Financial Access and Stability

Instability in region, higher food and fuel prices to impact economy: World Bank report

The Governor of the Central Bank, Riad Salameh, said that the growing confidence in the country’s banking policies has channeled major remittances into the financial sector.

Salameh said that bank deposits currently represent three times the country’s GDP. This, he said, has prompted lower interest rates. “The interest rates on sovereign debt are less than the rate presumed by the country’s credit ratings,” he said.

Salameh was speaking during a conference marking the release of the World Bank’s report ‘Financial Access and Stability: A Road Map for the Middle East and North Africa’.

The report said that Lebanon has an “overfunded banking system” and a poorly rated sovereign due to its high level of debt and high political risk. Lebanon is rated “B” by Standard & Poor’s, three notches below investment grade.

The report said that the country has experienced a boom in construction and trade driven by foreign inflows into the real estate and banking sectors. However, it notified that continued instability in the region, as well as higher food and fuel prices, are expected to have a negative impact on the country.

The report said that among the region, Lebanon has introduced the largest number of interventions to induce private banks to extend housing loans and lend Small and Medium Enterprises. It said that credit guarantees, interest subsidies, and exemptions on reserve requirements contributed to the positive access outcomes. The report shows that loans extended to SMEs represent around 16 percent of the total lending of commercial banks.