unto the market has cut opportunities for speculation, potentially allowing the Lebanese currency to find a more realistic value in the parallel market, in addition to strict control over the money stock. Despite this relief, the outlook remains precarious due to persistent uncertainty surrounding Lebanon’s future and the broader regional context.
Also in November, the Council of Ministers discussed, on the first of November, a proposed law to tax profits from USD loans redeemed at an outdated exchange rate. The tax aims to fund a Deposit Recovery Fund for restructuring the financial sector, benefiting depositors. Preliminary details suggest exemptions for small loans, a 10-20% tax rate, and potential returns exceeding $2 billion. Complex considerations include varying redemption rates, taxing profits, and addressing politically connected borrowers. The law’s application is expected to be intricate, reflecting the significant decline in USD loans from $38.3 billion to $8.1 billion between August 2019 and August 2023. Moreover, on 10/11/2023, the Banking Control Commission proposed a law for Lebanese banking sector restructuring. The law outlines a standard process for bank reform and liquidation, evaluating banks’ viability based on assets, with potential measures like bail-in, recapitalization, asset sale, and mergers. However, it overlooks Lebanon’s unique situation, where 90% of USD deposits are held by BDL. The law lacks specifics on the exchange rate and raises concerns about the treatment of “protected deposits.” While crucial for IMF negotiations, it requires review, especially by parties like ABL, and depends on prior enactment of the Government reform plan.
However, despite attempts to portray a sense of normalcy amid crisis conditions, the Lebanese economy continues to grapple with financial and political crisis, particularly concerning the presidential elections adding to the regional geopolitical worries. That said, the activity at Rafic Hariri International Airport has significantly deteriorated in October 2023 following Hamas’ attack on Israel on the 7th of the month. Although, the cumulative count of passengers at Beirut International airport surged by 17.62% annually, reaching 6,297,871 passengers by October 2023, the monthly statistics showed a decline of 33.44% by the same period. In more details, on a monthly basis, arrivals decreased by 38.94% to stand at 208,374 and departures dropped by 29.14% in October to reach 307,731. Naturally, many citizens felt compelled to flee their country due to concerns about its potential involvement in the conflict. The breakdown of the airport’s statistics revealed that total arrivals jumped by 17.51% year-on-year (YOY) to stand at 3,063,940 by October 2023 compared to 2,607,315 by October 2022. Meanwhile number of departing passengers climbed by a yearly 18.57% to reach 3,222,662 by October 2023, compared to 2,717,832 by October 2022. Nevertheless, transit passengers dropped from 29,229 by October 2022 to 11,269 transit passengers by October 2023.
The latest statistics on activity at the Port of Beirut showed that Container Activity up 17.36% by September 2023. Total container activity including transshipment (TEU+TS) increased by a yearly 17.36% to stand at 621,781 twenty-foot equivalent unit (TEU) for the month of September 2023, with transshipment activity (TS) adding 110.3% YOY to 218,647 TEU, while container activity (TEU) dropped by 6.22% on a yearly basis to 403,132 TEU by September 2023. On a monthly basis, total container activity dropped by 7.61% to stand at 58,961 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 15.1% for the month of September 2023 compared to same month last year to reach 42,968 TEU. Meanwhile, transshipment activity (TS) grew by 23.83% to 15,993 TEU for the month of September 2023, compared to 12,915 TEU in September 2022. In more details, the transshipment volume of CMA CGM, one of the two major shipping lines operating at the Port of Beirut, increased annually by 100.96% to stand at 140,499 TEU by September 2023. Similarly, transshipment volume of MSC, the other major line, added 126.67% YOY to 44,712 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 13.44% to reach 120,957 TEU, and local volume of MSC fell by 17.37% to stand at 83,302 TEU by the month of September 2023.
