Lebanon News

Many leery Lebanese stash cash at home

Khalil Chehab of Shehab Security opens one of the safes on sale in his business in Beirut, Lebanon, November 6, 2019. REUTERS/Tom Arnold

BEIRUT: Having lived next door to Iraq during the U.S.-led invasion to oust Saddam Hussein in 2003, Diana is no stranger to geopolitical unrest. Back then her family withdrew cash from their bank in Kuwait and stored it at home.

More than 16 years later, Diana’s family, now living in their native Lebanon, are taking the same step as unrest flares with protesters demanding the removal of a political elite seen as corrupt and out of touch.

While there has been no armed conflict, a government has been toppled - Saad Hariri quit as prime minister last week - and the ensuing political void has accelerated a massive outflow of bank deposits as people fret about the future.

An estimated $6 billion of deposits - out of a total of more than $180 billion - has been withdrawn from banks in the four months up to the end of October, estimates Garbis Iradian at the Institute of International Finance.

That’s catastrophic for Lebanon, which relies on capital flows, particularly from its scattered diaspora, to fund its government’s deficit and huge debt, among the world’s highest relative to GDP.

“The decision to withdraw money and keep it in the safe was taken by my parents,” said Diana, a 25-year-old human resources officer. “They lived the war and have more experience in preparing for these types of situations - uncertainty.”

Diana, who asked for her last name to be withheld because of security concerns, said her family was withdrawing $1,000 a day since banks reopened Friday after a two-week shutdown in the wake of protests that erupted on Oct 17.

Informal controls by banks on the movement of money has helped stem outflows in recent days, but cash in circulation outside the Central Bank has still soared by 32 percent in the year to October, the highest annual rise since 1995, estimates Iradian.

Most of the withdrawals have been in U.S. dollars - with dollarization surging to an estimated 80 percent - heaping pressure on the Lebanese pound’s 22-year peg to the greenback.

That has fueled some peoples’ worries about a devaluation of the currency, potentially wiping out their savings in pounds.

Estimates on the amount of money stashed at home ranges from $1.4 billion to $2.5 billion. Some of that is likely be stored in safes sold by the likes of Khalil Chehab, chief executive of Shehab Security.

His business has seen a noticeable pick-up in sales of safes to locals in recent weeks and is selling two to three safes a day, compared to one previously. “They’re everyday people, families who are buying,” he said. “People don’t trust the banks and are wanting safes for their homes.”

Against a backdrop of frequent instability, some Lebanese have long kept some cash outside the banking system. And capital controls and the fragile economy meant appetite for safes was not yet at the peak of a few years ago when the economy was growing at a healthier rate and remittances from Lebanese abroad were flowing more freely, says Chehab.

With recession now biting, earnings squeezed by inflation and high unemployment, and flows from outside drying up, demand for safes is so far more measured.

That means Chebab’s most popular safes are more modest, smaller models, starting from 100,000 Lebanese pounds ($66.4), rather than the swanky 9 million pound versions, featuring glossy checkered designs on the door, walnut-effect compartments to store expensive watches as well as cash, and an inbuilt camera that sends a notification to the owner’s mobile phone when anyone approaches within a few feet of their safe.

“Those are for the wealthier customers,” he noted.

Accusations of money being siphoned out of the economy by the wealthy elite has been one of the catalysts of protests.

The authorities have vowed to get that returned.

“Most likely the corrupt political elite have already transferred part of their savings from Lebanese banks to foreign banks and investment funds abroad,” said Iradian.

Of the $6 billion that has exited the banking system since the end of June, he estimates $2 billion has gone to international banks and $1.5 billion to foreign investment funds and private or merchant banks.

But for ordinary Lebanese like Diana, keeping money out of the banking system ensures flexibility in the event of a further turn for the worst. “We need to have freedom with our personal expenses and decisions,” she said.

A version of this article appeared in the print edition of The Daily Star on November 09, 2019, on page 2.




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