Lebanese depositors face high uncertainty and a long wait in recovering their money from banks, despite a draft law aimed at gradually repaying customers' funds frozen in the banking system since the 2019 financial meltdown.
Lebanese banks do not have sufficient liquidity to repay all depositors amid a foreign-currency crunch, analysts say.
The proposed banking law "reduces immediate pressure on the system but does not ensure ultimate recovery", said Walid Abousleiman, co-founder of Cyprus-based financial services company Aksys Global Markets.
co-founder of Cyprus-based financial services company Aksys Global Markets
"In that sense, the likelihood of repayment is conditional and uncertain rather than assured."
Meaningful payouts are unlikely to be made quickly and enforcing the proposed law once it is passed will be critical for depositors to receive their money.
"Ultimately, depositor outcomes will depend less on the passage of the law itself and more on whether it is accompanied by credible enforcement, transparent loss recognition and a clear hierarchy of claims," Mr Abousleiman said.
"Without these, the law may manage the crisis administratively but fall short of resolving it economically."
Lebanon's cabinet is debating a proposed banking law this week after a majority of ministers signalled support for the bill endorsed by Prime Minister Nawaf Salam. It would redistribute the country’s financial losses, borne overwhelmingly by ordinary Lebanese since 2019, between commercial banks and the state.
The draft law is a key step for unlocking international financial assistance – the International Monetary Fund (IMF) has made any bailout conditional on Lebanon implementing long-delayed structural changes, including to the banking sector. But the draft law must still overcome several hurdles – it must first pass through the Cabinet before being sent to Parliament for approval, although it faces criticism from various quarters.
Customers have been waiting to access their life savings stuck in Lebanese banks for the past six years, as the country endures a severe financial crisis.
Lenders imposed arbitrary restrictions on their clients in 2019 after the state failed to honour its bond commitments and the economy went into a tailspin. The Covid-19 pandemic exacerbated the crisis to historic proportions, compounded further by Israel's attacks on Lebanese territory shortly after the Gaza war broke out.
When will depositors get paid?
Under the draft law, depositors would be able to retrieve up to $100,000 of their funds over four years. Around 84 per cent of them fall below that threshold. The wealthiest would instead be compensated through long-term securities backed by the state.
Lebanese depositors are likely to receive "partial and staggered" compensation, not full repayment in any meaningful economic sense, said Khaled Saad, economist and researcher at Beirut-based think tank The Policy Initiative.
Any funds above $100,000 are converted into long-dated asset-backed certificates issued by Banque du Liban (BDL), with maturities reaching up to 20 years. "That is not repayment; it is a forced conversion of deposits into sovereign-like risk," Mr Saad said.
For those with deposits below $100,000, payments should start "relatively soon" after the law comes into force and would continue over four years. "Delays are likely because implementation depends on decrees, circulars, and reconciliation exercises that are politically and legally contested," Mr Saad said.
For those with deposits above $100,000, the wait will be longer because most of the recovery is deferred far into the future: minimal repayments start only after several years and final repayment depends on long-term asset liquidation and income streams, he added.
"In practical terms, many depositors will face a choice between waiting decades or selling certificates at a discount," Mr Saad said.
Even before repayments start, the process between passing the law and depositors getting their money is long, and riddled with potential delays, analysts say.
The draft law must first be approved by the Cabinet and then forwarded to Parliament for extensive discussions before members vote on it, the President signs it and only then is the law published in an official gazette.
"The key is the Parliament’s vote but we still are a long way from this point, given the widespread opposition to the draft and political considerations related to the upcoming parliamentary elections," said Nassib Ghobril, chief economist at Beirut's Byblos Bank Group.
Once the law is enacted, the next steps involve a quality review of banks' assets, purging "anomalous deposits" from lenders' balance sheets and applying the hierarchy of claims to each lender.
Repayment depends on factors such as the outcome of asset-quality reviews, the valuation and availability of assets to back repayments, the capacity of banks and the central bank to generate foreign currency liquidity, and the political willingness to enforce loss allocation.
Mr Abousleiman said: "Any meaningful payouts are unlikely to occur quickly. Even under optimistic assumptions, there would be a significant lag between the law’s adoption and actual payments, due to the need for audits, implementation decrees, institutional restructuring and operational capacity building."
State accountability
Analysts have said the draft law fails to hold the state accountable for the losses.
"The draft law does not hold state institutions, other than the central bank, accountable for any part of the crisis, which does not support the law’s credibility, given that the crisis is a systemic one and originated from the abuse of political power and the mismanagement of the public sector," Mr Ghobril said.
Former central bank governor Riad Salameh has been accused of helping to embezzle hundreds of millions of dollars from the institution.
Currently, there are strict withdrawal limits and most customers can access only up to $500 a month. The limit is at $250 a month for certain newer accounts. Annual withdrawal ceilings range from $5,100 to $6,800, depending on when the account was enrolled.
Accountability remains one of the weakest elements of the current framework, Mr Abousleiman said. The proposed law does not clearly establish in advance responsibility for losses across the state, the central bank and commercial banks, nor does it explicitly require the full write-off of existing bank equity before depositors are affected.
"As a result, confidence in the system remains extremely low," he said. "Trust is unlikely to return without a clear acknowledgement of losses, transparent allocation of responsibility and visible consequences for governance failures. Without these elements, any restoration of faith in the banking system would be fragile and largely symbolic."
Liquidity crunch
The other challenge is whether the banking system has sufficient liquidity to make repayments to depositors.
"The short answer is 'no'," said Nasser Saidi, a former economy minister and deputy governor of Lebanon's central bank. He said it was impossible to know if banks had sufficient liquidity without a forensic audit of the lenders and the BDL.
Additionally, the draft law promises to create future liabilities without clearly specifying how these will be financed.
"There is a great deal of vagueness and opaqueness in the draft law. There is uncertainty: who does what, who assesses the amount of losses, who administers etc, which opens the process to potential litigation and legal uncertainty," Mr Saidi said.
Phased approach
Analysts say if the draft law is enacted by parliament, it will be implemented in phases. This will start with administrative measures, followed by partial cash disbursement and longer-term instruments for larger claims.
A major issue with the draft law is that it does not add new liquidity into the banking system, but rather focuses on the balance sheets of the commercial banks and the BDL.
"This is a flawed static approach. You need both solvency and liquidity and long-term sustainability requiring a dynamic analysis," said Mr Saidi.
New capital and financial resources will need to be injected in the banks to provide credit and finance to stabilise and restore economic growth.
"This is not a zero-sum game," he added. "The risk is that absent resolution of uncertainties, the restructuring process will end up being a failed, negative-sum game – a situation in which the total losses of all participants exceed the total gains, resulting in a net loss for everyone involved, that will not restore trust to revive a cash-based, informal economy."
