Former Minister and banker Alain Hakim has shed light on the ongoing rush by depositors to freeze their Lebanese pounds in bank accounts offering interest rates as high as 40%. While this trend reflects a mix of optimism and caution among depositors, Hakim highlighted the underlying economic dynamics and potential risks associated with this practice.

“The Lebanese pound has long been unavailable, as evidenced by the elevated interbank interest rates that were high even before Acting Governor Wassim Mansouri took office,” Hakim told Nidaa Al-Watan.

Banks, in response, have recently increased interest rates on deposits in Lebanese pounds to attract local currency. However, Hakim pointed out that such offers are primarily targeted at large institutions rather than individual depositors.

“Subscribing to these products generally requires significant sums with high ceilings that most individuals cannot afford,” he noted.

Large corporations, which use the local currency for operational purposes, are the primary participants in these schemes.

“These companies were already depositing their funds in banks to facilitate their operations even before the introduction of high-interest deposit accounts,” Hakim added.

While these high-interest rates might seem like a lifeline, Hakim cautioned that they do not address the root issue of the pound’s scarcity in the market. This problem, he explained, stems from the widespread dollarization of the economy, where the U.S. dollar dominates all sectors. However, he acknowledged that the raised interest rates could alleviate some pressure on banks.

“It reduces the high interbank borrowing costs, which can reach up to 100%, that banks incur when they borrow the local currency from one another,” he said.

Hakim also highlighted a potential silver lining for companies that deal in Lebanese pounds without converting them into dollars. By freezing their funds, these businesses are not only capitalizing on high interest rates but also betting on positive economic developments in the near future.

“Many companies are optimistic about the upcoming phase, particularly if a president is elected early next year, which could mark the beginning of a ‘new game’ for Lebanon,” he said.

A key indicator of this optimism is the continuous improvement in Eurobond prices, which Hakim expects will rise further following the election of a new president. This, he argued, would have a positive impact on the Lebanese pound’s exchange rate against the dollar.

“Previous studies indicate that, even in the worst-case scenario, the pound’s actual exchange rate should be much stronger than its current levels,” he explained, predicting a notable improvement in the pound’s value once Lebanon restores trust in its economic and political systems.

Despite the opportunities presented by high-interest deposits, Hakim warned that risks persist. He reassured depositors, however, that these risks are somewhat mitigated by the substantial returns offered.

“The interest rates are high enough to cover any potential fluctuations in the exchange rate, ensuring that depositors do not lose their principal funds,” he said.