Depositors pay the price: Examining losses amid Lebanon's loan repayment chaos

Before the crisis, banks used to grant citizens loans in US dollars at a rate of LBP 1,507. Citizens could repay their loans in cash, by check, or through bank transfers.

After the crisis, citizens continued to repay their loans in dollars, not cash or fresh dollars. Instead, they used bank checks known as "Lollar" or in Lebanese lira at LBP 1,507 per dollar.

However, the exchange rate exceeded this rate, leading to payment methods causing losses for banks and depositors.

According to the Association of Banks, $51 billion of depositors' funds were lost after October 17, 2019, due to loan repayments following the mentioned method and the depletion of reserves. Banks deposited all of these funds in the central bank.

As of October 15, 2019, total private sector loans in dollars amounted to over $38 billion, and by the end of March 2023, these loans had decreased to approximately $9 billion. 

This means that $29 billion of depositors' funds were repaid either in Lebanese lira at a rate of LBP 1,507.5 per dollar or in "Lollars," as banks were compelled by the authorities to accept repayment in this method due to their failure to take necessary legislative and regulatory measures to protect depositors' funds.

Fadi Khalaf, the Secretary-General of the Association of Banks, said, "today, borrowers have become wealthy, while depositors have become poor."