Spread narrows between
lira and dollar lending rates
Demand expected to rise
for loans in local currency
The spread between the Beirut Reference Rate (BRR) on lending in lira and the BRR on lending in the U.S. dollar has narrowed by 27 percent since January 2016.
The spread is currently at 1.87 percent, as per the rates set by the Association of Banks (ABL) for September 2017.
The margin between the two rates has been slowly decreasing over the period due to the moderate rise in the BRR on lending in dollars. The BRR for lending in liras was fairly stable during the period. The increase in the dollar BRR followed rising global interest rates on the dollar.
“The rising interest rates on the dollar will increase demand for loans in liras,” said Mazen Soueid, Chief Economist at BankMed. This is beneficial for the financial market, especially given that the banking sector’s liquidity in lira has increased following the financial engineering operations carried by the Central Bank (BDL) last year.
Last year’s financial engineering operations resulted in shortages in dollar liquidity and triggered competition between banks to attract dollar deposits. The banks raised interest rates on the dollar to draw in depositors, but this competition has lessened and the banks are not likely to raise interest rates on the dollar any further.
The BRR is used for the calculation of the Beirut Prime Lending Rate. It replaced the London Interbank Offered Rate (LIBOR) locally in 2009 because it is considered by the ABL to be a better indicator of the cost of lending on the domestic market.
Source: Credit Libanais, InfoPro
Reported by Shikrallah Nakhoul
Date Posted: Aug 25, 2017