The crisis of Lebanon’s banks

Mohamed Qazaz, Tuesday 21 Feb 2023

Ordinary people in Lebanon have been storming the country’s banks in a bid to gain access to their savings to pay for basic daily needs, writes Mohamed Qazaz

The crisis of Lebanon s banks


The Lebanese are at the end of their tether. They stand at the brink of poverty and have lost hope in their government, their judiciary, and their banks. The series of bank holdups that have taken place in the country to access personal savings that have been frozen for three years is a manifestation of this despair.

The crisis exploded with the October 2019 uprising. As one government fell after another and the country’s non-independent judiciary remained stymied by infighting, the Lebanese Central Bank imposed severe limits on withdrawals and transfers. The economy and standards of living continued to deteriorate, and the Lebanese pound plummeted to LBP85,000 to the dollar.

One result of all this, which came as no surprise to some, was the storming of the banks by ordinary people demanding access to their savings in order to pay for basic daily needs.

Last week, a group of 50 protesters vented their anger against the banks in the Badaro neighbourhood of downtown Beirut, smashing windows and setting fire to at least four banks. The action was organised by the Depositors Outcry Association, an initiative launched in 2019 to support the right of depositors to withdraw their savings from the banks.

After the demonstration, the protesters headed to the home of Salim Safir, the head of the Union of Lebanese Banks, where they set fire to tyres and wood and spray painted slogans on the walls.

Ordinary people are not the only ones who are suffering. Politicians, diplomats, and Arab businesspersons are also feeling the sting. MP Cynthia Zarazir staged a sit-in at her bank, where she demanded access to her savings so she could pay for medical treatment. She refused to leave until the bank acquiesced, which it eventually did.

At the same time, George Siyam, the honorary consul of Ireland in Lebanon, staged a sit-in at another bank in the Hazmieh area near Beirut.

Members of the business community have preferred to file suits against the banks, as did Jordanian businessman Talal Abu Ghazala who demanded his savings plus the interest which had been accumulating for several years.

Others have resorted to media campaigns. Emirati businessman Khalaf Al-Habtour wrote on his Twitter account that “the ongoing blockage of depositors’ assets in Lebanon is a form of flagrant piracy against people’s incomes by corrupt bankers and others who have allowed themselves to collude in this plunder.”

In a statement released after the storming of the banks in the Badaro neighbourhood, the Depositors Outcry Association said that “after three years of violations, theft, and attacks on our lives and our deposits by the banks and their malicious association, we would like to remind the banks of our rightful demands and the need to find a solution for our seized deposits.”

“We have persisted in our actions on the ground for three years. The people in Badaro were all depositors. The banks and the security services have known about them for three years. What you saw in Badaro will be repeated at a faster pace.”

The authorities are clearly alarmed, as was seen in a letter addressed to depositors from the Union of Lebanese Banks.

“The banks understand your frustration,” the letter read. “However, you must open your eyes and realise that the funds needed to cover your deposits are not with the banks. Entering them by force, destroying them, or breaking them up will lead to no benefit.”

“You are only harming yourselves, compounding your losses, and reducing the chances of recuperating your rights. You should realise who has squandered your rights and against whom you should direct your anger.”

Lebanese citizens and foreigners hold an estimated $114 billion in savings in 64 commercial banks in Lebanon, of which $95 billion is in dollars. For three years, successive governments have failed to produce a solution that would lead to the release of depositors’ assets and rescue the economy from collapse.

Intractable political strains and sectarian factors in Lebanon have prevented the passage of the legislative and structural reforms needed to pave the way for the implementation of the government’s recovery plan.

Lebanese Minister of Economy and Trade Amin Salam told Al-Ahram Weekly that “the political will is lacking” to find a solution.

“Political squabbling and resentments have obstructed the passage of the legislation, and I believe that there has been collusion not to resolve the crisis for a period in order to serve certain personal interests over national welfare,” Salam said.

“It does not stand to reason that the legislation should be held up for more than three years. In any other country in the world, such a law would be passed within a week at most because it protects deposits and protects rights. Yet, here it is still being discussed in parliamentary committees. I stopped attending those discussions some time ago, as they have become a farce.”

He added that the crisis did not start three years ago with the October uprising and the subsequent economic deterioration. Instead, it began three decades ago with economic, financial, and monetary policies that would have been destructive for any country and any economic development process at the time.

“Lebanese economic policy is founded on the idea of a rentier economy,” Salam said. “Lebanon does not manufacture or produce anything of value. We are a country that imports 95 per cent of its needs. The system was built on interest rates on money that reached 20 per cent at one point. These give no incentive to young people to work, but gave anyone who had any money a reason to leave it in the banks and wait for the interest to pile up instead of getting a job or investing it in a company.”

“This policy must be changed. In Europe, the banks do not even pay five per cent interest on deposits.”

Rebuilding trust in the system must begin at home, he said. “This trust willa only come when the authorities are able to protect people’s rights and their assets in the banks. We have seen several incidents of banks being stormed, not in order to steal money but to access personal savings.”

The situation might not have reached this point if the government had been clearer and given people the hope that they would be able to access their assets at a specified time, Salam said. This would have reassured people that there was a plan out of the crisis, but this would have “required statesmen capable of taking decisions.”

The problem is a quintessentially political one. With the necessary collective will, lawmakers could pass the required legislation to reform the banking sector, including the capital control law and a banking secrecy act to combat corruption, Salam concluded.

* A version of this article appears in print in the 23 February, 2023 edition of Al-Ahram Weekly

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