Car and housing loans can no longer exceed 75 percent of the underlying asset value. The Central Bank (BDL) issued a new intermediate circular setting these new conditions which cover these and other retail loans such as education loans, and credit cards.

“Banks were sometimes flexible by financing more than 75 percent of the value of the property through a loan backed by the Public Corporation for Housing (Iskan),” said Fady Sader, Assistant General Manager, Head of Consumer Banking and Retail Products at Crédit Libanais. “The BDL is only taking cautious measures and this new ceiling is not related to the Iskan’s crisis,” he said.

The circular stipulates that the total of all monthly installments of various loans should not exceed 45 percent of a household income. Housing loan installments should not exceed 35 percent of that same income. The household income is the combined income of the husband and wife. This becomes effective in October 2014.

The circular has modified the rate of provisions against default. Banks should take two percent provision against their retail loan portfolio by end of 2014, and to be increased by half a percent annually over six years as of 2015.

“The BDL is not building such measures based on negative signs, or risks of defaults, in the market,” said Sader. “The economic situation is different from recent years. The BDL is asking banks to take these provisions gradually, in order to face any future crisis and avoid losses in their balance sheets if they have to take provisions suddenly,” he said.

The new intermediate circular amends a basic circular dating back to 2001.