Nevertheless, inflation in October 2023 remains notably high standing at 215.43%. This inflationary trend persists due to elevated prices across multiple sectors, primarily attributed to the widespread adoption of US dollar for daily expenditures and the significant increase of the custom dollar rate. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.4% of the CPI) added a yearly 231.66% by October 2023. Also, “Owner-occupied” rental costs increased by 333.5% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 151.81% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 218.06% yearly. In turn, the average prices of “Transportation” (13.1% of the CPI) and “Health” (7.7% of the CPI) recorded hikes of an annual 157.71% and 204.94% respectively by October 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 227.06% by October 2023. In the same token, costs of “Clothing and Footwear” (5.2% of CPI) surged by 178.43% by October 2023, and the prices of “Communication” (4.5% of the CPI) increased by 120.58%. Prices of “Furnishings and household equipment” (3.8% of CPI), “Alcoholic beverages and tobacco” (1.4% of CPI), and “Recreation, amusement, and culture” (2.4% of the CPI) increased by 179.66%, 249.27%, and 136.52%, respectively, by October 2023. Finally, monthly price increases between September and October 2023 averaged 17.2%.
Furthermore, according to the customs Administration, Lebanon’s trade deficit in August 2023 totaled $8.32B down from $10.36B during the same period last year. Total imported goods dropped by 16.27% year-on-year (YOY) to $10.69B while total exports slightly decreased by 1.46% YOY to stand at $2.38B by August 2023. In details, the “Mineral products” grasped the lion’s share of total imported goods with a stake of 27.49%. “Pearls, precious stones and metals” ranked second, composing 13.98% of the total while “Machinery; electrical instruments” and “Vehicles, aircraft, vessels, transport equipment” grasped the respective shares of 10.27% and 6.15%, respectively. On an annual basis, the value of imported “Mineral products” dropped by 19.55%, from $3.66B to $2.94B by August 2023. Furthermore, the value of imported “Vehicles, aircraft, vessels, transport equipment” dropped significantly by 52.64% from $1.39B to $0.66B by August 2023. On the Exports front, Lebanon’s top exported products were “Pearls, precious stones and metals” grasping a share of 17.33% of the total. “Machinery electrical instruments” and “Base metals and articles of base metal” followed, with each grasping a share of 15.36% and 11.27%, respectively, of the total. The top two export destinations in August 2023 were UAE and Turkey with the respective shares of 14.45% and 9.08%.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets fell by 42.91% compared to last year, to reach $106.59B by mid of November 2023, amid adopting the 15,000 LBP/USD official rate by BDL since February 2023. The fall was mainly due to the 91.81% year-on-year (YOY) drop in other assets, grasping 6.92% of BDL’s total assets and reaching $7.37B by mid of November 2023. Furthermore, the gold account, representing 17.07% of BDL’s total assets, increased by 11.16% yearly to reach $18.19B by mid of November 2023. Furthermore, BDL’s foreign assets, consisting of 13.33% of total assets dropped by 6.95% YOY and stood at $14.21B by mid of November 2023, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. Noting that foreign assets increased by $68M in the first two weeks of November 2023, but increased by $430M since August 2023. On the liabilities front, financial sector deposits, representing 83.35% of BDL’s total liabilities, decreased by 16% and reached $88.84B by mid of November 2023 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 3.46% of BDL’s total liabilities, plunged by 92.16% annually to reach $3.69B by mid of November 2023 amid adopting the 15,000 LBP/USD official rate by BDL.
Moreover this month, BDL has sparked some hope regarding the fate of deposits as it issued on 17/11/2023 an amendment to Basic Decision 13335 outlining exceptional measures for the gradual repayment of deposits in foreign currencies as per Circular No 158. In fact, this circular provides depositors with a dose of confidence that the fate of their money is still under consideration. The decision applies to depositors whose accounts were in any bank (the transferring bank) in foreign currencies before 10/31/2019, and subsequently transferred to other (remitting) banks. The entitled amount should be returned to the remitting bank. This includes accounts that were joint and became individual, or accounts that were individual and became joint in the receiving bank. However, issuing such an amendment especially during the country’s critical circumstances raise concerns for the banking sector especially regarding the funding sources and the mechanism of implementing the Circular. Criticisms from banking sources mainly focus on the lack of clear procedures, especially concerning important details such as who will pay the $300 to depositors if the bank had previously withdrawn their deposit. It expected that about 10% of the accounts will be affected with almost three-quarters of them with the five largest banks.
According to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 46.3% percentage points (pp) by August 2023, down from last year’s percentage of 51.3%. It is important to acknowledge that the occupancy rate in Beirut 4 and 5- stars hotels experienced a decline in July 2023 due to a preference among tourists and expats for booking guesthouses and Airbnb accommodations. In fact, a significant number of guesthouses located near the beach are reserved well in advance for the summer season.
