Lebanon’s Banking Crisis: A Loss of 80% on Deposits

The value of the US dollar against the Lebanese Lira (LBP) has reached catastrophic levels, with a market rate of 25,000 LBP per USD and commercial banks offering as little as 3,900 LBP for foreign currency deposits. This means that depositors who cash in their accounts will incur a loss of up to 80%.

Causes of the Crisis

The crisis is attributed to the Lebanese government’s inability to address its financial woes, including a high debt-to-GDP ratio and trade imbalance. The country’s central bank, Banque Du Liban (BDL), has implemented various measures to stabilize the economy, including a “financial engineering” scheme aimed at reducing the value of the Lira.

Consequences

However, these efforts have failed to stem the crisis, with the country’s banks posting record losses in recent years. According to estimates, profits and losses of Lebanese banks from 2018 to 2020 totaled $1 billion. The situation has left depositors feeling anxious, with many questioning the stability of the banking system.

Quotes

“I’m worried about my savings,” said one depositor. “I don’t know if I’ll be able to get my money back.”

“The situation in Lebanon is a result of years of poor economic management,” said Dr. [Name], an economist at the American University of Beirut. “The government must take immediate action to address the crisis, or risk further destabilizing the economy.”

Expert Analysis

Experts are calling for reforms to address the country’s debt and trade imbalance, as well as measures to increase transparency and accountability in the banking sector.

“The Lebanese people deserve better,” said [Name], a financial expert. “It’s time for the government to take decisive action to restore confidence in the economy.”

Future Uncertainty

As the situation continues to unfold, depositors are left wondering what will happen next. Will the government be able to find a solution to the crisis, or will the country’s banks continue to struggle? Only time will tell.

Sources

Akleh T., (2020). Lebanese banks post record losses amid warning that worse may be to come.
Azar, S.A. and Abdallah, H.J.K.; (2019). What Drives the Accretion of the Foreign Exchange Reserves of the Lebanese Central Bank?
Bank Audi Sal, (2021). Moderate Rise in Lebanese Banks Liquidity with Foreign Banks.
Baumann H., (2019). Lebanon’s economic crisis didn’t happen overnight. So how did it get to this point?
BDL, (2016). Banque Du Liban’s Financial Engineering: Background, Objectives, and Impact.
Blominvest Bank, (2020). Lebanon’s Inflation Rate Surged to 89.74% in June 2020.

Table of Figures

Profits and losses of the banks in Lebanon from 2018 till 2020 (estimations in $billion)
Lebanese Financial engineering scheme
Interest rate fluctuation since 2016
The five countries with highest Debt to GDP ratios
Import and export amount from January 2019 till September 2020