Cutthroat competition
for bank deposits in lira

Up to 15 percent for long term commitments

Banks are competing aggressively to attract deposits, especially those denominated in lira. They seek to extend deposit maturities, according to the cover story of the August issue of Lebanon Opportunities.

To encourage their customers to boost their lira deposit levels, banks are passing on generous interest margins offered by the Central Bank (BDL). In July, a number of banks were offering 11 percent on lira deposits converted from dollars for a maturity of two years, 12 percent for three years, and 15 percent for five years, according to ‘Retail Banking Monitor’, a tracking service by InfoPro Research. Those offers remain available as of this writing.

The banks are extending the deposit maturities in order to reduce the maturity mismatch between their customer deposits on the one hand, and their deposits with BDL and portfolio of treasury bills on the other, according to Najib Semaan, General Manager of First National Bank (FNB). “The mismatch was very large, and this was not a sound situation because it was costly for banks in the long run,” he said.

The cutthroat competition has pushed cannibalization among banks. Funds are moving from one bank to another. But when one bank succeeds in attracting a depositor from another, it doesn’t increase the overall size of deposits in the banking sector. Camille Moujaes, Head of the Branch Network Division at BBAC, said that banks are slicing portions from the same cake instead of attracting deposits from abroad, and that BDL’s incentives are meant to support the national currency.

The banks will be able to continue attracting steady inflows of deposits, mainly from the diaspora, but at higher rates, according to the ‘Banking System Outlook-Lebanon’ report issued by the Moody’s rating agency in July. Riad Salameh, Governor of BDL, said that deposits are expected to rise by more than five percent in 2018. The growth in lira deposits is projected at eight percent, and that of dollar deposits at four percent, according to Salameh.

The banks will continue to attract liquidity by other means as well, such as education and retirement saving programs. Although these savings represent a small amount compared to deposits, they can reach a broad market segment. According to Jocelyne Chahwan, Deputy General Manager-Retail Banking at BLOM Bank, older saving programs involved sizeable payments, excluding a large segment of the market that can only save small amounts on a monthly basis. “Retirement plans are a must for the self-employed who cannot benefit from an end-of-service indemnity,” she said. There is also a need for saving programs, especially for young people starting their careers, and who do not earn enough to save large sums in regular deposits, according to Chahwan.