Banks to slash in­ter­est rates on de­posits in 2020

Salameh ex­pected to launch se­ries of cir­cu­lars to de­fine new mech­a­nism

The Daily Star (Lebanon) - - FRONT PAGE - By Osama Habib

BEIRUT: Cen­tral Bank Gov. Riad Salameh is ex­pected to in­tro­duce a new mech­a­nism to slash the in­ter­est rates on dol­lar and Le­banese pound de­posits and loans in 2020, in co­or­di­na­tion with the As­so­ci­a­tion of Banks in Le­banon, bankers said Mon­day.

Salameh dis­cussed the new mea­sures with Pres­i­dent Michel Aoun, the care­taker fi­nance and econ­omy min­is­ters as well as ABL last Fri­day at Baabda Pres­i­den­tial Palace, the bankers added.

“Salameh is ex­pected to is­sue a se­ries of cir­cu­lars prob­a­bly this week to de­fine the mech­a­nism to cut the in­ter­est rates on dol­lar de­posits and lend­ing. Once these cir­cu­lars come into force, I ex­pect the in­ter­est rates on U.S. dol­lar de­posits not to ex­ceed 5.5 per­cent even if the amount of money is in the mil­lions of dol­lars,” one banker told The Daily Star on con­di­tion of anonymity.

Po­lit­i­cal paral­y­sis and the fail­ure to im­ple­ment re­forms and com­bat cor­rup­tion, as well as the 47 day anti-gov­ern­ment protests, have ex­ac­er­bated Le­banon’s fi­nan­cial and mone­tary prob­lems.

Over $4 bil­lion in de­posits has been with­drawn from com­mer­cial banks since Septem­ber, though some ex­perts fear the fig­ure could be much higher.

How­ever, most of the with­drawals ap­pear to have stayed in Le­banon, bankers have said.

The cri­sis has trig­gered a run on the dol­lar, which has been trad­ing at ex­change houses be­tween LL1,900 and LL2,200.

Banks have placed lim­its on the with­drawal of dol­lars, caus­ing more con­cern among de­pos­i­tors.

“We are al­ready freez­ing some dol­lar ac­counts at 5 per­cent to 5.5 per­cent for one year to one year and a half at the re­quest of our cus­tomers. We have been do­ing this for over two weeks. The days of high in­ter­est rates on the dol­lars are over,” the chair­man of one bank told The Daily Star.

The banker added that lenders couldn’t re­duce the in­ter­est rates on dol­lar de­posits un­til they ma­tured.

In­ter­est rates on de­posits have sky­rock­eted in the past few years, with some lenders of­fer­ing up to 12 per­cent or 14 per­cent in­ter­est on dol­lar de­posits that ex­ceed $1 mil­lion.

The chair­man dis­missed the pos­si­bil­ity of an in­ter­est rate war among banks to lure more funds in hard cur­rency.

“I don’t think the in­ter­est rate on dol­lars will go up again. Where can they get dol­lars? The flow of dol­lars to the coun­try has dropped dras­ti­cally over the past few months,” they added.

The banker ex­pected Salameh to in­tro­duce a mech­a­nism to stop com­mer­cial banks from hik­ing in­ter­est rates on dol­lar de­posits.

“Now we are in a state of emer­gency. A 5.5 per­cent in­ter­est rate on dol­lar de­posits is still higher than other coun­tries, where the rates do not ex­ceed 1.5 per­cent on dol­lar de­posits,” they said.

Bankers said that con­ver­sions of Le­banese pounds to dol­lar ac­counts had re­duced the cir­cu­la­tion of the lo­cal cur­rency in the mar­ket.

“The dol­lar­iza­tion in our bank, for ex­am­ple, has jumped from 71 per­cent to over 82 per­cent now. I ex­pect the in­ter­est on the lira to drop also,” the bank chair­man said.

Some bankers ex­pressed shock at the ex­tent of the rush on the dol­lar in the past few weeks.

“It was a mad­house. Peo­ple in­sisted on with­draw­ing their dol­lar de­posits de­spite all the as­sur­ances that their de­posits are safe,” one banker said.

“Some of our cus­tomers have bizarre ex­cuses to with­draw their money. One cus­tomer came to our bank say­ing that four of his chil­dren have been en­rolled at Har­vard Univer­sity and he needed the money to pay for their tu­ition. He printed four Har­vard ap­pli­ca­tions to prove his point but we did not see the ac­cep­tance from the univer­sity.”

One fi­nan­cial an­a­lyst also ex­pected the in­ter­est rates on Trea­sury bills and Eurobonds to drop once the new Cabi­net in­tro­duced a re­form pro­gram that would sat­isfy the mar­ket.

“First thing, we need a Cabi­net that wins the sup­port of the in­ter­na­tional com­mu­nity. We def­i­nitely need to cut the fis­cal deficit through a se­ries of mea­sures,” the an­a­lyst said, ad­ding that banks might be will­ing to make some sac­ri­fices if they saw clear ev­i­dence that the new Cabi­net would im­ple­ment re­forms across the board.

The an­a­lyst did not rule out the pos­si­bil­ity that the In­ter­na­tional Mone­tary Fund could step in and help Le­banon at the re­quest of the new Cabi­net. “The IMF may be will­ing to lend up to $3 bil­lion to Le­banon with an in­ter­est rate of not more than 3 per­cent. This cash in­jec­tion will en­cour­age other in­vestors to bring their money back to Le­banon,” he added.

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