Entered into force a week ago, to the day, the majority of depositors seem to have rejected the circular 158 of the Banque du Liban which allows to withdraw 400 USD in greenbacks and the equivalent of 400 USD at the rate of the electronic platform Sayrafa from Banque du Liban, at 12,000 LL / USD. In question, a lack of confidence of a quasi-majority of the population vis-a-vis what they describe to be the mafia of the banks. As a reminder, the Association of Banks in Lebanon unilaterally imposed an informal capital control in November 2019 after liquidity problems appeared in May of this year, in order to prevent a bank panic leading to officially bankrupt them.
As a reminder, this circular succeeded Circular 154 which allowed depositors to withdraw dollars in Lebanese pound at the rate of 3,900 LL / USD. This had been invalidated by the Council of State which considered it contrary to the Lebanese constitution.
Since then Lebanese banks are considered to be zombie banks, unable to honor their commitments. The objective of this new circular from the Banque du Liban was to somewhat normalize the situation, which does not seem to have been the case.
This is the cause of numerous ambiguities in the contracts obliging depositors to lift banking secrecy on their accounts, but also with the insertion by certain banks of clauses by which depositors renounce filing a complaint against them. As a reminder, the numerous lawsuits against the banking establishments were all won by the depositors without being applied by the security forces after the banks threatened to go on a general strike and obtained from the Attorney General of the Republic, a kind of collective immunity. Thus some consider that this is a new way of “bribing depositors” in order to then be able to extort much larger sums from them, especially since no assurance is given on the time limit for applying this. regulation which may not exceed one year due to the same liquidity problems of local banks.
Also several questions concerning the actual application of Circular 158 which stipulates that it is exercised on the joint accounts of depositors. Thus, if one of the signatories signs on an account of his own in an establishment which is nonetheless different, this lifting of banking secrecy could also concern his other accounts, including joint accounts with other persons or entities in other establishments.
As a reminder, this circular allows you to withdraw up to 50,000 USD in 3 years, up to 400 USD in dollars and the equivalent of 400 USD at the rate of the Sayrafa electronic platform of the Banque du Liban, i.e. 12,000 LL / USD with a few exceptions. In particular, it does not apply to people who have transferred more than 500,000 USD abroad since 2017 and who have not transferred back to Lebanon the equivalent of 15% of these sums.
For the time being, the banks indicated that they expected that 2 to 3 billion dollars could be withdrawn this year, sometimes with the support of the Bank of Lebanon for the establishments which could not do so.
Other banks have offered their depositors an 80% haircut on their dollar deposits. There are even rumors of pressure from banks on vulnerable people to accept the said circular.
Some economists believe that banks are currently passing their losses estimated by S & P’s to depositors instead of taking responsibility for mismanagement over the past 20 years. Thus, if 83% of deposits were dollarized, Lebanese banks reinvested by placing them in Lebanese pounds with the Banque du Liban and de facto benefiting from significant interest rates, sometimes even exceeding 14%. With the devaluation of the Lebanese pound, the sums deposited with the Banque du Liban lost 90% of their value, while from an accounting point of view, they remain debtor in dollars to their customers.
They therefore advise depositors who have more than USD 30,000 in the bank from signing their acceptance of this new regulation.
Faced with this, the Diab government had considered transferring the majority of financial losses to bank shareholders via a bail-out of the latter and proposed to transform 12% of deposits exceeding $ 500,000 into bank shares (bail-in). which should then be restructured. On the other hand, observers expect a discount or haircut exceeding 50% of deposits, the situation of Lebanese banks being critical, going so far as to consider the entire financial sector bankrupt.
However, the implementation of this plan was delayed by the refusal of the shareholders of the banks to accept the losses of this sector and the bail-out. 43% of the actions of banks belonging to politicians or politically exposed have led them to activate their relays in parliament and within the parliamentary finance and budget committee which deliberately minimized losses, however the subject of a consensus with the International Monetary Fund.