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Bankers: raising taxes would wreak havoc

The building that houses the Lebanese Banks Association in Beirut. (The Daily Star/Grace Kassab)

BEIRUT: The proposal to fund a public sector wage hike by increasing taxes on the interest earned on bank deposits will cost depositors LL280 billion ($186 million) and drive many to take their business elsewhere, the head of the Association of Banks in Lebanon said Thursday.

“Some of the depositors may take their money somewhere else, and this could affect the size of the deposits. These proposed taxes will hurt the depositors and banks, as well as the economy,” Francois Bassil told The Daily Star.

Parliament’s Joint Committees have approved a proposal to raise the current 5 percent tax on deposit interest revenues to 7 percent, with a view to using the tax revenues to fund a long-awaited wage hike for the public sector.

“Additional taxes on interest on bank deposits could cause inflation to rise and threaten the stability the national currency,” the association warned in a statement.

Bassil also criticized a proposal to increase taxes on bank dividends and tax some of the assets deposited by commercial banks at the Central Bank.

“This proposal is designed to secure an additional LL220 billion, but ultimately this will affect the profitability of the lenders,” he said.

Bassil blasted politicians whom he said “were only keen to capitalize on these decisions in the next elections.”

“People should stop voting for these people. This political class is only ruining the country,” he said.

Bassil hinted that banks could decide to stop financing the public debt in protest against the current economic and financial policies.

“We did roll over around $1.6 billion in Eurobonds that mature in April and May. But I am not sure if we will continue in the same pattern,” he said.

Lebanese banks hold the bulk of the sovereign bonds in Lebanon, increasing their exposure to public debt default risks.

A banker who attended the Association of Banks meeting said some bankers favored ending their subscriptions for Lebanese bonds.

“I am not sure if this will eventually happen but I can say that some bankers expressed this desire,” the banker told The Daily Star.

The bankers agreed to close all branches Friday to protest the proposed taxes. They said they would hold a news conference Friday.

A statement by ABL cautioned that banks could be compelled to increase interest rates on housing and personal loans to make up for the decision to raise taxes on interest on deposits and banks’ dividends.

“We consider these taxes as a punishment for the banks and financial institutions that have demonstrated their resilience and immunity in the face of various political and security challenges over the past decades. These banks are still protecting the Lebanese state from collapse by financing the national economy,” the statement said.

A delegation from the banks plans to meet the president, prime minister and speaker to explain the dangers of these tax measures and urge them to find alternative means of funding the wage hike.

Some banks fear that international rating agencies such as Moody’s would not hesitate to downgrade the banks even further if the tax measures and salary scale were adopted.

“Let the politicians cut the waste in public departments and end the deficit at Electricite du Liban. This company should be privatized to end the deficit and relive the treasury,” Bassil said.

 
A version of this article appeared in the print edition of The Daily Star on April 11, 2014, on page 5.

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Summary

The proposal to fund a public sector wage hike by increasing taxes on the interest earned on bank deposits will cost depositors LL280 billion ($186 million) and drive many to take their business elsewhere, the head of the Association of Banks in Lebanon said Thursday.

Bassil also criticized a proposal to increase taxes on bank dividends and tax some of the assets deposited by commercial banks at the Central Bank.

A statement by ABL cautioned that banks could be compelled to increase interest rates on housing and personal loans to make up for the decision to raise taxes on interest on deposits and banks' dividends.

Some banks fear that international rating agencies such as Moody's would not hesitate to downgrade the banks even further if the tax measures and salary scale were adopted.


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