By Tony Akleh
Central bank imposes stricter requirements to open letters of credit to finance imports into the country
Retailers in Lebanon are coming increasingly under pressure on importing goods after international correspondent banks imposed stricter requirements to open letters of credit to finance imports into the country.
The move follows the downgrade of Lebanon's sovereign ratings and to importers' increased challenges in meeting these requirements.
Figures released by Banque du Liban, the central bank, showed that letters of credit opened totalled $293.5m in the first half of 2020, a decrease of 90.8 percent from $3.2bn in the first half of 2019.
Lebanon’s sovereign rating has continued to decline in recent months, particularly since the country decided not to repay due debts, and this has also had a direct impact on the banking sector.
In order to continue operating in the international financial system and even to preserve their relations with correspondent banks, Lebanese banks must continue to respect the capital adequacy ratio set by Basel III International Regulations.
A manager of a Beirut shoe store chain told Arabian Business: “It has become difficult to import via banks these days, and we used to import shoes from China until the end of 2019 and early 2020 through banks without any difficulties, and sometimes we even went to China to inspect the factories closely.”
He added: "Now the situation has changed dramatically, and we can no longer rely on banks due to transfer restrictions and the difficulty of securing the dollar. Therefore, the Chinese shoe manufacturing company established an office in Beirut to conclude deals directly with Lebanese retailers, and without this solution we would not have been able to import."
A clothing retailer also told Arabian Business: "We are importing the minimum of our needs, with the low purchasing power of the Lebanese and the imposition of bank restrictions on transferring money abroad. Imports can be made if we open separate fresh dollar bank accounts, but from where do we get these dollars whose exchange rate exceeds 7,000 LBP on the parallel market?”
“Lebanese banks had already used all their deposits with foreign correspondent banks, the latter must either increase the value of the guarantees they receive from their Lebanese counterparts to provide credit, or make stricter transfers and credit to Lebanese banks,” a banker told Arabian Business.
Credits used for imports reached $368.4m in the first half of 2020, a decline of 87.4 percent against $2.9bn in the same period of 2019 while outstanding import credits stood at $158.6m at the end of June compared to $1bn a year earlier.