In more details, the average room rate in dollars currency in Lebanon rose substantially by 118.2% to stand at $144, additionally the RevPAR increased by 96.9% to reach $67 for the month of August 2023. Moreover, the average room rate in Lebanese pound has increased significantly by 495.9% ; in details, the average room rate in LBP reached LBP 12,846,731 in August 2023 and RevPAR (Revenue per available room) jumped by 437.7% from LBP 1,105,000 in August 2022 to LBP 5,943,000 in August 2023. On a regional level, hospitality markets in Makkah and Kuwait City witnessed an increase across all performance indicators in August 2023 compared to August 2022. In more details, the occupancy rates in Makkah added 12% to reach 72.5% while Kuwait City occupancy rates added 11.8% to reach 55.2%. Makkah’s hospitality sector observed a remarkable RevPAR growth of 59.2% from $113 in August 2022 to $180 in August 2023. Meanwhile, average room rate in Makkah jumped by 32.9% from $187 in August 2022 to $248 by August 2023. As for Kuwait City, the average room rate dropped by 26.6% from $233 in August 2022 to $171 in August 2023, thus RevPAR declined by 6.6% to stand at $94 during the same period. Indeed, Kuwait City is well known as an oil producer country but also in terms of tourism, it has a lot to offer, such as the dazzling Kuwait Towers, modern architecture, peaceful beaches and rich culture.
According to the data published by the Association of Lebanese Banks’ (ABL), the total number of cleared checks in the Lebanese financial system slumped from 1,399,559 checks by October 2022 to 384,251 checks by October 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 20,458B by October 2022 to LBP 54,497B by October 2023. This upsurge is driven by a significant increase in value of Lebanese checks which reflects a larger percentage of discounting Lebanese checks in the market. Meanwhile, the cumulative value of cleared checks in foreign currency fell from $8,944M by October 2022 to $3,003M by October 2023.
Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 60.79% and 86.4% respectively to settle at 296,856 and 87,395 checks, by October 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 45.91% in October 2022 to 22.74% in October 2023. Notably, the number of returned checks fell substantially by 67.97% YOY to stand at 3,105 checks. Moreover, the value of returned checks in foreign currency increased by 38.89% by October 2023 to reach $175M, additionally the value of returned checks in local currency increased remarkably by 228.96% YOY to reach LBP 727B by October 2023.
Moreover, the data released by the Ministry of Finance (MoF) indicated that Lebanon’s gross public debt hit $102.47B in January 2023, thereby recording an annual increase of 3.2% YOY. The rise is mainly attributed to the annual increase in foreign currency debt (namely in USD) by 7.35%, to stand at $41.57B by January 2023. In turn, total foreign debt grasped a stake of 40.57% of the total public debt by January 2023. It is worth mentioning that $14.43B represents the unpaid Eurobonds, their coupons and accrued interests, due to the default on government Eurobonds in March 2020. Meanwhile, debt in local currency (denominated in LBP) rose slightly by 0.57% to stand at $60.89B in January 2023, and constituted 59.43% of the total public debt. Looking at net domestic debt, which excludes public sector deposits with the central bank and commercial banks, it decreased remarkably by 13.97% YOY to $41.85B in January 2023.
According to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) remarkable decrease of 43.02% to reach 7,067 permits by August 2023. Similarly, the Construction Area Authorized by Permits (CAP) plunged by an annual 54.14% to 2,869,932 square meters (sqm), mainly driven by public institution’s strike, decline of interests towards investing in real tangible assets and less overall income. Construction activity witnessed a significant decrease regionally compared to the same period last year. Across the governorates, Mount Lebanon, grasped 36.47% of the total permits, and accounted for 2,577 permits by end of August 2023 compared to 4,930 previous years. However, for the South, it constituted 28.71% of the total permits, its respective number of permits reached 2,029 permits compared to 3,247 permits same period last year. In Nabatieh which holds 20.98% of the total permits, its share accounted for 1.483 by August 2023. In Bekaa, 611 construction permits were issued by August 2023 down from 1,122 in the same period last year, while in Beirut only 199 construction permits were issued by August 2023. The decrease is more notable given the lack of bank lending. Surprisingly, it seems the impact of construction activity is delayed and takes effect after some time as the construction permits have been on the decline for the year of 2023 while the economic conditions in Lebanon have marginally improved.
