Will Lebanon’s Banks Bail on Cyprus?

Al-Akhbar is currently going through a transitional phase whereby the English website is available for Archival purposes only. All new content will be published in Arabic on the main website (www.al-akhbar.com).

Al-Akhbar Management

A Cypriot woman shouts slogans as she holds a placard during a protest against an EU bailout deal outside the parliament in Nicosia on 19 March 2013 (Photo: AFP - Patrick Baz)

By: Mouhamad Wehbe

Published Wednesday, March 20, 2013

The financial crisis in Cyprus impacts Lebanon’s banks to the core. This is no exaggeration: 11 of Lebanon’s major banks have established both independent and subsidiary branches on the island.

Of the Lebanese banks operating direct branches in Cyprus are: Bank of Beirut, BLOM Bank, Byblos Bank, Bank Med, Bank of Beirut and the Arab Countries, Intercontinental Bank, Credit Libanais, Bank of Lebanon and the Gulf, and Bemo Bank.

Two other Lebanese banks operate through independent outfits. Fransabank owns a 95.6 percent stake of Cypriot USB BANK PLC, while SGBL fully owns SGBL Cyprus.

Most of these banks saw Cyprus as a major base for their operations in Europe, while others saw the Mediterranean island as offering different kinds of opportunities.

According to estimates, Lebanese banks operating in Cyprus hold deposits worth more than $2.5 billion, which would no doubt be affected by the Cyprus bank deposit levy – possibly to the tune of up to ten percent or $250 million – imposed by the bailout deal with the EU and the IMF.

Banking ties between Lebanon and Cyprus date back to the Lebanese civil war, when a large number of businesses and individuals moved their deposits away from the conflict. Cyprus offered a safe haven for Lebanese entrepreneurs to establish similar businesses to the ones they operated in their home country, mostly in commerce and tourism.

The Lebanese-Cypriot banking relationship is governed by various factors. Over the past few decades, the island republic earned itself a reputation for having little restrictions on capital flows, as well as for being a popular tourist destination and a corridor for migrant workers in the Mediterranean. This background encouraged Lebanese banks to do business in Cyprus.

Out of the $2.5 billion held by these banks in deposits, $1.3 billion is controlled by only two banks, while the rest is distributed among the other nine banks in varying proportions. In total, these deposits account for 1.7 percent of the consolidated deposits of Lebanese banks, and are equivalent to 10.4 percent of non-residents’ deposits (and 6 percent of Lebanon’s GDP).

The deposits in Lebanese banks in Cyprus come from two main sources: foreign, with more than half of the deposits of Russian origin; and Lebanese, which were placed in Cyprus to escape taxes on interest rates in Lebanon, or to take advantage of high interest rates.

The source of deposits varies from bank to bank. While some bankers say their customers in Cyprus are all Lebanese, others have claimed a total lack of Lebanese patrons. However, all bankers familiar with that market confirm that most of the deposits, whether Lebanese or non-Cypriot, are each worth 100,000 Euros.

This means that the measures that the current measures, which include the levy on deposits, will not affect the capital of Lebanese banks operating in the island, but rather their depositors.

As a result, deposits may be withdrawn from Cyprus, with Lebanese bankers hoping that the majority would come to Lebanon. Another effect may be the closure of some branches of Lebanese banks in Cyprus.

This article is an edited translation from the Arabic Edition.

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd><img><h1><h2><h3><h4><h5><h6><blockquote><span><aside>
  • Lines and paragraphs break automatically.

More information about formatting options

^ Back to Top