Lebanon's deposits crisis: What happens to the $79 billion owed to banks and depositors?

Report by Lea Fayad, English adaptation by Yasmine Jaroudi 

The Banque du Liban (BDL) still has obligations of about $79 billion toward banks and depositors, but the full amount is not expected to be repaid.

According to BDL governor Karim Souaid, an audit has found irregularities affecting about 30% of the total, or roughly $24 billion. 

The amount includes funds belonging to officials or individuals close to those in power who could not explain the source of their wealth, large depositors who benefited from exceptionally high interest rates, people who traded checks, and individuals who converted large amounts of Lebanese lira into U.S. dollars at the official exchange rate of LBP 1,500 to the dollar after the financial crisis began.

Those amounts would be deducted from the claims, leaving about $55 billion to be repaid, either in cash over several years or through bonds, depending on a mechanism to be established under Lebanon’s financial gap law.

The draft law remains subject to comments from both the BDL and the International Monetary Fund (IMF). Souaid said authorities are working to unify their positions and that the draft is expected to reach Parliament by the end of September. 

However, given Lebanon's legislative pace, he does not expect the law to be enacted for another six to eight months.

A key question remains: What happens if there is ultimately not enough money to repay all depositors?

That is where Lebanon’s gold reserves come into the discussion.

Souaid noted that gold should only be sold if the BDL has an obligation to pay depositors that it cannot meet and there is an urgent and legally binding need to sell the reserves. He stressed that he is generally opposed to selling the country’s gold.

“The gold is not allocated to state projects, nor is it meant to pay obligations on behalf of the state or banks,” Souaid said, adding that Lebanon has other assets, including real estate and financial assets, that could be considered before resorting to gold sales.

For Souaid, however, the resolution of the deposit crisis ultimately depends on more than financial calculations. The country’s political and security situation will also play a critical role.

“If we move toward peace in the region, I believe this will give us greater momentum to avoid selling the important assets we have to meet our obligations toward depositors,” Souaid said.