In a letter sent on June 3 to the Banque du Liban, the Association of Banks of Lebanon informs the latter that its members are unable to pay depositors any dollar. This letter was sent to the central bank, the day before the publication of a new circular obliging local banks to allow depositors who so wish to withdraw 400 USD cash and the equivalent of 400 USD in Lebanese pound at the rate of the Sayrafa electronic platform, at 12,120 LL / USD.
Banks are unable to provide cash amounts in foreign currencies regardless of the amount.Association of Banks in Lebanon, June 3, 2021
The ABL recognizes de facto the bankruptcy of its members in relation to this financial inability to honor its commitments, also confirming the reports on the state of health of the financial sector and recently published by international institutions including the World Bank or agencies. international ratings.
This withdrawal could only be ensured by reducing the reserve requirement ratio by 1%. The ABL recalls on this subject that these reserves can be mobilized in cases of emergency “such as currently crosses” the Country of the Cedars. The Lebanese banks therefore concluded their letter by asking the BdL to suspend its decision until the adoption by Parliament of a law establishing official capital controls. However, this decision has since been adopted by the central council of the Banque du Liban.
As a reminder, the Banque du Liban published this Friday, June 4, a new circular releasing 400 USD of accounts blocked since the introduction of informal capital controls by the ABL in November 2019. The account balances of 800,000 clients, or approximately 70% of the number of depositors’ accounts, are fully released in the first year.
Of the 400 USD cash, 200 dollars would be provided by the Banque du Liban via its mandatory monetary reserves and 200 by the Lebanese banks. The circular also warned banking institutions that would refuse to apply these new provisions.
The Association of Banque du Liban also indicates that the sums deposited with the corresponding banks remain negative to the tune of 1 billion dollars, while the officials of the Banque du Liban welcomed the increase in equity and funds deposited with these same establishments, barely 2 months ago.
Banks heavily impacted by the economic crisis
Lebanese banks, for their part, are heavily impacted by the economic crisis that Lebanon is going through. This crisis came to light with the famous shortages of foreign currency, first blamed on logistical problems by the Bank of Lebanon before finally recognizing that private institutions were facing major liquidity crises.
Many incidents then broke out in bank branches, depositors demanding to be able to withdraw their funds, which bank officials refused.
The other local banks are not in better condition, foreign experts estimating that for example BLOM BANK would require a recapitalization to the tune of 11.9 billion dollars for example.
According to some sources, Bank Audi would require up to $ 11 billion to be recapitalized because of the losses induced by the state of default on Eurobonds, the possible state of default on bonds denominated in Lebanese pounds but also the virtual cessation of banking activities induced by the informal control of capital unilaterally established by the Association of Banks in Lebanon last November.
In total, Lebanese banks would require an injection of $ 65 billion, well beyond the possibilities of economic aid estimated at $ 26 billion. Also, haircuts on eurobonds or even on part of Lebanese bonds seem to become inevitable, while the Banque du Liban has, once again, postponed the deadline for recapitalizing banking institutions from 10% to 20% of end-of-year equity. July to December 31, 2020 then to February 2021.
The Central Bank clarified that beyond this period, it would get its hands on the failing institutions, officially to protect the deposits instead of suspending the operating licenses of these banks and having them liquidated according to the regulations yet in force. force.