01 August 2007
BEIRUT: Is the appetite if investors for treasury bills diminishing these days? A quick look at the recent data released by Bank Audi weekly bulletin shows that the answer is definitely yes.
According to the last statistics released by the Central Bank, total subscription of T-bills during the first half of 2007 fell to LL4.853 trillion ($3.2 billion) from LL7.083 trillion in the same period of 2006.
"This drop is mainly attributed to a 24.3 percent decrease in growth of Lebanese pound deposits held at commercial banks during the first five months of 2007 relative to the corresponding period of 2006," the bulletin said.
Sources told The Daily Star Tuesday that the Central Bank is now buying the T-bills from its own Lebanese pound reserves in an attempt to close the deficit.
"Banks and investors are not too keen to buy large quantities of T-bills as the spread between the pound and the US dollar is narrowing very quickly," one banker said.
The spread between the pound and dollar deposits is close to 2 or 3 percent and for this reason many depositors have shifted their accounts to the US currency.
This big shift to the dollar has increased the bank dollarization to over 77 percent of total bank deposits in Lebanese banks.
The Association of Banks in Lebanon said in its last report that at the end of June 2007, the face value of the outstanding treasury securities portfolio denominated in the domestic currency and the outstanding treasury securities portfolio denominated in foreign currencies amounted to LL28.451 trillion and $17.274 billion respectively.
It added that a debt cancellation operation on the stock of 36-month category TBs denominated in LBP in the amount of LL2.340 trillion took place, following the transfer of gold valuation gains from Banque du Liban to the government.
Approximately LL1.300 trillion of the domestic currency securities portfolios and $100 million of Eurobonds are expected to mature in July 2007.
Weighted yield on new issues in Lebanese pound securities ranged during June 2007 from as low as 5.22 percent for the three-month category to as high as 9.32 percent for the 36-month category.
Weighted yield for the six-month, 12-month and 24-month categories recorded 7.24 percent, 7.75 percent and 8.50 percent respectively.
Saad Andary, the adviser to the chairman of Bank of Beirut and the Arab Countries, said there is more than one reason behind the drop in T-bills subscriptions. "One of the reasons ... is the fall in Lebanese pound money supply ... held by both the Central Bank and commercial banks. This means there is not enough cash in local currency to snatch the T-bills," he said.
He added that the growth in US-dollar interest rates and the drop in Lebanese pound interest rates is another valid reason for the shift in the market's mood.
After the Paris II donor conference in 2002, interest rates on the pound fell from 14 percent to almost 9 percent.
"When the T-bills were more than 14 percent five years ago, investors and banks were more than eager to buy the local bonds. But as the interest rates fell since 2002, the demand for the local T-bills fell respectively," another banker said.
Andary said that the tense political and security situation was another reason for the drop in the demand for the T-bills.
"Can you co-exist with Shaker al-Abssi [one of the ringleaders of Fatah al Islam]. What kind of confidence can you maintain if you have random security incidents in the country?" Andary asked.
He added that his bank had had 50 percent of its deposit in local currency but in the past few years this percentage fell to 25 percent only.
