The Daily Star (Lebanon)
More high returns on deposits expected
Other banks could follow as lender offers 14-16 pct for amounts converted to pounds
BEIRUT: A number of banks are expected to follow the footsteps of a leading lender that is offering clients a 14-16 percent interest rate if they convert their dollar deposits to Lebanese pounds, a banking source said Wednesday.
“The bank offering this high return on Lebanese pound deposits is stipulating that the deposit should have a maturity of five years at least, and not one year. The bank is accepting almost all amounts. They have drawn hundreds of millions of dollars and it looks promising,” the source told The Daily Star.
The average interest rate on the Lebanese pound is around 7 to 8 percent for six month to one year maturities. Dollar deposits do not exceed 4.5 percent, but this can go little higher if the amount of money deposited is substantial.
One economist attributed the reason behind the move of the leading Lebanese bank to the country’s wide budget deficit.
“The main reason behind the high interest rate in Lebanon is the fiscal deficit and the continuing borrowing need of the government.
“Everything that is being done in this regard, whether through the Central Bank or commercial banks, is to cover the government’s borrowing needs,” Nassib Ghobril, head of economic research at Byblos Bank, said.
Three years ago, a number of leading Lebanese banks offered up to 10 percent interest on Lebanese pound deposits for amounts starting at LL100 million pounds ($66,000) and for a minimum maturity of one year.
However, this is apparently the first time a Lebanese bank has offered the option for clients to convert their dollar deposits to Lebanese pounds with a maturity of five years.
The average maturity of deposits in Lebanon is three months to six months. Until several years ago, this maturity did not exceed 45 days.
The banking source said interest rates offered in Lebanon are not too high, as some argue, noting that the country’s classification by rating agencies is B- and most countries in this category offer higher interest rates on deposits.
“Emerging market countries have hiked their interest rates and are anticipating to go even higher. If the interest rates on U.S. bonds go up by one notch, the other markets will follow suit,” the banker said.
He added that although many countries are suffering from a dollar crunch, Lebanon has managed to draw more dollar deposits.
The source added that the Central Bank has foreign currency reserves of over $44 billion, which can cover 85 percent of the Lebanese pounds in the market.
He also rejected recent rumors that the Lebanese pound was on the verge of collapse due to economic stagnation. “The pound is stable and Central Bank Gov. Riad Salameh has repeated this many, many times,” the banker said.
In remarks published Wednesday, Salameh downplayed reports that the country’s financial situation was unsteady and said the Lebanese pound was and would remain stable.
In an interview with local newspaper An-Nahar, Salameh suggested there were ulterior motives behind rumors circulating about Lebanon’s financial situation and the strength of the Lebanese pound.