In response to the letter of the Association of Lebanese Banks to Mr. Riad Salameh and in support of the letter of the President of the Beirut Bar Association, Mr. Melhem Khalaf, the Depositors’ Union sent the following communication via registered mail to the Governor of The Central Bank.
Governor of the Central Bank of Lebanon
Mr. Riad Salameh
Subject: A reply to the letter from the Association of Banks in Lebanon regarding the compulsory foreign currency reserves of banks.
The Association of Banks (ABL) in Lebanon sent a letter to the Central Bank of Lebanon (BDL) in which they objected to the use of mandatory reserves to support the subsidy of a range of imported products which has led to the depletion of these reserves. The ABL demanded that the BDL reduce its mandatory reserves requirement due to the decrease of deposits in Lebanese banks. This Association has demanded in a brazen manner that the Central Bank “return this surplus from the Central Bank’s foreign currency reserve to the accounts of the Lebanese Banks abroad.”
Accordingly, it is primordial for the Depositors’ Union to signal that the decrease in the deposits lodged in Lebanese Banks is caused by the financial plan instigated by BDL in collusion with ABL and its members. This has resulted in small and medium depositors paying the price of the financial crisis and, furthermore, these mandatory reserves are a right to those depositors whose money is frozen in the Lebanese Banks that have ceased the payments.
- The policy of circulars contrary to the Code of Currency and Credit (Article 229 attached to Article 2 thereof) of encouraging multiple exchange rates for the Lebanese Pound and the illegal conversion of foreign currency deposits into Lebanese Pounds has fueled a black market in banker’s checks and it has triggered an indirect haircut on the value of deposits estimated to be more than 70 percent.
- Following Basic Circular Number 151, Banks, that are effective in cessation of payments, have seized deposits and only give it to Depositors after deducting a significant chunk of their value. This circular allows banks to seize hard currency and to give it a fake value that is not consistent with its real value and is creating an indirect haircut on the value of the deposits. This indirect deduction on the value of the deposits is illegal and criminally fraudulent and has ultimately lead to a drop in the total value of deposits at the banks.
- ABL’s insistence on retrieving part of the foreign currency reserves and its demand that these funds be moved to its own accounts in foreign banks while the starving population is not allowed to withdraw their savings at their real value shows a somewhat arrogant and criminal behavior. As the Lebanese Banks have been in a state of cessation of payment since October 2019, we, the Depositors’ Union, view their demand to recover some of the mandatory reserves as a major legal concern. The Central Bank must demand the liquidation of Banks that are in cessation of payment based on its mandate as stipulated in Article 2 of Law 2/67 dated the 16th of January 1967. Consequently, their assets shall be seized according to Article 13 of the previously mentioned law.
- The mandatory reserves are an element of trust and Article 132 of the Code of Currency and Credit allocates this reserve money as part of a bank’s fixed assets. Also, the law is clear that the mandatory reserves are part of the depositors’ funds which banks are required to place at the Central Bank. This is to abide by Article 70 of the above-mentioned law and to maintain coherence between the banks’ liquidity and the size of loans. Neither the Central Bank nor the non-paying banks have the right to touch these reserves as this money constitutes a guarantee for the depositors’ money.
Based on the above, we renew our call to the Central Bank inviting it to fulfill its role as stipulated by the law and the Constitution, especially Law 2/67. We further invite the Central Bank to start proceedings against banks that have ceased payments and lay a conservatory seizure of these banks’ assets. We also stress that the compulsory reserves constitute a guarantee for the Depositors’ money and absolutely no one has the right to dispose of them.