Wednesday, September 08, 2010

Sushi: Lebanon's traditional food?

Royal Wings, the inflight magazine of Royal Jordanian Airlines

By Paul Cochrane in Beirut

There is a growing craze for raw fish in Beirut. Not for the catch of the day fresh from the Mediterranean Sea, but for tuna from Japan and salmon from Scotland. The rising popularity of sushi, Japanese cuisine's most famous export, has taken a firm hold on Beirut's culinary scene, with the number of sushi restaurants going from two a decade ago to around 20 today.

It's a new trend. Lebanese are curious and going for healthier food. Before sushi was only available in Beirut, but now sushi restaurants are opening outside of the capital,” said Avedis Bonyakrabian, manager of Yabani, one of Beirut's oldest sushi restaurants.

Sushi, patties of vinegared rice topped with varieties of raw fish, and sashimi, slices of raw fish eaten with soy sauce or wasabi (green horseradish), have become so popular that t-shirts are on sale with the slogan “ Sushi: Lebanese traditional food.”

It did not take long for sushi to be culinary accepted following the opening of the country's first sushi restaurant, Le Sushi Bar in 1997. “Raw fish is not unusual in Lebanon like in some places, as people eat raw meat, such as kebbe nayye,” said Charbel Nader, manager of Le Sushi Bar.

The extensive variety of sushi and its offshoots – Yabani and Sushi Bar offer over 60 types of sushi, sashimi and maki – gives diners such a selection it is impossible to try everything at one sitting.

With growing competition as more sushi restaurants open and the market fragments into price segments – ranging from $60 a head to as low as $20 – the higher end establishments are offering a wider range of Japanese cuisine, such as teppanyaki (grilled steak), noodles and gyoza (dumplings).

In Lebanon the stereotype is that Japanese food is sushi and sashimi, but now more people are familiar with other Japanese foods,” said Bonyakrabian.

With the fish distributed by just two main dealers in Lebanon, what differentiates restaurants is the quality of the cuts. “The attention to detail makes all the difference, in how you slice say a salmon,” said Nader. “And every restaurant is different from the other – it's not like hummus.”

The majority of ingredients are imported from Japan, from the sushi rice to seaweed with the aim of offering genuine Japanese cuisine.

While there has been a degree of “Californication” in the sushi menu to cater to local tastes, it has not gone as far as in the United States where sushi is made sweeter and even cream cheese has become an ingredient. But one core ingredient of Japanese cuisine that is not used is the alcohol sake.

The Japanese cook nearly everything in sake, but we have to consider people's beliefs here in the Middle East, so warn customers in advance if we do,” said Nader.

Sushi's popularity is set to continue. “When you see 10 year olds asking their parents for sushi, you know the market will become bigger than now,” said Bonyakrabian.

If the craze for sushi develops even further, Nader joked that in the future, “maybe we will eat [Lebanese salad] tabbouleh with chopsticks.”

Photos of Yabani by George Haddad

Tuesday, September 07, 2010

Immortality - the upcoming Marc Quinn exhibit

Aishti magazine

In the 1990s an art movement developed in Britain that was fresh, unpretentious and accessible to all, a “democratization” of art spearheaded by the Young British Artists, or YBAs. This avant-garde pushed boundaries and the art market, gaining international acclaim. But the YBAs' work has been conspicuously absent from the Middle East. There have been no exhibitions on the work of the likes of Damien Hirst, Tracy Emin or Marc Quinn.

Curators Francesca Amfitheatrof and Charles-Henri Lobkowicz came to Beirut in June to scout out a location to exhibit contemporary British art, one YBA at a time. “We are open to the idea of bringing an artist every six months, and for it to be unexpected; not a 9-11pm show, then goodbye. But a really alive exhibit, with crazy parties and musicians,” said Amfitheatrof, who has been the curator for other YBA leaders like Hirst and Emin, as well as Japanese artist Yayoi Kusama.
The first artist to come to Beirut will be Marc Quinn, best known internationally for his painted bronze and gold sculptures of model Kate Moss in various yoga poses.

