Lebanon has no plans to impose capital controls or haircut on deposits

Central Bank of Lebanon responds to a query by a Dubai-based businessman on whether there is a risk to dollar deposits of foreign investors in Lebanon

Lebanon has no plans to impose capital controls or a haircut on deposits at banks due to the current financial crisis, according to its central bank.  AFP

Dollar deposits of foreign investors in Lebanon are safe and there are no plans to impose capital controls or a haircut in the wake of the ongoing political unrest and deepening financial crisis in the country

Lebanon’s central bank, also known as Banque Du Liban (BDL), said the law in the country does not allow a haircut on deposits.

The central bank’s clarification follows a query by Dubai-based businessman and founding chairman of Al Habtoor Group, Khalaf Ahmad Al Habtoor, who asked via his official Twitter account if there was any risk to dollar deposits of foreign investors and whether there could be a haircut.

"The declared policy of the Central Bank of Lebanon is not to bankrupt any bank thus preserving the depositors. Also the law in Lebanon doesn't allow haircut," the central bank said in a Twitter post on Saturday.

"BDL is providing the liquidity needed by banks in both Lebanese pound and dollars, but under one condition that the dollars lent by BDL won't be transferred abroad."

"Funds received by Lebanese banks from abroad after November 17 are free to be transferred,” the central bank said.

A haircut is a financial term used to describe a devaluation of an asset to provide a cushion to lenders. In 2011, depositors of banks in Cyprus, exposed to the Greek debt crisis, lost as much as 60 per cent of their uninsured deposits on balances of more than €100,000 (Dh404,922). The measure was a requirement at the time for Cyprus to secure a €10 billion bailout from the EU.

Lebanon is currently facing its worst financial crisis since the end of a 15-year civil war in 1990. On December 4, the central bank instructed lenders to cut interest rates on dollar and Lebanese pound deposits by half. It also put in place a six-month cap of 5 per cent for local currency deposits received on or renewed after December 4. The crisis has since led to the Lebanese pound losing about 20 per cent of its value against the US dollar in the local black market.

Citizens blame Lebanon’s political elite for widespread corruption and nepotism, which they say contributed to the country accruing $86bn (Dh315.8bn) of public debt equivalent to 150 per cent of gross domestic product, one of the highest ratios globally.

Lebanon needs to pay $1.2bn by March this year when a Eurobond hits maturity. Another tranche of $700m is due in April and $600m in June.

Earlier this month, Lebanon’s Prime Minister Hassan Diab formed a new “cabinet of experts”, with a view to implementing economic and financial reforms that could arrest the country’s downward economic spiral and facilitate access to $11bn in concessional loans pledged by the international community at a conference in April, 2018 in Paris.

Al Habtoor Group owns two hotels in Lebanon including Hilton Beirut Habtoor Grand and Hilton Beirut Metropolitan Palace, according to its website.