With more than 60 of them jostling for market share, one would expect Lebanese banks to use every trick in the book to lure in customers — including attractive interest rates. Curiously, however, the banks don’t advertise their rates. Instead, offers are made on services, specialized cards, mortgages and loans — the more usual fare that banks provide globally, rather than getting clients into the bank by touting high interest rates.
The lack of publicity is due to clients’ ability to negotiate interest rates based on their financial clout, the competition between banks and the possibility that a bank might change its rates at anytime. “The market is very competitive and banks don’t want to commit to or disclose rates. This is the number one weapon in market share building,” said Freddie Baz, chief financial officer at Bank Audi. “It is about credibility, so if I put interest rates on the door of the branch or in the newspaper — like many European banks do — I am committed to those rates and cannot increase or decrease. The market is very mature when you reach those levels of disclosure.”
Rates hit a new low
Competition is so cut throat that many banks resort to “mystery shopper” techniques, dropping in on other banks posing as potential clients to gauge the interest rates on offer. For actual potential clients, finding out the different interest rates offered requires physically contacting each and every bank.
The most recently released central bank data, from June, puts the weighted average on deposits of Lebanese lira at 5.83 percent, the lowest it has been in 30 years. Interest rates for checking and current accounts have always been much lower, sitting in the low single digits for the past decade, and at 1.24 percent as of June.
Interest on United States dollars has never been historically as high as on the lira, due to government loans being in lira and the perceived safety of the greenback, but has correspondingly dropped from over 4 percent in 2008 when the crisis kicked in, to an all time low of 2.74 percent as of June. Indeed, deposits in dollars have fallen to the lowest level in a decade, to 62.5 percent of total deposits, while the increase in lira deposits accounted for 80 percent of growth this year, according to Bank Audi data.
Banks, however, can offer a rate of their choice: it’s a free market. A rate may be agreed upon with a bank manager, duly paid after a month, but could then drop — without notice to the client — the month after, as the bank alters its interest rates. Other banks may keep that rate for a fixed period of time. In general, the higher the deposit and the less readily accessible an account — blocked versus non-blocked — the greater the interest rate paid out.
As of August the average interest paid was 4 percent for LL5 million ($3,325) to LL10 million ($6,651) at banks sampled by Executive’s secret shopper (see chart).
Few banks offer an attractive interest rate on a non-blocked, readily accessible lira account, with Société Générale de Banque au Liban (SGBL) offering one of the highest at 5 percent. However, with the account costing $12 a month, it is only viable over a certain amount or else the interest earned is offset by paying off the user fee.
With interest rates at the lowest they have been in decades and banks not keen to attract further Lebanese lira deposits, rates offered at the banks are typically less than the rate set by the central bank. They are also correlated with the amount of money a bank has tied up with the state as treasury bonds and the like; the higher the amount loaned to the government, typically the higher the interest rate offered to a client. This is not a fixed rule, as banks also want to raise deposits for lending purposes other than to the government, but is a general guideline.
At over LL10 million, rates rise, although not always in line with a bank’s lending to the government. For instance, Byblos Bank is a major lender to the government, yet it only offers 3.5 percent on amounts above LL10 million.
BankMed, another leading lender to the state, offers 5 percent on the same amount, while the Bank of Beirut and the Arab Countries (BBAC), which is not a major government lender, offers 4.75 on deposits up to LL30 million.
Fransabank, which holds considerably less of the government debt than Bank Audi, Byblos Bank or BLOM Bank, offers 5.85 percent on deposits ranging from LL1 million to LL10 million.
Over the LL15 million mark ($9,976), rates in certain cases average the central bank’s average rate of deposit, at approximately 6 percent.
Ultimately, it pays to read the small print and do the leg work to get the best rates.