Bank Credit Allocations By Sector: Q3 2019 vs Q1 2022

Credit Allocations by Sector: Billion LBP

Q3 2019Share %Q1 2022Share %Change %
Trade and Services33,96134.4416,04132.24-52.77
Financial Intermediaries4,0554.112,2754.57-43.90
Others (Community/ Personal Services)2,9442.991,6243.26-44.84
Out of which:  Housing18,77519.0410,96122.03-41.62

Source: BDL

One important causality of the Lebanese crisis is the shrinkage in bank credit as a result of both lower GDP and more risk aversion and retrenchment on the part of the banks. Total bank credit dropped by 49.54% in Q3 2019 to reach 49,759 billion LBP in Q1 2022. In sectoral terms, only trade and services dropped by more falling by 52.77% to reach 16,041 billion LBP. The lowest drop was in agriculture which fell by 36.54% to reach 788.17 billion LBP.

Though not shown, the dollarization rate of loans fell from 70.5% to 55.4% during the period. It is interesting that BDL regulation singled out only USD retail loans (individuals) to be paid back at 1,507 LBP, but it seems all other sectors, especially construction and trade, were able to lower their indebtedness in USD because of netting out against their USD deposits and the use of discounted USD checks to clear out their debts.

Also interesting is that credit to all sectors fell between Q3 2019 and Q3 2021. However, between Q3 2021 and Q1 2022, only agriculture and Other witnessed an increase: agriculture rising from 780.06 billion LBP to 788.17 billion LBP, and Other from 1,593 billion LBP to 1,624 billion LBP. These are indicative, perhaps, of the expanding sectors of the economy during the crisis.

Lastly, what about the ratio of bank credit to GDP? Given IIF estimates, GDP was at 80.2 trillion LBP in 2019 and would reach 556 trillion LBP in 2022. If we value the dollarized bank credit (70.5%) in Q3 2019 at the weighted average exchange rate of 1,584 LBP, then total bank credit in LBP would come to 102.06 trillion; and if we do the same in Q1 2022 for the 55% in dollarized credit but at a weighted average exchange rate of 23,679 LBP, then total bank credit would be 452.34 trillion. As a result, the ratio of bank credit to GDP would fall from 127.06% to 81.35% — hence, bank credit shrank by considerably more than the economy!

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