BDL issues new circular: Banks to repay depositors in dollars

The Lebanese Central Bank (BDL) issued a new circular on Tuesday requesting commercial banks to gradually repay depositors their foreign currency deposits made before the end of October 2019.

Circular No. 158, which is set to be effective as early as June 30, aims to partially compensate depositors for their dollar deposits through $800 monthly payments –$400 in fresh dollars and $400 in the local currency at BDL’s exchange rate.

Since November 2019, depositors have faced increased difficulty accessing their dollar deposits as banks began to impose illegal capital control measures as the country began its descent into the financial and economic crisis.

Some of these capital control measures include forcing depositors to withdraw their dollar deposits in lira, effectively imposing a haircut on their deposits, in addition to banning them from transfering money to overseas bank accounts. Depositors have also faced caps on online payments, and a number of commercial banks have cancelled credit and debit cards.

Understanding the circular and new repayment scheme

The circular aims to issue repayments on a monthly basis, with installments reaching a maximum of $800. This is only applicable to accounts opened before the end of October 2019.

The circular’s terms are active for one year, but can be extended or modified.

The repayment will be made as follows: $400 will be paid in fresh dollars, while the other $400 will be paid in lira at BDL’s Sayrafa exchange rate, currently pegged at 12,000 LBP as per the bank’s circular. The $400 lira repayments will be split into half cash withdrawals, and the other half to be spent via bank card transactions.

The total yearly amount that can be withdrawn in US dollars from all banks should not exceed $4,800.

Depositors will be allowed access to these dollars in cash or will be allowed to transfer them abroad. Banks will also deduct amounts equivalent to dollar loans which were repaid in lira at the official exchange rate during October 2019 – March 2021. Cash collaterals will also be deducted.

Commercial banks will create sub accounts for eligible depositors for these repayments. This sub account will not benefit from the banking secrecy laws, and will be accessible to BDL and the Banking Control Commission.

The repayments will be funded by the Lebanese banks’ correspondent banks abroad as well as BDL’s mandatory foreign currency reserves, which were reduced on Friday from 15 percent to 14 percent. This frees up around $1 billion according to official estimates.

Commercial banks in Lebanon are said to be running on negative foreign currency reserves, making the repayment a near impossible task considering these circumstances. Last week, the Association of Banks in Lebanon said commercial banks cannot afford to pay these amounts.

Yet, BDL’s circular stated that any non complicit banks will have to return foreign currency reserves they received from the Central Bank, in addition to being penalized. Penalties could include a warning, or at worst, the cancellation of a bank’s license.