We always wanted to bring something here to Beirut, to show contemporary art and to start with one of the greatest English artists,” said Lobkowicz. “We will bring around 15 pieces, of new work, his Flower Paintings and sculptures. I also want the gold Kate Moss, but the work has not been decided upon yet.”

One of Britain's most successful artists, Quinn's work has endured the financial turmoil, going up in value by some 20 percent. Of the three solid gold Kate Moss sculptures produced, two have been sold for $2 million a piece, while the third could be on sale in Beirut in late September. The sculptures of Moss, described by Quinn as a “mirror of ourselves, a knotted Venus of our age,” are now extremely limited, with the curator duo having the last bronze sculpture available of the model in a yoga position with her legs behind her head.

Marc is the right artist to show, he is cool, sexy, and fun. Not ultra conceptual, dry or abstract, his work is a bit visceral, that hit's you in the tummy. We want the show to be happy and a little sexy, while being overall rather sensual,” said Amfitheatrof.

Quinn's flower paintings are bright, luscious still-life depictions of hand-picked flowers frozen in ice to capture a perfect bloom's temporal beauty, a romanticism in stopping time. Hyper-realistic, the paintings exude joy. “Everyone that owns a flower painting is happy, it gives them energy, and we want to bring that here,” added Amfitheatrof.

Quinn's other artistic expression in stopping time are his large, round iris canvases that portray the extraordinary colors of the human eye, the only part of the body that doesn't age and the window to the soul. Quinn will bring with him to Beirut a special NASA-designed camera to capture the irises of the exhibition's first 10 customers, which will then be turned into paintings.

All Quinn's work is about immortality; it is this perfect, idealist world,” said Lobkowicz.

Lebanon's agricultural meltdown

Executive magazine

Mohamad Ajami's 65 bee hives overlook the Litani River Valley, with Jebel el Sheikh looming in the distance and to their immediate right, one of the south's historic landmarks, Beaufort Castle. Last year, Ajami had a bumper honey harvest, generating 650 kilos. He was optimistic that this year would be even better, purchasing extra hives and equipment in anticipation of producing one ton of honey. At $25 for a 900 gram jar, Ajami should have netted over $25,000.

But three months ago he started realizing all was not well. The winds had been continuously blowing from the east, dry, desert winds instead of the westerly winds that provide the right moisture and dew for flora to thrive, and for the bees to pollinate and produce nectar. Ajami also noticed that the bees were not multiplying, meaning he could not artificially swarm the bees and build up the number of colonies to have more hives.

That was when I realized something wasn't right,” he said. “And while the summer flowers did come there were no forager bees in the hives. Something did not encourage them to generate honey, something – beyond my understanding – that is beyond normal events.”

When it came to harvesting, Ajami's suspicions about a poor harvest were worse than he thought.

I only generated 50 kilos. It was not a harvest, it is solely for family consumption this year,” he said.

Ajami's experience is not a solitary one. Beekeepers throughout Lebanon have had a bad season, with rough estimates – in lieu of official statistics - of a 50 percent decline in production from an annual average of 200 tons. For Wadih Yazbek, a beekeeper and equipment distributor in Beirut, hardware sales are down 60 to 70 percent, indicative of the overall decline in the honey sector. “Beekeepers aren't needing the extra hives and secondly, with not a lot of honey, keepers are not keen on purchasing new extractors or filters,” said Yazbek.

It is not just honey production that has been affected by the unusual weather patterns Lebanon has witnessed over the past year, of abnormal precipitation in the winter and spring – on average the same quantity but occurring over half the number of days - and a heat wave smack bang in prime harvesting time.

Leaner times

Wheat production is down from 60,000 tons in 2009 to an estimated 35,000 tons this year, according to the Syndicate of Agrifood Traders. The United States Department of Agriculture's Foreign Africulture Service estimates, on the other hand, that Lebanon will produce 100,000 tons of wheat this year, a 23 percent drop from 130,000 tons grown in 2009. Green leafed vegetables have been frazzled by the sun, and fruits are ripening earlier than usual.