Furthermore, Real Estate Demand came lower by an annually 88.40% by October 2023 according to the data from the General Directorate of Land Registry and Cadastre (LRC). In more details, the number of Real estate (RE) transactions recorded a sharp fall of 88.40% yearly to stand at 7,834 transactions by October 2023, compared to 67,506 transactions same period last year. The drop is mainly due to the ongoing nation-wide strike for the public employees which have led to major dysfunction for public services. In the same token, the value of total RE transactions stood at $1.94B by October 2022 calculated at the new official rate of USD/LBP 15,000, which is 82.85% lower than $11.31B in the same period last year. On a monthly basis, the number of RE transactions stood at 4,409 in the month of October 2023, compared to 11,006 transactions same month previous year. In details, North region holds the biggest share of real estate transactions at 1,294, or 29.35% of total RE transactions, in the month of October 2023, followed by Zahle at 1,041 transactions or 23.61% of total RE transactions. Furthermore, South grasped 22.50% of total RE activity in October 2023 and 11.23% or 495 transactions was the share that the Nabatieh grasped out of the total RE transactions while Beirut held 429 transactions or 9.73%. Noting that no RE transactions was recorded in the area of Metn, Kesserwen, and Baabda for the month of October 2023. Moreover, the breakdown of RE activity by value for October 2023 showed that Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 46.63% and worth $577.06M, while the South followed, constituting 29.22 of the total and worth $361.65M.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.54B by September 2023, far beyond the deficit over the same period last year of $3.05B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $1.26B while the NFAs of commercial banks rose by $2.8B by September 2023. On a monthly basis, the BOP recorded a surplus of $470.2M in September 2023, where the NFA of BDL increased by $88.5M and NFA of banks rose by $381.7M. The changes were noticeable on both sides of the commercial banks’ balance sheet; claims on non-resident financial sector increased by $24.48M and claims on non-resident customers rose by $5.91M, other foreign assets increased by $120.39M and non-resident securities portfolio increased by $40.1M; whereas deposits with non-resident central banks retreated by $16.09M in September 2023. On the liabilities side, non-resident customers deposit contracted by $144.23M while non-resident debt securities issued slightly increased by 1.54M in September 2023.
Meanwhile, the 2024 budget submitted by the Ministry of Finance to the Lebanese Parliament is currently under review. However, due to the absence of a sitting President, the Parliament can’t enact it into law. The budget projects expenditures at 295.11 trillion LBP and revenues at 277.92 trillion LBP, resulting in a deficit of 17.19 trillion LBP. Criticisms include its lack of reform orientation, minimal allocation to capital expenditures, absence of specified exchange rates, and concerns about excessive or regressive new taxes in a challenging economic environment. The Finance and Budget Committee has removed redundant articles and is scrutinizing others for regressive elements. Overall, the budget is viewed as a transitory, stop-gap measure, raising questions about the delayed implementation of structural reforms.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 32.53% to stand at $112.69B by September 2023 amid BDL’s adoption of a new exchange rate of LBP 15,000 per USD. On the assets side, currency and deposits with Central Bank represented a high figure of 74.98% of total assets; they dropped annually by 24.03% to settle at $84.5B in September 2023. Deposits with the central bank (BDL) represented 99.19% of total reserves, and decreased by 22.62% YOY, to reach $83.81B in September 2023. Furthermore, Vault cash in Lebanese pound fell by 76.44% on a yearly basis to stand at $685.52M by the same period. The drop is attributed to the calculation based on the new official exchange rate of LBP 15000 per USD. Claims on resident customers, constituting 6.63% of total assets, shrank significantly by 62.1%, to stand at $7.48B in September 2023. Moreover, Resident Securities portfolio (5.44% of total assets) dropped by 60.75% in September 2023 to stand at $6.13B. More specifically, the Eurobond holding recorded a decline of 30.95% since September 2022, to reach $2.58B by end of September 2023. Additionally, claims on non-resident financial sector increased by 10.85% YOY to stand at $4.42B by September 2023.
