Highest T-bill rates in three years

Bifani: It’s lower than the banks were asking

The latest ten-year T-Bill auction has raised LL1.15 trillion (about $700 billion). The high yield issue which pays a rate of 8.24 percent was met with strong appetite from local banks, said Fadlo Choueiri, head of economic research and corporate finance at Credit Libanais Investment Bank.

He said banks were attracted by the relatively high yield in an environment that has seen weighted average yields for T-bills on a declining trend this year, dropping from 5.75 percent to 5.5 percent in July.

“This T-bill auction will allow banks to revitalize their interest income, especially in the absence of placement opportunities abroad. It will allow them to pay better rates on lira deposits and attract more deposits which would tame the dollarization rate,” said Choueiri.

Local banks have been cutting back their subscriptions to sovereign debt due to low interest rates, especially those offered on local currency notes. Choueiri said that banks’ low net interest margins is why they have placed greater emphasis on commissions income as opposed to net interest income.

Alain Bifani, director general of the Ministry of Finance said the interest rate on the ten-year bills is actually not that high: “It is lower than the banks were asking.” he said.

The government will issue Eurobonds with the same maturity in three months. The new debt notes will be used to refinance debt maturing in 2013 and 2014, as well as cover new financing needs.

Gross public debt stood at around $55.4 billion at end-July, of which 58 percent is in local currency. Commercial banks held some 51.7 percent of lira-denominated debt, while the Central Bank held 31.6 percent.

The Minister of Finance Mohammad Safadi had earlier said the government plans to raise $2 billion in international bond markets in 2012, benefitting from low rates.

According to Ministry of Finance data, interest payments on foreign currency notes fell by 12 percent year-on-year in the first quarter. Domestic interest payments were down by nine percent.