Banks have shut their doors and the central bank is no longer buying dollars, leaving Lebanese in a state of despair and panic
People use ATM machines at a closed Blom Bank branch in
Beirut 20 September 2022 (Reuters)
By Adam Chamseddine in Beirut
Published date: 6 November 2022
Mahmoud Ramadan knocked on a metal gate sealing a bank’s entrance in Beirut’s Corniche el-Mazraa street to no answer.
The middle-aged Lebanese man stood back and scrutinised the heavy door separating him from a money transfer he urgently needed.
A sign hung on the gate read: “If you need to schedule an appointment, please call the following number.”
By Adam Chamseddine in Beirut
Published date: 6 November 2022
Mahmoud Ramadan knocked on a metal gate sealing a bank’s entrance in Beirut’s Corniche el-Mazraa street to no answer.
The middle-aged Lebanese man stood back and scrutinised the heavy door separating him from a money transfer he urgently needed.
A sign hung on the gate read: “If you need to schedule an appointment, please call the following number.”
'No one dares to admit the bankruptcy of the entire banking sector, including the central bank, and that is why the circle will continue at a great expense to the economy'- Mounir Younes, Nidaa al- Watan newspaper
“I was told that this branch was open, but no one is answering,” Ramadan told Middle East Eye.
Ramadan looked at the sign again, and said, with nothing short of resentment, “I want to receive a wire transfer, not a hair cut.”
It was not a strange scene to witness in Lebanon. Signs hang despondent on large doors announcing a change in the way banking business is now being conducted, adding even more strain on a population whose majority has been forced into poverty.
The only sign indicating that the capital’s banks are even operating are the queues that form at attached ATM machines at the beginning of every month. Or perhaps, one may accidentally spot a reinforced door opening just enough to let a customer in or out.
Since the start of Lebanon’s financial collapse in late 2019, banks have fortified their entrances with metal, gradually transforming what were once considered the pride of the Lebanese economy into what now resemble army barracks.
But in recent months, a spate of raids by angry, and mostly armed, depositors on several bank branches demanding their money, which has been trapped in the banking system for years, have led banks to take even more precautions.
When the state refused to provide them with protection, arguing that they are responsible for the safety of their own employees and clients, Lebanese banks announced an indefinite closure, limiting their services to appointment-based operations and ATM transactions.
A source at the Lebanese Association of Banks said that a decision was made that each bank will decide its own operational capacity and the number of branches that will conduct corporate operations.
“The ATMs will be the link between depositors and the banks, and clients’ urgent needs will be based on pre-scheduled appointments,” the source told MEE.
Zombie banks
The decision to operate in what has been seen as an arbitrary manner has raised the question about the economic and financial role the banks should be fulfilling in any stagnant economy.
Experts who may differ on the origin point of the crisis agree on one thing: The banking sector in Lebanon is in a state of paralysis.
Unable to provide loans, liquidity, or, at the very least, open their branches without risking raids by angry clients, banks in Lebanon have transformed into what experts are calling “zombie banks”.
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Mounir Younes, the head of the economic weekly supplement in Nidaa el-Watan newspaper, believes that the way that the banking sector has been operating of late is a clear indication that “banks are no longer banks”.
“The selective bank closures have had no visible impact on the economy, which demonstrates that banks are no more than cash stores that provide money printed by the central bank: they no longer have any role in lending to the private sector nor in contributing to the economic cycle and growth,” he told MEE.
Younes said no Lebanese bank has yet admitted that they are in a state of default. The majority claims that the US dollar deposits they owe customers are in the central bank, while the latter says that it has no obligation to return that money in dollars. Instead, Younes added, the central bank is providing the banks with the deposits’ equivalent in Lebanese lira at rates it specifies in memos.
“This vicious cycle has been ongoing for the past three years, why?” Younes said.
“It’s because no one dares to admit the bankruptcy of the entire banking sector, including the central bank, and that is why the circle will continue at a great expense and damage to the economy, with augmenting inflation and the ongoing collapse of the local currency.”
