The Bank of Lebanon issued Circular 166, specifying the mechanism for depositors to benefit from their dollar funds deposited in Lebanese banks. The Central Bank decided in its circular that “without prejudice to the right of depositors to recover their deposits, every bank operating in Lebanon must do what is necessary to secure the gradual payment of deposits in foreign currencies made in accounts opened after 10/31/2019 in accordance with specific and strict conditions that make them beneficiaries of the circular.” Very few.

This circular is a replacement for Circular No. 151, which expired at the end of 2023, as the aforementioned circular will be in effect until the end of June of 2024, subject to renewal. The content of the circular is:

Article One: Without prejudice to the right of depositors to recover their deposits, every bank operating in Lebanon must exceptionally do what is necessary to secure the gradual payment of deposits in foreign currencies formed in accounts opened after 10/31/2019 in accordance with the conditions and mechanism specified below:

second subject:

First: In order for any natural person, resident or non-resident account holder, hereinafter referred to as “account holder”, to benefit from the provisions of this decision, the total balances of all his credit accounts in foreign currencies, excluding “cash funds”, shall be approved within the meaning of Basic Resolution No. 13548 dated 4/19/2023. (Basic Circular No. (165), including relevant accounts in which he participates or is a party or benefits, such as a joint account or a union account…), established after 10/31/2019 with any individual bank, provided that these balances are counted as suspended. On 6/30/2023.

Second: The “account holder” benefits from the provisions of this decision for: his term accounts opened after the date of 10/31/2019, when their terms expire. – Cash Collateral guarantees provided by him after the date of 10/31/2019, when issued.

Third: No account holder will benefit from the provisions of this decision if he is:

1- The persons specified in Article Two of Basic Resolution No. 13262 dated 8/27/2020 Basic Circular No. (154) and did not return the required percentage, provided that this does not prejudice the obligation placed on the concerned bank to urge its client to return the required percentages of funds transferred abroad. .

2- People whose accounts show the movement of bank checks indicating a check trading operation after the date of 10/31/2019.

3- Persons who, after October 31, 2019, transferred deposits from the Lebanese pound to foreign currencies equivalent to or exceeding 300,000 US dollars, excluding amounts resulting from end-of-service compensation.

4- Persons who, after October 31, 2019, paid in Lebanese pounds the balances of loans granted to them in foreign currencies equivalent to or exceeding 300,000.

5- People who, after October 31, 2019, transferred their loan balances from foreign currency to the Lebanese pound at a value equal to or exceeding $300,000.

6- People who benefited from purchasing equivalent to or more than 75,000 US dollars at the price of the electronic platform for exchange operations “Sayrafa”.

Article Three: The client who has benefited or is benefiting from the provisions of Basic Resolution No. 13335 dated 6/8/2021 (Basic Circular) shall not benefit from the provisions of this decision for any accounts he has alone, jointly, or as a union.
No. (158) in any of the banks.

If one of the partners in the joint account benefits from the provisions of this decision, his partner cannot benefit from the provisions of Basic Resolution No. 13335 dated 6/8/2011 (Basic Circular No. (185) for this joint account, but he can benefit from the aforementioned Basic Resolution No. 13335 for his other accounts. If he does not benefit from the provisions of the present decision.

Article Four:

First: If the account holder wants to benefit from the provisions of this decision, he must ask the relevant bank to open a special sub account.

Second: An amount equivalent to /4350/dollars…or less will be transferred to the branched private account that is the subject of this decision, according to the amounts available in the account holder’s accounts with the relevant bank in US dollars or any other foreign currency.

Third: In the event that the “account holder” has multiple accounts with a specific bank, the “account holder” must specify the account or accounts from which the transfer will be made to the special branched account. If the account is a joint or joint account, it can only be used for a maximum amount of $1,800 annually.

Joint account holders shall choose, by agreement among themselves, the percentage of each of them’s benefit from the provisions of this decision. If one of the parties to the joint account decides not to benefit, any of the remaining parties in the account can benefit from the maximum permitted amount. If a joint account holder has a private individual account and he decides to benefit from the separate account, his partner can benefit from the joint account.

Fourth: The branched private account, or any account linked to it, does not charge any commissions or expenses of any kind, so that the customer benefits from the full amounts due without any commissions or deductions, and the branched private account is non-interest producing.

Fifth: In order to benefit from the provisions of this decision, the “account holder” must: lift banking secrecy, exclusively from the branched private accounts, and only for the benefit of the Bank of Lebanon and the Banking Control Commission, in accordance with the attached form (BDL-BDR-03-PP). He signed a declaration, according to Form No. (2) attached, stating that he did not perform any of the operations specified in the section. Thirdly, from Article Two above, in any of the banks, at the risk of forfeiting his right to benefit from the provisions of this decision and to return the amounts he benefited from to the relevant bank.

Sixth: If the relevant bank finds out that the account holder’s statement is incorrect, it will stop its benefit from the provisions of this decision and recover the amounts that it benefited from. It will also return the liquidity that it benefited from from the Bank of Lebanon to cover these amounts.

Seventh: Banks are prohibited from imposing any obligations, conditions, pledges or procedures not stipulated in this decision in the contracts they sign with customers who wish to benefit from its provisions or in any statement, pledge or document signed by these customers.

