In a move to stimulate economic growth, the Central Bank of Lebanon in mid-January introduced a plan to lend private banks up to 2.2 trillion Lebanese pounds ($1.5 billion) at a low interest rate to be made available for development projects.
The funds are slated to be made available to sectors such as housing, environment, production, education, and research and development.
The Bank of Lebanon specified the share of allocated funds per bank as 100 billion pounds ($66.5 million) for the first six months of 2013, with the same amount scheduled to be disbursed in the second half of the year.
Riad Salame, governor of the Central Bank of Lebanon, said he expects the move to increase Gross Domestic Product growth by 2% or 3%.
It is "a basket of incentives for banks", said Mohammed Baasiri, the bank's third vice governor.
A Central Bank circular in 2009 included a series of incentives that provided exemptions for local banks in terms of reserve requirements at the Bank, he told Al-Shorfa.
This helped lower the cost for banks on the condition that they offer low-interest loans for the housing, environment and education sectors, he said.
"With the drastic decrease of reserve requirements for banks, the governor of the Bank of Lebanon decided to create a new mechanism that would complement the older circular without interfering with reserve requirements, so it decided to give long-term credit to banks at an interest rate of 1%," Baasiri said.
Lending to the environment sector is intended to reduce energy costs and pollution through offering incentives for people to use alternative energy sources, he said.
Research lending will encourage innovation, he said, which can lead to the creation of new jobs.
In order to ensure these funds are used appropriately, the Bank of Lebanon's finance unit and the department of legal affairs are holding meetings with banks to explain the measure's mechanism and monitoring system.
With the new measure, the Bank of Lebanon hopes to achieve "continuity in giving incentives to banks but based on a different mechanism", Baasiri said.
Naseeb Ghabril, head of the economic studies and research department at Byblos Bank, told Al-Shorfa he believes stimulating the economy is the responsibility of the executive branch, not the monetary authority.
Despite that, he said, the Bank of Lebanon is shouldering the burden in addition to that of financing the public debt.
"This initiative is important and beneficial because it injects money into the national economy and will lead to movement in the real estate sector, which was given 65% of the credit line as it has been languishing for two years", he said.
Low interest rates are important, Ghabril said, but must be coupled with a stable environment and confidence that will encourage investors and citizens to take advantage of the credit offered.
Meanwhile, Violette al-Balaa, Annahar newspaper's financial editor, said she expects this step to have a positive impact on the economy, leading to a 2% or 3% additional increase in the anticipated growth rate of 2.8% in a best case scenario.
Through this measure, the Bank of Lebanon is seeking to stimulate the economy by relying on its internal mechanism, due to the absence of foreign investments, a continued Syrian crisis and Lebanon's approaching parliamentary elections, al-Balaa said.