We've a lot of problems this year, particularly with grapes, olives, vegetables, apples, and potatoes,” said Elia Choueiri, head of department of plant protection at the Agriculture Ministry's Lebanese Agricultural Research Institute (LARI) in Tal Amara Station in the Bekaa valley.

In some areas, the olive harvest is down 50 percent, in other regions 30 percent, particularly in areas where olives trees were not irrigated or had supplemental irrigation. At two vineyards in the Bekaa, around 70 percent of the grapes were lost while vineyards at higher elevations have been affected, particularly white grapes.

The heat wave had an impact on the physiological status of the vine: a rapid increase of alcohol content because of the increased sugar content in grapes over a very short period,” said Carlos Adem, president of the Syndicate of Wines and Spirits. “In general, the year 2010 will not be one of the great vintages, like 2003 for example.”

In the north, trees have brought forth fruit but not enough leaves due to it not getting cold enough over the winter. Japanese plums are down 40 percent. Forest fires have also wrought damage.

Each plant has a life cycle, but are flowering before time, so the life-cycle is shorter. It's because of climatic change,” said Roula Faris, Middle East representative of the Research Institute of Organic Agriculture (FiBL). “Leafed vegetables and herbs have flowered early due to the temperature, and they are unmarketable.”

While the Bekaa has had temperatures this summer of up to 45 degrees, it is the country's mountainous regions – where a significant amount of produce is grown, whether fruit trees or in greenhouses – that have not been as cool as normal.

For the first time in Lebanon, even the mountains are hotter than the coast,” added Faris.

On top of all this, phytoplasma diseases have affected stone fruits such as peaches and almonds, killing over 100,000 trees within three years. “This year we noted a new diffusion because of an insect vector. We have tested over 100 insects to find the pathogen, but don't know what kind of insect is spreading the disease,” said Choueiri. “Also, due to the hot weather, the activity of these insects is higher, and we've seen large infections of peach trees in the south and the Bekaa. The diffusion is getting higher year after year.” This year, LARI noted that a further 40,000 trees in the south have been affected by the phytoplasma which, curiously, is only affecting Lebanon and Iran in the region.

Give them bread

The extent of losses in the agricultural sector will not be fully known until harvesting is finished and the data collated. While early indications imply it has been a bad year, it has not been a total disaster, with some regions affected far more than others.

Furthermore, Lebanon has not experienced the drought that neighboring Syria has gone through over the past five years, which has hit agricultural output hard and affected the livelihoods of over one million people. But the reduced yields have come at a time of lower agricultural yields globally, particularly in fire-ravaged Russia, which has driven up global wheat prices, and the disastrous flooding in Pakistan, which has reduced rice cultivation.

Food prices are on an upward curve and Lebanon will be affected, being food import dependent to the tune of some 70 percent of total food consumption, according to the United Nations' Food and Agricultural Organization (FAO). Indeed, with wheat production in Lebanon down 42 percent, the government banned exports at the beginning of August, preventing a ship being loaded with 4,000 tons at the Beirut port from setting sail.

As Lebanon imports some 400,000 tons of wheat per year, the government has had to go to the international markets to purchase an immediate 50,000 tons, whether for strategic reserves or to regulate domestic wheat and flour prices.

With wheat prices at today's level, around $320 for a ton, flour should be around $450 per ton or more while the ceiling for bread prices was set [by the government] at a maximum of $320 for a ton of bread,” said Arslan Sinno of Dora Flour Mills and president of the the Syndicate of Agrifood Traders. “Someone must pay the difference, certainly not the millers nor the bakers, so either the consumer by liberalizing the price of bread - which may increase the pack price from LL 1500 ($1) to maybe LL1800 ($1.20) or LL2000 ($1.33) - or the state by subsidizing the wheat by about $200 per ton.”

If the government does up the wheat subsidy it will come at a heavy cost to the state's coffers. The alternative however is higher costs for the Lebanese populace and the chance of rioting, as happened in Beirut in January 2008, when rumors spread that bread prices were to spike.

