In its monthly meeting with the Association of Banks in Lebanon (ABL), Central Bank Governor Riad Salamé expected deposits in the banking sector to grow by 8% in 2012 and stressed the importance of continuing to attract capital to Lebanon given the ongoing deficit in the balance of payments.
He said that the US dollar is being bought in the market at the lower end of the band and that the Central Bank has purchased about $700m in foreign currencies since the start of the year. He noted that interest rates in Lebanon are lower than those in similarly-rated countries and are equivalent to those in better-rated sovereigns. He attributed the deficit in the balance of payments to the increase in the dollar value of imports due to the rise of global oil prices as well as to the slowdown in capital inflows. He did not expect the deficit to affect financial stability in the country given the foreign currency savings accumulated over the past few years.
In parallel, Governor Salamé indicated that he is discussing with the United States Internal Revenue Service (IRS) the possibility for the Central Bank to play the role of agent on behalf of the Lebanese banking sector regarding the application of the U.S. Foreign Account Tax Compliance Act (FACTA), rather than having each bank reach a separate agreement with the IRS. He added that the Special Investigation Commission against Money Laundering and Terrorism Financing can play this role without having to amend or ratify any new or existing laws. FACTA seeks to identify U.S. taxpayers who have accounts at non-U.S. financial institutions, and aims to enforce reporting of those accounts through withholding. It requires non-U.S. financial institutions to enter into compliance agreements with the U.S. Treasury by June 30, 2013 and to identify and report U.S. accounts annually. But the ABL noted that banks need to start reviewing clients accounts given that it is a time-consuming process, and need to begin buying and adopting new IT systems that would help implement the new law. It added that the number of clients in Lebanon is limited compared to the number of clients and accounts in Switzerland or Luxembourg, or in other financial centers.