Under the financial system drawn up to protect monetary stability and the banking sector from any unexpected local political or security jolts this year — especially given that they have overcome all of the crises that have affected Lebanon in the past few years — the Central Bank of Lebanon has taken a new step, following the economic recession recorded last year. This recession came about as a result of political tension, shifting security incidents, repercussions of the "Arab Spring" and the events in Syria. This step is aimed at limiting any risks facing the growth rate — which is already sagging — and moving the country out of recession.
This step involved the central bank pumping 2.2 trillion Lebanese pounds (about $1.47 billion) into the state's economy, in the form of loans to local banks with an interest rate of 1%. This, in turn, will allow these banks to fund the establishment of small and medium-sized production enterprises, as well as to support those that already exist. It will also allow the bank to provide reduced-interest loans (between 5% and 6%) to the housing sector. With the knowledge that the bank is not in need of liquid funds, this amount will provide it with enough surplus to fund the Lebanese economy. Joseph Torbey, the head of the Lebanese Banks Association, noted in an interview with Al-Hayat that "funding to the private sector in Lebanon now stands at $42 billion." He added: "This step will provide incentives for the bank to provide broad, long-term and low-interest loans, specifically in Lebanese pounds."
Torbey announced that through its participation in providing 2.2 billion Lebanese pounds, the central bank would "provide additional stimulation to the Lebanese economy and accelerate growth by encouraging the movement of credit — specifically to the production and housing sectors, and to new projects related to research, renewable energy and environmentally friendly projects."
He stressed that pumping this amount into the banking sector did not mean that "banks are in need of liquidity." Adding that: "This move falls within the framework of the objectives of the central bank, which already include maintaining monetary stability and managing public debt through setting exchange and interest rates. This is a way to guarantee facilitated credit to stimulate certain sectors that we consider strategic for the economy."
Given that banks are equipped with mechanisms to cope with the lending process — within the parameters and conditions specified in the circular — Torbey noted that banks "will use the same mechanisms that they have adopted for financing loans from the central bank's compulsory reserve, this large block of cash was put aside and used within limited ceilings."
Torbey believes that the central bank's goal in "lending this amount to the banks is to maintain previous lending rates, through competitive prices, after the banks' liberated funds from compulsory reserves were exhausted for the purposes of incentivized credit." He said that "bank lending to the private sector over the past year had increased by 10% and served as an impetus for economic growth, which reached 2%. This is despite a decline in certain economic indicators — specifically relating to tourism — as a result of the situation in Lebanon and the repercussions of the so-called “Arab Spring.”
He stressed that banks had "recorded a good performance, secured liquidity and maintained the confidence of depositors, as evidenced by the continued, natural flow of liquidity. This has led to an 8% increase in deposits, totaling $125.6 billion as of Nov. 30, 2012."
Torbey announced that "the bank's step was aimed at securing low-cost resources that the target audiences — and the economy — can afford." He noted that the objectives of the central bank were "developmental, not commercial." He announced that banks would "carry out funding at their own risk, in the sense that any lending risks would fall on the individual banks, not on the central bank." He pointed out that "interest rates would depend on the type of loan, according to what has been specified in the circular, but would not exceed a rate of 6% annually. The circular also asked that banks provide the central bank with adequate guarantees, in exchange for these facilitated loans."
He noted that "$80 billion Lebanese pounds ($53 million) had been allocated for the Housing Bank, provided the interests and commissions of all kinds computed on these loans do not exceed 3%. Moreover, the ceiling on housing loans was raised to 800 million Lebanese pounds ($530,000), with the beneficiaries being low-income citizens and sectors that stimulate the economy because of their positive effect on the environment and growth."
While it is expected that these loans will be in high demand in light of the economic downturn, Torbey expressed his confidence that "this credit would be distributed quickly, although this depends on competition between banks." He stressed that the Lebanese economy "still functions," and "despite some downturn, particularly in the tourism sector, other sectors continue with production." He announced that the banking sector had not "fallen short with respect to any other sector in Lebanon." He pointed out that "banks had lent $42 billion to the Lebanese economy, a figure that is almost equivalent to Lebanon's gross national income. This figure is unusual relative to other countries."
Moreover, if payment defaults were recorded in any sector, Torbey was certain that this ratio would be "limited and would not have an effect on the large block of credit in the market."
The Syrian market
Regarding the transfer of Syrian capital to Lebanese banks, Torbey pointed out that "the transfer of such capital is almost impossible due to the monetary situation in Syria."
Regarding the activity of Syrian banks in which Lebanese banks maintain shares, he noted that "they have suffered the same fate as the rest of the Syrian economy." He noted that "Lebanese monetary authorities requested that austerity measures be taken to limit lending in Syria, thus the Lebanese sector protected itself from the repercussions of the Syrian crisis." He stressed that Lebanese banks were "capable of absorbing the losses in Syria — estimated at $450 million — through the aforementioned austerity measures, reduced lending, and reduced deposits in the Syrian market."