Non-residents bank deposits
surge seven percent in 2018

Overall deposit growth sufficient

to finance private and public sectors

Customer deposits in commercial banks grew 2.8 percent last year to $173.2 billion on the back of a jump in non-resident deposits and in foreign currency deposits, according to Central Bank data.

Deposits denominated in foreign currencies, which account for 71 percent of total deposits, increased 5.8 percent. Deposits in the local currency dropped 3.6 percent over the same period.

Deposits by non-resident customers, representing 22 percent of overall deposits, jumped 7.3 percent year-on-year.

The deposit growth was mainly driven by the rise in interest rates, which is part of a global trend, according to Bank Audi’s ‘Lebanon Economic Report’ for the last quarter of 2018. Strong activity in December, partly derived from window-dressing, also contributed to the growth, the report said. Banks usually compete before the end of each year to attract more deposits and improve their figures.

The average interest rate on lira term deposits increased 222 basis points (bps) on an annual basis to 9.13 percent in December 2018, while the equivalent rate for term deposits in the U.S. dollar rose 134 bps to 5.76 percent, according to the Bank Audi report.

The Institute of International Finance (IIF) said in its ‘Lebanon Country Report’ released in February that high interest rates on deposits and a loyal depositor base have prevented large outflows of funds outside the country.

The deposit growth is enough to meet the borrowing needs of the private and public sectors, “especially that banks are not lending to the private sector,” according to Bank Audi. Loans to the private sector dropped by $300 million last year or 0.5 percent, compared with an increase of $2.5 billion in 2017 and an average growth of $3.2 billion in the past five years, according to the Bank Audi report.

The IIF said that deposit inflows are expected to improve in 2019 and to be sufficient to finance the twin deficits, namely the fiscal deficit and the current account deficit. The implementation of significant reforms is likely to positively reflect on deposit growth in coming years, according to the IIF report.