Economic Research | Lebanon This Week | Lebanon This Week 639 | Association of banks caps lending rate at BRR plus 2% | Lebanon | Byblos Bank

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Byblos Bank

Lebanon This Week 639

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Association of banks caps lending rate at BRR plus 2%

The Association of Banks in Lebanon (ABL) recommended to its member banks to maintain the Beirut Reference Rate (BRR) in US dollars at 4.53% in July 2020. The ABL previously recommended to banks to lower the BRR by 104 basis points on January 3, to cut the rate by an additional 85 basis points on January 16, to reduce the BRR by 175 basis points on February 14, to lower the rate by 100 basis points on April 15, and to cut the BRR by 122 basis points to 4.53% on June 12. The five decisions resulted in a cumulative decline of 586 basis points in the BRR in US dollars so far in 2020. The rate, considered as the reference rate for lending in foreign currency, replaced the London Interbank Offered Rate (LIBOR) in 2009, as the ABL decided that the LIBOR does not reflect the cost of funding and lending in Lebanon.

In addition, the ABL maintained the BRR in Lebanese pounds at 7.75%. The ABL had previously recommended to reduce the rate in Lebanese pounds by 104 basis points on January 3, to lower the rate by 95 basis points on January 16, to cut the rate by 250 basis points on February 14, and to reduce the rate by 125 basis points on April 15. Consequently, the four decisions resulted in a cumulative decline of 574 basis points of the BRR in Lebanese pounds so far in 2020.

In parallel, the ABL asked banks to cap the lending rates at the BRR plus 2% level until the end of 2020, and to start applying the new ceiling in July 2020. It indicated that the decreases in the BRR are consistent with its efforts to stimulate the economic cycle in the current challenging environment. It considers that the BRR does not replace the Beirut Prime Lending Rate in each currency, but constitutes the basis for calculating the prime rate after adding the cost of liquidity and refinancing, credit risk and the profitability of banks.

According to Banque du Liban, the weighted average lending rate in Lebanese pounds was 8.45% in May 2020, down from 9.29% in May 2020 and from 10.75% a year earlier; while the same rate in US dollars was 7.9%, relative to 7.79% in the previous month and to 9.54% in May 2019.
 
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