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Will banks and BDL be able to sustain $400 monthly payment to depositors for next five years?

Beirut Central Bank, July 25, 2018. (The Daily Star/Hasan Shaaban)

BEIRUT: Most Lebanese banks seemed willing to meet the Central Bank’s instructions to allow depositors who had foreign currency accounts before October 17, 2019, to start withdrawing $400 banknotes and its equivalent in pounds based on BDL’s exchange platform rates although some were not sure if these cash payments can be sustainable the second year.

BDL asked all commercial banks in Lebanon to allow their customers who meet Circular 158 criteria to provide the necessary funds for the next five years.

Many depositors who had foreign currency accounts before the mass anti-government protests were up in arms after the lenders applied strict capital control on withdrawal of dollar banknotes. Instead, banks, upon the instructions of BDL, offered their customers with foreign accounts LL3,900 for each dollar (better known as lollar) to appease their anger.

“After the release of the circular, banks are now obliged to meet the conditions set by BDL. I think we will be able to allow our customers to withdraw $400 in cash for the first year at least and then we have to wait and see,” a chairman of a leading bank told The Daily Star.

But some economists and financial analysts warned that printing more pounds and injecting them into the market will cause huge inflation and make the national currency weaker against the US dollar.

BDL said that the payment of $400 in Lebanese pounds will result in an increase of the money supply in pounds between LL26 trillion to LL27 trillion over a one-year period, stressing that this new decision would be a prelude in solving the problem of the banks that were not able to raise 3 percent liquidity in foreign currency.

Hassan Khalil, a financial analyst and economic expert, argued that BDL’s Circular 158 was illegal, cautioning that the whole idea was to ditch the small depositors in the first year.

“The fact that you are indirectly legalizing through BDL’s directives not to give depositors all their money makes this circular illegal. The Central Bank cannot freeze cash withdrawal by such a decision. The Central Bank is a member of the last resort and its job is to bail out banks that get exposed to a run. BDL cannot do this through illegal directives,” Khalil told The Daily Star.

Khalil asked how the governor of the Central Bank and banks would be able to secure $400 in cash to their customers each month.

“Do we also have proof that the banks managed to increase their capitals and secure the 3 percent liquidity?” he asked.

Khalil also wondered why the Central Bank did not secure $1.2 billion or $1.5 billion a year for the holders of foreign accounts when BDL had more than $30 billion of foreign currency reserves.

“I believe that this circular was designed to buy time until the parliamentary elections,” he added.

Nassib Ghobril, head of economic research at Byblos Bank, explained that Circular 158 is an attempt to fill part of the vacuum in decision-making and of concrete action at the executive and legislative levels, amid the lack of a sense of urgency by the political class to address the economic, financial and monetary crises that have prevailed since October 2019.

“It frees up part of the deposits in foreign currency at commercial banks that customers could not withdraw as a result of the severe liquidity shortages in foreign currency in the Lebanese economy due to the steep drop in capital inflows since September 2019 that has been aggravated by the government’s decision to default on its Eurobond obligations,” Ghobril said.

He added that the implementation of the circular by commercial banks will inject much-needed foreign currency liquidity in the economy that, according to rough estimates, could reach up to $300 million per month.

“However, commercial banks, like most sectors of the economy, have been operating with no visibility in the absence, for 10 months, of a government as well as of a comprehensive reform plan and of the resumption of negotiations with the International Monetary Fund on a funding and reforms program,” Ghobril said.

He added that the efforts of BDL and of commercial banks should be an incentive for the political class to put serious efforts to remove the obstacles to the formation of a credible government, in order to set a road map for the exit from the crisis.

Tanal Sabah, a member of the Association of Banks in Lebanon, told LBCI that banks are ready to implement BDL’s circular. He pointed out that "every citizen has the right to enter the bank and buy dollars on the basis of the price of the platform, provided that documents and invoices are submitted.”

Sabah indicated that a fresh $4,800 and the equivalent of $4,800 in Lebanese pounds are allowed based on BDL’s platform rates.

He explained that "if the depositor has a debt, the value of the debt that is paid on LL1,500 is deducted, and what remains in the account can be used in the new circular, provided that the value of $50,000 does not exceed 5 years.

 

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