Article Five:

First: Withdrawals are made from the “private, branched accounts that are the subject of this decision according to the following: 1 The amount of $150. Paid in cash (Banknotes), monthly to the account holder” and/or by transferring it abroad or depositing it in a new account (Fresh Account), without That any direct or indirect commission or expense of any kind be arranged for this process, and that the total amount that can be withdrawn pursuant to this article, from all banks annually, does not exceed the amount of $1,800 from all banks.

2 – In the event that two or more people benefit from joint or union accounts in accordance with the provisions of this decision, the amounts specified in Clause (1) of this section will be paid proportionally (Prorata), that is, according to the percentage that goes to each person of the amounts transferred to the “branched private accounts.” “From these joint or union accounts

Second: It is up to the “account holder” to withdraw the amounts specified above, in whole or in part, at any time he wishes. In the event that the permissible limit is not withdrawn monthly, the unwithdrawn amounts accumulate over the next months and remain in his “Fresh Account” cash account, to which the exemptions and obligations stipulated are applied. It is stipulated in Basic Resolution No. 13217 dated 4/9/2020, Basic Circular No. 150).

Third: The “account holder” may withdraw, in whole or in part, the value deposited in the “special branched account” by means of checks or transfers to another account inside Lebanon with the same bank or with another bank.

Fourth: The “account holder” benefits retroactively for the period extending from the date of submitting the application and signing the lifting of banking secrecy until the date of opening the “private branched” account, so that the full amounts due for this period are paid on the date of the first payment.

It is noted that the conditions imposed are complex, to the extent that they give banks a large margin to evade the application since the issue relates to lifting banking secrecy and the depositor’s signature of a prior undertaking relieving the bank from responsibility and from the consequences resulting from failure to implement the content of the circular. This matter, as a prominent financial source reads, is due to the fact that many banks operating in Lebanon will not be able to adhere to the application due to their loss of liquidity and the failure to issue anything related to the structuring of banks.

Banks have long been waiting for the issuance of a “Capital Control” law that restricts depositors’ withdrawals to specific monthly amounts, but failure to issue this law will lead, according to what the source confirms to “Lebanon 24,” to a major discrepancy with the Association of Banks, which has repeatedly called for the issuance of a “Capital Control” law. “Control” includes specifying responsibilities for losses that occurred during previous years and before the issuance of Circular 166 so that it would not be impossible to implement.

Parliamentary sources expect that the Ministry of Finance will move to supplement the Central Bank’s circulars with measures related to setting a new exchange rate for depositors’ dollars, and this would reduce the deduction rate that exceeds 83% on the implementation of available withdrawals according to the pending circular.

It should be noted that the new Circular 166 indicates that the amounts that will be paid to depositors will be 50% borne by the bank and 50% borne by the Bank of Lebanon.

Perhaps the most dangerous thing contained in the new circular is, according to what a prominent financial source indicates, it bypasses the issue of qualified deposits and non-qualified deposits, and this will open the door for the matter to later apply to those who are not beneficiaries of Circular 158, which was amended previously, to include all accounts, including those through which banking or banking operations were carried out. Deposit checks after 10/30/2019. Perhaps what was included in Circular 166 regarding going beyond the issue of qualified or ineligible accounts will be the main reason for putting aside everything related to demanding accountability for all banking violations that occurred after 10/17/2019.

It remains to be noted that Circular 166 does not include, according to the same source, any reference to the expected unified exchange rate that the authorities are tossing around, as well as the Central Bank, which has repeatedly promised depositors that any exchange rate that will be approved will not be less than the market price, and this is of course the seventh impossibility.

The issuance of Circular 166 was accompanied by the issuance of a second circular by the Central Bank requiring banks and financial companies to adopt international accounting standards related to the revaluation of their assets and movables after adopting the market exchange rate, i.e. 89,500 liras. This circular will be the straw that will break the camel’s back for the banks that are still adopting the price of 15,000. Lira to evaluate its assets, and if it adopts the market price, its problems will appear in terms of the lack of liquidity and perhaps solvency as well, and thus work will be suspended even with its checks drawn on the Bank of Lebanon.

According to the same source, the acting governor of the bank, Wassim Mansouri, mixed up the cards by issuing the two aforementioned circulars and threw a fireball in everyone’s face, declaring a new phase that will not end safely and will make all parties seek mercy over the time of the former governor, who left governance safely.

There is no doubt that the banks will be in dire need of an injection of new capital, but this is related to the “Capital Control” and “Bank Restructuring and Financial Restoration” laws, which are laws that have not yet been approved, similar to the recovery plan, as a result of political disagreements and resentments. The government presented 6 draft reform laws, but political differences still prevent their approval.

Hence, government sources say that there must be a process of recapitalizing the banks within their restructuring law to restore their solvency, liquidity, and ability to lend to the economy and pay depositors. This law has not yet been decided upon by the House of Representatives, and there is also importance for the financial sector restructuring law to limit losses with the possibility of insuring deposits. To the extent of 100 thousand dollars for each depositor over several years, but the matter also requires a law, knowing that the existing assets are less than the liabilities (deposits), as financial losses in the banking sector amount to about 72 billion US dollars, and all of this calls for accelerating the approval of projects. Financial and reform laws. In relation to the current financial reality, the entry into force of Circular 166 requires the commitment of all banks to implement it, otherwise the Association of Banks will face new meetings to take the appropriate decision, noting that Mansouri held a series of consultations with the Association of Banks that led to the issuance of Circular 166.