Mounir Younes, the head of the economic weekly supplement in Nidaa el-Watan newspaper, believes that the way that the banking sector has been operating of late is a clear indication that “banks are no longer banks”.
“The selective bank closures have had no visible impact on the economy, which demonstrates that banks are no more than cash stores that provide money printed by the central bank: they no longer have any role in lending to the private sector nor in contributing to the economic cycle and growth,” he told MEE.
Younes said no Lebanese bank has yet admitted that they are in a state of default. The majority claims that the US dollar deposits they owe customers are in the central bank, while the latter says that it has no obligation to return that money in dollars. Instead, Younes added, the central bank is providing the banks with the deposits’ equivalent in Lebanese lira at rates it specifies in memos.
“This vicious cycle has been ongoing for the past three years, why?” Younes said.
“It’s because no one dares to admit the bankruptcy of the entire banking sector, including the central bank, and that is why the circle will continue at a great expense and damage to the economy, with augmenting inflation and the ongoing collapse of the local currency.”
Black Sunday
The Lebanese lira has been officially pegged at 1,507 to the dollar since 1997, but with the currency in free fall and multiple parallel exchange rates coexisting, the official rate has not reflected its true market value for years.
On 23 October, a week after the Lebanese lira's market value fell to more than 40,000 against the dollar, the Bank du Liban issued a memo declaring that it will no longer buy dollars on its Sayrafa platform. The central bank said that it will limit its activity on the platform to only selling dollars.
Experts saw the move as an attempt to strengthen the Lebanese lira, which had hit a new record low after it had stabilised at around 38,000 for weeks.
In a matter of hours, the dollar exchange rate dropped to 35,000, creating a state of chaos within exchange offices, and panic among citizens who follow the daily market rate in order to benefit from a profit margin when trading their dollars.
The memo that came as a shock to many was described by an exchange tycoon as “black Sunday”.
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“I had to turn off all of my phones. I just couldn’t listen to plea calls anymore from people begging to sell the dollars they had bought at a high rate to limit their losses after the rapid fall,” he told MEE on condition of anonymity.
But for the Lebanese, that Sunday was no more black than any other day on the country’s financial roller coaster that has pushed desperate people to take matters into their own hands.
Marwan, a bank employee who asked for his name to be changed, said what worried him the most during an armed holdup that unfolded at his branch was the situation getting out of control.
“It was evident from the start that this was an act of pressure and the depositor was seeking to squeeze whatever he can get out of the bank, but I felt agitated that the frustration was running too high,” he said.
Asked about what he felt working at a bank that has been accused of leaving people in ruins, Marwan said employees have also gotten the short end of the stick.
“We were all victims of this grand theft,” he said.
“I didn’t have any money in the bank, but I have many relatives whose life’s work was frozen in the bank I work in.
“I am a 50-year-old bank employee in a collapsed economy, what kind of job do you think I can have now?”
“I had to turn off all of my phones. I just couldn’t listen to plea calls anymore from people begging to sell the dollars they had bought at a high rate to limit their losses after the rapid fall,” he told MEE on condition of anonymity.
But for the Lebanese, that Sunday was no more black than any other day on the country’s financial roller coaster that has pushed desperate people to take matters into their own hands.
Marwan, a bank employee who asked for his name to be changed, said what worried him the most during an armed holdup that unfolded at his branch was the situation getting out of control.
“It was evident from the start that this was an act of pressure and the depositor was seeking to squeeze whatever he can get out of the bank, but I felt agitated that the frustration was running too high,” he said.
Asked about what he felt working at a bank that has been accused of leaving people in ruins, Marwan said employees have also gotten the short end of the stick.
“We were all victims of this grand theft,” he said.
“I didn’t have any money in the bank, but I have many relatives whose life’s work was frozen in the bank I work in.
“I am a 50-year-old bank employee in a collapsed economy, what kind of job do you think I can have now?”
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