The new agricultural plan

The agricultural sector as a whole in Lebanon is under invested, which has only compounded the losses due to the topsy-turvy weather this year. According to the Lebanese Farmers Syndicate, agriculture generated some $1.5 billion in gross revenues in 2009, but could generate $3.5 billion if there was sufficient infrastructure investment. Employing 20 to 25 percent of the workforce, according to research at the American University of Beirut, some 50 percent of rural families rely on agro-food production.

Climatic change clearly poses a threat to agriculture's potential and a good swathe of the populace for income generation. But agriculture's importance has finally come to the forefront in politics, with Agriculture Minister Hussein Hajj Hassan releasing this year a four-year plan to address the sector's core problems.

As of this year, the agriculture ministry has started to be more active,” said Choueiri, adding that LARI has taken on a further 70 staff to improve research. “If you compared 10 years ago to today, our work has improved incredibly.”

Data on the agricultural sector is also being updated, with the last census on the sector released in 1988. FAO is carrying out a new census for the whole country, slated for release in October. “We've a horizontal project for synergy between all the ministries for efficiently developing the agricultural sector to help realize its potential,” said Ali Moumen, FAO representative in Lebanon.

Meanwhile, LARI and the Ministry of Agriculture have implemented a strategy to boost and retain production levels. “We are working on new varieties that support dry climatic conditions, such as introducing new apple varieties at an altitude of 700 meters instead of the old varieties of the Bekaa,” said Choueiri.

Farmers are being given codes for identification purposes in the event of disease, nurseries are being monitored, workshops are being held on growing and pesticide use, and a forecast service by LARI kicked off this year that sends text messages to farmers about disease and climatic change.

Organic agriculture, although very much in its nascence, is also improving, with the number of hectares rising from 250 to 2,465, and organic farmers from 17 to 331 since 2000. “Organic agriculture can reduce global warming as there is lower water usage, it increases biodiversity and improves soil fertility,” said Faris.

Improvements in the sector will certainly help offset climatic change, but for the immediate year ahead, much will depend on future temperatures and whether precipitation is better spread and rainwater retained. “If this year there is again hot weather over the winter period, it will be a big problem,” said Choueiri.

While the outlook is relatively upbeat – yet very much weather dependent – it is agriculturalists that will be feeling the bite this winter. For beekeeper Mohamad Ajami, the income he planned to live off has disappeared. “I'm really concerned about saving the bees for a harvest next year. Adding insult to injury, my whole land was burned as it was so dry and someone must have flicked a lit cigarette,” he said. “My focus was this line of work, but I'll have to do something else to survive the rest of the year.”

BOX - Check the label

Due to the poor harvest, the price of honey is to rise by $6 to $7 on a 900 gram jar, and there will be an increase in imports, said Rami Ollaik, professor of beekeeping at the American University of Beirut. An up-tick in fraud is already underway, with beekeepers buying cheap Chinese or Eastern European honey to pass off as local produce. Indeed, this is a widespread practice in Saudi Arabia, with brands purchasing second country honey and merely bottling it in the kingdom – real Saudi honey sells for $100 a kilo. Beekeepers may also dilute the honey with apple juice or fructose to keep price tags lower.

If anybody is selling honey at regular prices, there is a big question mark,” said beekeeper Mohamad Ajami. “At an agriculture store here in the south, I told the owner about my poor harvest and he said he could take me somewhere to buy honey to offset my losses, saying many beekeepers are buying from China or elsewhere.”

Such fraud will not work though when it comes to the country's distinctive honey types and the major producers. “Consumers are picky about honey,” said Ollaik. “There are only four big honey producers and they have established consumer confidence for oak, citrus and cedar honey. It has a characteristic taste, so to keep confidence they cannot mess with the quality.”

While climatic conditions have affected honey production, Ollaik said that it has only aggravated an already bad situation, with colony collapse disorder (CCD) present in Lebanon and no financial assistance from the government. “The production process in Lebanon is way below standards. If this was improved, we would increase competitiveness, lower costs and the hives would be less susceptible to changes in the weather,” he said. “But I don't know what's next, it's a challenge.”

