Average maturity of deposits nearly quadruples in one year. Longer tenure reduces risks of bank runs

Average maturity of deposits
nearly quadruples in one year
Longer tenure reduces risks of bank runs
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The average maturity of deposits has increased to 5.7 months, up from just 45 days before the resignation of Prime Minister Saad Hariri in November 2017. The average maturity had been stable at around 45 days for 20 years.

“The average maturity of deposits is still rising and the fact that depositors are engaging in longer maturities is a signal of confidence. A longer maturity also enables us to face any emerging crisis,” said a source at the Central Bank. More than two-thirds of total deposits matured during the resignation crisis and in just one month, due to the short 45-day maturity, he said.

The average maturity of lira deposits rose to four months while that of dollar deposits increased to seven months, according to the World Bank’s ‘Lebanon Economic Monitor’ for the fall of 2018.

The extension of maturities resulted from an important financial operation targeting new deposits carried out by BDL during the resignation crisis. The operation cost the Central Bank an extra 1.72 percentage points, with 1.42 percentage points going to depositors and 0.3 percentage points to banks.

According to the World Bank’s report, the sharp rise in the maturity of deposits was driven by “the combination of higher interest rates, especially on lira deposits, and restrictions on withdrawal of term deposits prior to maturity.”

“Controlling liquidity and lengthening the maturity of deposits is an effective inhibitor to speculation against the currency in a high-risk environment,” the World Bank said. According to the report, the Central Bank’s operation significantly lowers the chances of bank runs, compared to conditions just prior to November 2017, when term deposits could be withdrawn at any point prior to maturity without significant penalties.
Reported by Shikrallah Nakhoul
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Date Posted: Nov 08, 2018