The few loans granted today by Lebanese banks are denominated in dollars. (Credit: Marc Fayad)
It’s been almost five years since banks officially stopped granting loans to customers.
Nevertheless, some have secretly done so to a select few for several months. The loan precondition is that each customer has a good reputation or a “substantial” deposit in fresh dollars as cash collateral, said a banking source.
Fresh dollars are the deposits not subject to the illegal restrictions put in place since the start of the crisis.
The source added that the establishments concerned do this largely through their overseas subsidiaries, to which the amounts borrowed would be repaid. “This way ensures that the money will be returned in the same currency — something not guaranteed in Lebanon,” said the same source.
This type of product is aimed at individuals or firms. It contributes to the smooth running of the economy and its growth as a means for borrowers to obtain the capital they do not have but can reimburse later through their activities.
However, with the collapse of the Lebanese economy and banking system, loans to the private sector practically disappeared.
Those granted in Lebanese lira shrunk by LL16,700 billion between the beginning of 2019 and January 2024 (-60.6 percent), while those denominated in foreign currencies fell by $33.9 billion (-82.5 percent) over the same period, according to Banque du Liban’s latest figures via Byblos Bank’s weekly newsletter, Lebanon this Week.
A privileged few
Today, only a tiny segment of the Lebanese population has access to credit, almost all denominated in dollars.
This is because to grant loans, banks need liquidity. However, liquidity in lira has almost completely dried up due to BDL’s monetary policy, which now aims to protect the national currency from depreciation and maintain a stable exchange rate.
To achieve this, BDL withdrew all pound cash to control its supply and prevent a surplus in circulation. As a result, the lira to dollars exchange rate has been stable for several months, hovering around LL89,500 to the dollar.
“We granted loans in lira until late 2023 when our liquidity position was comfortable. But as the lira dried up on the market, we were no longer in a position to do so beyond that date,” said Michel Accad, Bankmed’s managing director.
“To relaunch the supply of loans in dollars on a large scale, we need to ensure two things: Sufficient liquidity in fresh dollars and a law ensuring that loans granted in fresh dollars are repaid in the same currency and not in lollars,” said Nassib Ghobril, Director of Byblos Bank's Research Department. Lollars are dollars blocked in banks and worth only 10-12 percent of their nominal value.
While there are no official figures on cash in banks today, the economist estimated that there is “nearly $2.7 billion,” mainly domiciled salaries, remittances and companies putting money in the bank as collateral for their imports’ letters of credit.
“These are sums which, for the most part, cannot be used to grant credit, given that they are not blocked for a specified period and can, for the most part, be quickly withdrawn from banks,” he said.
This situation stems from the distrust in the Lebanese banking system. Depositors have been subject to illegal withdrawal restrictions for almost five years without a clear plan to overcome the crisis.
On the other hand, “there is a stock of real-dollar liquidity deposited with correspondent banks of a bit under $2 billion, mainly in the hands of four or five banks that have either sold foreign subsidiaries or whose business activity is helping them build up good liquidity,” said Accad.
Banks can use this envelope to grant loans. “But to do so, a law ensuring that these loans are paid back in the same currency is needed. But this would be a rather populist decision, as it would mean that politicians officially differentiate between real dollars [‘fresh’] and local dollars [‘lollars’] blocked in banks,” he said.
In addition, these establishments must account for the country risk that Lebanon represents today. “Lebanese banks can lend on the local market at rates ranging between seven to eight percent, whereas they are renumerated at a rate ranging between five to six percent when investing the same cash abroad. However, given the current situation, banks consider that this two to three percent difference is not worth the risk of granting loans in Lebanon,” Accad added.
Banque de l’Habitat is an exception
All interviewees agreed that it’s currently impossible to give a precise timetable for a large-scale loan revival; what’s certain is that it won’t happen any time soon.
The only bank to announce the resumption of lending shortly is Banque de l’Habitat, which specializes in home loans. Antoine Habib, the bank’s CEO, told L’Orient-Le Jour that applications can be received as of June 1, exclusively via the bank’s website.
“The first part of the 50 million Kuwaiti dinars envelop [over $162.3 million], which the Arab Fund for Economic and Social Development (AFESD) agreed to in 2019, is supposed to be disbursed towards the end of June. As a result, subsidized housing loans will begin to be granted in July,” he said.
The amounts credited will range from $40,000 for low-income households (between $1,200 and $1,500) to $50,000 for middle-income households (between $1,500 and $2,000). Repayment can be spread over 20 years, with an interest rate of six percent.
Habib added that this line of credit will also grant loans for constructing new housing, restoring old homes and installing renewable energy equipment.
The agreement with the AFESD was signed in March 2019, a few months before the economic and financial crisis started. Parliament approved it on May 28, 2020, and reactivated it on June 20, 2022. Its entry into force has since been delayed for several reasons.
Credit cards and letters of credit
In addition to loans, Lebanese banks said they are again offering credit cards to some customers based on their income. They are also offering letters of credit to merchants for importing goods.
“For almost six months now, banks have been granting small loans through foreign currency bank cards, in exchange for foreign currency deposits or direct debits, for example,” said Accad.
Banks grant letters of credit to importers in return for cash guarantees, which today amount to 70 to 100 percent of the amount to be paid, according to several testimonials.
“This doesn’t make sense, and it’s not easy for us,” said the Head of the Syndicate of Food Importers in Lebanon Hani Bohsali.
“Instead of blocking up to 100 percent of the amount in the bank, the vast majority of importers prefer to pay for their goods straight away from their own cash. For us, banks are now no more than money transfer agencies,” he said.
This article was originally published in L'Orient-Le Jour. Translated by Joelle El Khoury.