Banks call for higher interests on loans

ABL recommendation
aims to reduce lending

The Association of Lebanese Banks (ABL) has recommended raising the benchmark interest rates on lending in local and foreign currencies starting January 2013. It called for raising the rate on lending in liras by three basis points to 8.47 percent, and the rate on lending in dollars by four basis points to 5.8 percent.

“One of the objectives of raising interest rates is to cut back lending,” said Ahmad El Radi, chief risk officer at Fransabank. Commercial banks often use these rates as a reference to calculate interest on loans, based on credit risks and profit margins.

The weighted average lending rate on loans offered over the months of August, September, and October was 7.29 percent for loans in liras and 7.19 percent for loans in dollars. “Reducing lending would help reduce risks emerging from defaulting on payments, especially within the tough economic situation,” El Radi said.

Loans offered by local commercial banks in dollars stood at $27.8 billion at end-October, up from $25.8 billion at end-2011. Loans offered in liras totaled LL14,540 billion (or $9.7 billion) at end-October, up from LL12,750 (or $8.5 billion) at end-2011.

According to El Radi, raising the benchmark on borrowing would, on the long run, reduce access to credit for both individuals and corporations. The average interest rate on deposits in dollars over the last three months was 2.85 percent, while that on lira deposits stood at 5.46 percent.