On the liabilities side, resident customers’ deposits were the main account, representing 64.75% of total liabilities; they decreased by 26.97% since September 2022 to reach $72.97B by the month of September 2023. In more details, deposits in foreign currencies (95.67% of resident customers’ deposits) decreased by 6.78% YOY to reach $69.81B by September 2023, additionally deposits in LBP (4.33% of resident customers’ deposits) fell by 87.38% YOY to stand at $3.16B by September 2023. Noting that Lebanon has become dollarized and cash based. As for Non-resident customers’ deposits, grasping 18.82% of total liabilities, they recorded a drop of 9.37% and stood at $21.21B in September 2023. In details, the deposits in LBP fell by 90.41% to reach $192.62M and deposits in foreign currencies declined by 1.76% to reach $21.01B over the same period. In addition, Non-resident financial sector Liabilities held 2.76% of total Liabilities and decreased by 29.29% YOY to reach $3.11B in September 2023. More importantly, the dollarization ratio for private sector deposits increased from 77.66% in September 2022 to 96.34% in September 2023.
Also this month, Bank Audi published its non-audited financial results for Q3 2023 on 17/11/2023. In its statement, Bank Audi said that “The continued absence of the required reform package to address the impact of the financial crisis prevailing since the year 2019, of which the ratification of the resolution program and the adoption of the restructuring plan, is translating into a perpetuation of the high levels of uncertainties, preventing banks to estimate in a reasonable manner the impact of the Crisis on their financial position, which we anticipate to be quite material. In February 2023, the Central Bank of Lebanon adjusted the official exchange rate from LBP 1,507.5 to LBP 15,000 to the US Dollar. Meanwhile, the Bank is continuing to implement measures aiming at reinforcing the Bank’s financial standing, in accordance with laws and regulations. Generation of an operating surplus that was fully allocated to cover one-off losses tied to the Crisis, within an adopted policy of allocation of all recurrent profits to provisions and to cover exceptional losses until the dissipation of uncertainties. Re-building activity of the external accounts; paving the way for the revival of traditional banking operations”. For Q3 2023, Bank Audi’s net profit amounted to $53.63 million compared to losses of $811.23 million in Q3 2022. As to assets, they stood at $17.96 billion, less by 33.30% relative to end 2022; deposits reached $15.70 billion, down by 21.20%; loans stood at $2.32 billion, less by 41.20%; and shareholders’ equity were $1.18 billion, down by 70.52%.
Bank Audi stated also that “the figures below were published to comply with regulatory publishing requirements for listed banks operating in Lebanon. They should not be relied upon for decision-making, and they should be read in conjunction with the full set of financial statements and related disclosures as published on the Bank’s website (please refer to the 2022 Annual Report and to the Interim Report as at end-September 2023.
Same for BLOM Bank that published on 10/11/2023 its consolidated but un-audited financial results for Q3 2023. The results obtained were naturally affected by the impact of the still-ongoing financial and economic crisis that has struck Lebanon since October 2019. Net profits came to $4.143million, lower by 5.19% than the same period last year. In addition, BLOM booked negative $169.4 million in provisions for expected credit losses against positive $3.9 million booked in Q3 2022. In terms of balance sheet items, assets stood at $18.59 billion, lower by 27.92% from end year 2022; deposits were $16.62 billion, lower by 18.68%; loans decreased to $1.07 billion, less by 37.68%; and shareholders’ equity stood at $1.27 billion, down by 59.53%.
BLOM Bank is required to comply by all BDL circulars as stipulated in the Code of Money and Credit, especially article 208. As a result, the Bank has complied by these circulars when calculating expected credit losses in accordance with the specified ratios listed in Appendix 6 of BDL circular number 44, and as amended by the intermediate circular number 543 issued by BDL on February 3rd, 2020. It is necessary to point out that the deteriorating economic and monetary situation in the markets, and the continued absence of agreement on an adequate financial rescue plan, makes it very difficult to estimate the negative effect of the current crisis on the Financial Statements according to the International Accounting Standards.
In conclusion, the month of November brought some breakthroughs for the Lebanese economic situation with the contraction in Lebanon’s private sector economy decelerated but remained under stress. The BLOM PMI registered 49.5 in November up from 48.9 in October, the highest since July. The survey showed that business activity saw a slower decline over four months, attributed to a modest recovery in new export orders. Additionally, business confidence showed a slight improvement, reaching its highest level in three months. However, persistent cost pressures led to another increase in firms’ selling charges. Indeed, Lebanon saw a significant economic improvement, but it is still far from a path leading to stability.
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