What lies beneath

Despite the recent catastrophe in the Gulf of Mexico, the MENA looks to deep water drilling

Executive magazine - Commentary

The Middle East and North Africa (MENA) region is fortunate to be able to tap the majority of its oil onshore and in shallow coastal waters. That's meant a minimal need for deepwater drilling and its associated risks, exemplified by the disastrous BP oil spill in the Gulf of Mexico that saw some five million barrels of crude spew out of the Macondo well over the course of three months.

Oil and gas is flared off during a controlled burn in an effort to clean up surface oil from BP’s spill in the Gulf of Mexico

But with oil fields maturing in North Africa, oil companies are exploring for black gold at ever-deeper depths in the Mediterranean Sea. In Libya, for example, the colossal Gulf of Sirte basin extends to depths 2,000 meters below sea level — that's some 500 meters deeper than the Macondo well. Deepwater drilling is already underway in the territorial waters of Tunisia, Libya and Egypt.

Yet it was only when the tarnished British oil company BP announced in the wake of the Gulf of Mexico spill that it is to start exploration off the Libyan coast that Mediterranean states and environmental groups took note of the potential dangers, calling for a moratorium on deepwater drilling. Italy has been the most vocal in calling for a unified strategy for the Mediterranean, what with the Sirte basin only some 500 kilometers from its territory. The Italian foreign minister suggested deepwater drilling should be referred to the Union for the Mediterranean, but this body of European Union and littoral states has essentially been a white elephant thus far, initially beset by problems within the EU and stymied by the Israeli-Arab conflict. The need for a common front on deepwater drilling is a pressing one. An oil spill in the Mediterranean would be a disaster on par if not more calamitous than in the Gulf of Mexico, given the size of the sea and the 21 countries it borders. As the recent BP spill has shown, oil companies and governments are not prepared for when accidents occur.

Libya, according to the United Nations, does not yet have a national contingency plan for an oil spill, while Italian budget cuts have hampered the country's response effectiveness. The rest of the Med is equally ill-equipped to cope with a major oil spill. With so many countries involved a unified front is unlikely, but pressure could be brought to bear on oil companies with deepwater drilling operations to hold off until the BP spill in the Gulf of Mexico has been fully investigated, as the United States and Norway have done. Indeed, BP appears to have caved to pressure, delaying the launch of deepwater operations in Libya.

But deepwater drilling is also in the cards for the Red Sea, and over in the Persian Gulf more than 1,600 offshore wells — albeit in much shallower waters — have been drilled in the past decade, according to Energyfiles. A consolidated stance on offshore drilling for the whole MENA region is clearly needed, which could be spearheaded by the Arab League and then developed in coordination with the EU and other neighbors.

While many want deepwater drilling banned outright, as long as the planet relies on oil-powered economies, we arguably have little choice but to take the oil wherever it may be found. Indeed, over the past 15 years, deepwater drilling has sourced some 60 billion barrels of oil, according to Deutsche Bank, and will account for 10 percent of global oil production between 2008 and 2015.

Deepwater drilling should be viewed in light of the pros and cons. Sure, income is generated, but an oil spill would cost billions to clean up and have untold costs on the fishing industry and the Mediterranean's top earner, tourism. Ten percent of global oil production coming from deepwater drilling is significant, but alternative energies could offset this, such as the solar power projects underway in Morocco.

Countries embarking on offshore drilling, particularly in deep waters, need to weigh up these upsides and downsides. In any event, energy producing states and oil companies should set up a multi-billion dollar contingency fund for any potential spill in the MENA region. With so much money being made off energy, protecting the environment should be considered an operational cost. This makes even more sense when you consider that demands on MENA oil production are set to increase to offset lost output in the oil-drenched Gulf of Mexico.

PAUL COCHRANE is the Middle East correspondent for International News Services

LEBANESE BANKING: It pays to shop around

Lebanese Lira deposit rates 101
Executive magazine

Wise up or take pot-luck in the lira deposit crap-shoot

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 (chart published but too small to re-publish here).

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.

Preferential rates

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.

