Lebanon’s draft deposit recovery bill: what depositors should know

Report by Lea Fayad, English adaptation by Karine Keuchkerian 

What bonds mean and how they work under Lebanon’s draft deposit recovery bill: If a depositor holds more than $100,000, the first $100,000 would be returned over four years, and any additional amount would be converted into bonds backed by assets from the Central Bank of Lebanon.

In total, deposits of at least $33 billion could be converted into bonds, assuming illicit funds can be excluded.

Simply put, depositors would no longer have a bank account. Instead, they would hold a document stating that the state owes them the amount.

According to the draft bill, the money is expected to be repaid after 10 to 20 years, depending on the size of the deposit. The countdown begins only after the first four years, creating an effective waiting period of 14 to 24 years — provided repayment occurs.

However, there are several issues:

Funding is not guaranteed. The draft states that the bonds would be financed through a fund composed of the Central Bank's profits and assets. However, there are no clear figures or real valuations of these assets. The plan relies on economic recovery and the gradual creation of liquidity, both of which the government acknowledges are uncertain.

Limited returns. If liquidity becomes available, depositors could receive a maximum of 2% annually starting in the fifth year — roughly $2,000 per $100,000 — with these payments deducted from the final balance owed.

Market risks. The bonds would be tradable. If many depositors are forced to sell, their value could collapse, as happened with Solidere shares.

Broader impact. The mechanism would also apply to companies, social security funds, and labor unions — key institutions for financing the economy and providing social protections.