Claiming Lebanon’s bank deposits

Rabha Seif Allam, Friday 23 Sep 2022

As the economic crisis in Lebanon intensifies, some Lebanese have been resorting to armed attacks to access their savings, writes Rabha Seif Allam

Claiming Lebanon s bank deposits
Protesters pull out the gate leading to the Justice Palace in Lebanon s capital Beirut, demanding the release of two people involved in a bank heist (photo: AFP)

 

Lebanese banks have recently experienced a spate of attacks carried out by angry customers determined to withdraw their assets at gunpoint.

It has been nearly three years since the Lebanese central bank, the Banque du Liban (BDL), began to impose restrictions on withdrawals from dollar accounts in public and private banks in Lebanon.

But the incidents of armed withdrawals only started a few months ago, with one attracting unprecedented attention. A young woman entered her bank, pulled out a gun, and aimed it at the tellers, demanding that they let her withdraw a large amount from her dollar savings account because she needed the money to pay for her sister’s cancer treatment.

It then turned out that her gun was plastic and harmless, but the incident stirred an outpouring of empathy and sympathy for the idea of customers resorting to a gun or other means to free their trapped assets.

The young woman’s story has inspired others to the degree that last Friday alone there were seven incidents of “savings withdrawals at gunpoint” in banks across the country, one carried out by a former army officer.

Normally such incidents would be termed armed raids on the banks, but in Lebanon they have won widespread approval. Demonstrations have been staged in front of banks in support of the actions, which some protesters have described as legitimate and rightful attempts by depositors to recover their assets.

In response, the Lebanese Banking Association declared a three-day warning strike from 19 to 21 September, saying it would also review security and measures to search customers before they enter the banks. Some banks have closed their branches in southern Lebanon where arms have proliferated.

The Lebanese interior minister has claimed that the bank attacks are not acts carried out by individuals in desperate financial straits, but planned operations masterminded by various agencies. He refused to identify these agencies, citing the confidentiality of investigations.

As the economic crisis has escalated in Lebanon and the Lebanese lira has fallen against the dollar, the Lebanese banks have imposed a monthly cap on dollar withdrawals from client accounts and set an unrealistic exchange rate should clients want to convert part of their permitted withdrawal into lira.

The purpose is to forestall a run on the banking system and to preserve deposits needed to stem the downward spiral of the Lebanese currency, which has lost more than 90 per cent of its value.

The banks do not have enough hard currency to meet their clients’ demands, and panicked withdrawals could cause the banking system to collapse. But the regulations have deprived depositors of access to their savings at a time when jobs are being lost, the prices of food, fuel, and medicine are skyrocketing, and the purchasing power of salaries is shrinking.

The government has been slow to develop and carry out policies that would reduce or minimise restrictions on withdrawals. The BDL occasionally readjusts the monthly withdrawal limit and modifies exemptions from the restrictions, but it has yet to draw up a clear roadmap towards lifting restrictions and compensating depositors.

Many large depositors also moved their assets abroad before the banks introduced the restrictions, leaving small and medium-sized depositors to bear the brunt of the policies and stoking public anger.

The Lebanese banks have lost an estimated $80 billion as result of agreeing to loans to the government in ever increasing amounts without diversifying their own investments to buffer themselves against risk.

The government has been borrowing extensively at home and abroad for years to offset its budget deficit, expecting the banks to cover it.

Lebanon depends on imports for more than 80 per cent of its food, energy, and medicine. Its ruling elites have entrenched the deterioration in public services in order to encourage private sector firms to fill the gaps and reap kickbacks and commissions in exchange for securing lucrative contracts.

The result has been a system of economic fiefs to accompany the quota system that defines the shape of government. To finance such deals the government has borrowed even more, relying on influxes of money from abroad eager to take advantage of the incentives the Lebanese banks could offer.

But this money quickly turned tail and fled at the lira’s first serious stumbling, leaving small and medium-sized depositors in an almost daily struggle to pry some of their savings from the banks.

The economic impacts of the Covid-19 pandemic have compounded the suffering, with lockdowns and other measures leading to the suspension or slowdown of economic activities that depend primarily on small and medium-sized companies.

These have been forced to lay off workers, and unemployment levels have reached 40 per cent, especially among young people. Some 60 per cent of the Lebanese labour market is informal and therefore insecure. The poverty rate has soared to 82 per cent in tandem with the erosion of the country’s middle classes.

According to a recovery plan recommended by the International Monetary Fund (IMF) when it signed a preliminary agreement with Lebanon in April, the government was supposed to control the circulation of capital to keep it from being spirited abroad or feeding a growing black market.

Other laws were to aim at budgetary reform, remedying infrastructural defects in energy and transportation, and restructuring the banking sector in order to enable an equitable distribution of losses between depositors, bank owners, and the government.

However, in view of the complexity, difficulty, and long duration of such a process, the country’s political elites have been unable to develop a plan for comprehensive administrative and financial reform in order to salvage the Lebanese economy.

Lebanon’s parliament was not able to approve the 2022 budget, with MPs saying that the government had not provided for the structural reforms recommended by the IMF and economic experts.

Meanwhile, Lebanon’s electricity crisis has worsened due to rising fuel costs, with the government being unable to provide enough electricity to cover a working day. The judiciary has been on strike since August because of the erosion of salaries paid in lira and deteriorating work conditions in court buildings due to frequent power cuts and infrastructural problems.

As a result, depositors contemplating using a gun to withdraw their money from their bank have felt confident that no judge would issue a warrant for their arrest and no prosecutors would be around to investigate them.

Lebanon’s declining standards of living, economic doldrums, lack of transparency and other ingrained problems persist unabated. The country’s ruling elites are unable to take routine actions such as forming a government or passing an annual budget or even electing a new president before the incumbent’s term ends.

For many, Lebanon is heading into the unknown, not just politically and economically but also in terms of security. Perhaps the inability to secure the banks and other vital facilities may be the least of the country’s worries.

   *A version of this article appears in print in the 22 September, 2022 edition of Al-Ahram Weekly.

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