Central Bank to subsidize
financing of industrial exports

Ceiling set at $2 million

The Central Bank (BDL) has decided to cut the reserve requirements of banks that provide soft loans to manufacturing companies that export at least 50 percent of their output.

The reserve requirements will be slashed by an amount equivalent to the total value of the loan’s principal, according to BDL’s intermediate circular 462.

The loan must be denominated in lira and be used to finance the company’s working capital. Interest rates, fees, and all other expenses related to the loan should not exceed three percent per annum, according to the circular.

The value of each loan must not exceed LL3 billion ($2 million), or a term of more than three years.

A banking source said that BDL’s decision is the first of its kind in Lebanon and benefits both banks and industrialists.

Those banks that still have enough reserve requirements for this kind of lending will be motivated to provide such lucrative loans, the source said.

The liquidity freed from the reserve requirements could be invested in treasury bills at about 5.5 percent. When the three percent on the export loan is added, this will bring the total return to the banks to almost nine percent, he said.

The circular states that to be eligible for these loans, the exporters should not be benefiting from similar loans, such as those provided under the Arab Trade Financing Program (ATFP).

The source said that most local manufacturers export their products to the Arab world and benefit from ATFP loans. Therefore banks will have to talk with BDL in order to clarify and sort out this issue.

The exported products have to be of Lebanese origin, according to the circular. The loans’ beneficiary should not be operating in the mining sector whether the extracted materials are rocks, sand, earth, gravel, cement, or petroleum resources.

The source said BDL’s move creates uses for the abundant bank liquidity in liras that was generated by the financial engineering operations it carried out last year.

The industrial sector, as well as other vital sectors, already benefit from other BDL incentives. These include tourism, agriculture, and information technology. BDL also supports loans provided for environmental projects, housing, and education.