LEBANON BANKING: Goodbye to great rates

The sun sets on the golden age for Lebanese lira deposits
Executive magazine

The high interest historically paid out by Lebanese banks on deposits in Lebanese lira (LL) made the country an attractive location for stashing cash. At its peak, near the end of the civil war in February 1988, the average rate on lira deposits was 20.55 percent, according to data from Banque du Liban (BDL), Lebanon’s central bank. Such double-digit interest was the norm when Lebanon needed as much capital as possible to reconstruct the country. Come the Paris II donor conference in November 2002, lira interest rates dropped below 10 percent, never to return to such highs, as perceived risk was lower. They’ve been more or less in a gradual decline ever since, hitting a three-decade low in June this year when the weighted average interest rate on deposits hit 5.83 percent, according to data provided by BDL.

The cost of competition

As the global financial crisis set in, Lebanon was once again an attractive depositors' haven, with $55 billion flowing into the country from 2007 to the first half of 2010, according to Bank Audi data. Such an abundance of liquidity, combined with the lower rates offered internationally and the heightened confidence in the Lebanese financial system meant interest rates had to tumble. As a result, the Central Bank and the Ministry of Finance were in a position to demand lower returns on treasury bills (TBs) and certificates of deposit (CDs).

But this represented a challenge for the banks in managing their spreads, particularly when the three-year and five-year TBs and CDs in lira matured, as it would no longer be advantageous to pay out high interest to clients when the banks themselves were no longer receiving such returns.

“On government paper for lira, [interest] was 11.25 percent for [the last] five years, but now it is 6.18 percent, so a huge drop in just a year and a half,” said Walid Raphael, general manager of Banque Libano-Francaise. “If you look at the three-year paper — what most banks are holding with the government — it was at 9.3 percent and is now just below 6 percent, so a 3.30 percent drop. It is the banks that are bearing this reduction in interest. If the market was really efficient the banks would not pay more than they are getting on TBs but much less, yet this is not the case.”

Earlier this year, the Association of Banks in Lebanon decided that the rates banks offered should be lowered, as paying out their current interest was no longer sustainable. But in a free market it is the prerogative of banks as to what rate they offer, even if this costs the institution to do so. “If you are getting 5.3 percent on three-year local treasury bills, why are you paying depositors 5.5 percent?” said Freddie Baz, chief financial officer at Bank Audi. “It is because of idiotic competition to attract clients. Banks are shooting themselves in the foot.”

The banks have to tread carefully though, as a rapid reduction in interest rates on the lira could trigger conversions back to US dollars and threaten the currency’s stability. As Baz remarked, the Lebanese “are not mentally prepared for this,” as depositors have become used to the high rates on the lira. He does, however, advocate a drop of 1 percent on lira interest in 2011.

Decline prompts diversity

Najib Semaan, assistant general manager at the Bank of Beirut, considers the lower interest rates as a boon for the government, the economy and the banks. “Banks are happy to see rates go lower in foreign currency and the lira. Why? Because it will give a boost to the lending on the retail and corporate side, and servicing the debt of the republic will cost less,” he said. “But while it is beneficial to the government to have lower interest rates, I insist we reach a level acceptable to the government and the banks.”

The decline in the interest rates has clearly affected bank’s strategies, placing a greater emphasis on services to attract and retain clients; before it was a case of shopping for the best interest rate on offer. That said, interest rates are still a primary tool to expand the depositor base, hence some rates on offer are on par and even above the returns banks get on TBs and CDs.

For instance, Bank of Beirut is offering an account to new clients that pays 7.20 percent over 15 months. “We want to diversify and increase our client base, and have cross selling, such as to small investors,” said Semaan. “We are not accepting deposits over LL 60 million as we want to diversify and have longer term maturities. The interest rate is a welcome gift to new clientele because otherwise, on a small amount, whatever you pay doesn’t make sense.”

Such a rate is increasingly rare, and overall interest rates are likely to drop in years to come. This could prompt a change in mindset among Lebanese that have lived off the high interest.

“We are coming to normal times, not the extraordinary times of high interest and premiums, which could not last forever,” said Baz. “This could trigger a quicker development of the domestic capital markets as people will be forced to look at other alternatives. Today it is a rentier economy; if I can still get 6 to 8 percent interest, why should I understand the stock market?”