The State Shura Council issued a decision stopping the implementation of the basic circular issued by the Governor of the Banque du Liban on 03/24/2021 under number 13318. As a reminder, this circular allowed Lebanese banks to withdraw their foreign currencies in Lebanese pound up to the parity rate of 3,900 LL / USD.
According to the decision which was rendered, local banks are obliged to allow the withdrawal of sums deposited in dollar or foreign currency accounts with this currency and not in Lebanese pound.
As a reminder, the Banque du Liban published on October 9, 2 circulars, one allowing the withdrawal of funds from existing accounts denominated in dollars for the equivalent in Lebanese pound at the so-called market rate, i.e. 3900 LL / USD “Subject to the consent of the depositor” and “according to the procedures and limits approved by the bank concerned” and a second addressed to banks and to persons wishing to deposit foreign currency. The latter allows an individual to deposit an amount in foreign currency credited at the official rate, i.e. 1507 LL / USD .
For the time being, Lebanese banks have not yet reacted to this decision. However, some sources have indicated that they expect them to appeal, the withdrawal of dollar accounts in foreign currencies leading them to be insolvent due to the fact that a majority of funds deposited in foreign currencies (up to 83% of total deposits) which have been transferred to the Banque du Liban in return for financial products denominated in Lebanese pounds or in the form of local bonds also in Lebanese pounds. The difference between the official rate and the unofficial rate of the Lebanese pound against the dollar would thus increase the losses of the financial sector today considered insolvent by many independent actors but something rejected by the Banque du Liban and the shareholders of local banks.
Some scenarios suggest that the cost of recapitalizing Lebanese banks could even exceed $ 100 billion as noted a report published by the rating agency S&P last week, i.e. more than twice the GDP in 2018, leading to a necessary bail-out of existing shareholders and a bail-in of part of the depositors, as well as a discount that could go up to 63% of the sums deposited , the highest rate in the world, despite the reassuring remarks of the governor of the Banque du Liban who announced at the same time that he wanted to allow depositors to withdraw up to USD 50,000 over 3 years by June . This announcement, however, came as the Banque du Liban announced the end of the drug purchase subsidy program.
The authors of the S&P report accuse the monetary authorities of having made the depositors assume these losses and not the shareholders of the banks via circular 154 which called for an increase in the capital of institutions.
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.