Lebanese banks are closing doors to customers to protest the ruling

BEIRUT (AP) – Lebanon’s ailing commercial banks closed their doors to customers on Tuesday to protest a recent court ruling that forced one of the country’s largest banks to pay out their trapped savings in cash to two of its depositors.

The Bankers Association of Lebanon, which advocates for the banks, released a statement calling the action an “indefinite strike” and criticized the court ruling, claiming it was detrimental to all depositors because the banks could not afford it who pay off everyone else’s savings in full.

The decline of the banks is part of Lebanon’s economic meltdown and unprecedented financial crisis, which erupted in 2019 after years of corruption and mismanagement by the country’s rulers. Over three quarters of Lebanon’s 6 million people have been plunged into poverty and the Lebanese pound has lost about 97% of its value against the dollar.

In an effort to avoid amid the crisis, banks instituted informal capital controls and restricted cash withdrawals from accounts. Also, those with dollar accounts are only allowed to withdraw small amounts in Lebanese pounds, at an exchange rate well below that of the black market or the exchange rate used to buy and sell most goods.

This prompted some overseas depositors who were locked out of their savings to file lawsuits to pressure the banks to fully release their savings. In Lebanon, others chose to break into banks and forcibly take their own money, leading to banks going on strike and closing for security reasons in September 2022.

Last week, the Lebanese Court of Cassation overturned the verdict in a 2022 case in favor of Fransabank, which was being sued by two depositors demanding their money in cash. The ruling overturned the previous ruling that allowed the bank to pay her with a check.

However, cashing this check would allow depositors to retrieve their funds at a significant loss.

It was the first legal decision of this kind since the crisis.

The Bankers Association said Tuesday that “the crisis is not a crisis of one bank or even all banks,” but one that “affects the entire financial and banking system,” including the Lebanese central bank.

She called on the government to implement reforms that the International Monetary Fund has made a condition of an economic stimulus package – a capital control law, the lifting of banking secrecy and the restructuring of the country’s commercial banks.

The IMF has criticized Lebanon for its slow progress on reforms since talks between the government and the IMF began in May 2020.

At the same time, banks have rejected attempts to blame their shareholders for the crisis, insisting that the government and its own depositors bear the brunt of the losses.

Kareem Chehayeb, The Associated Press

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