Lebanon's battered commercial banks on Tuesday closed their doors to customers in protest of a recent court ruling that forced one of the country's largest banks to pay out two of its depositors their trapped savings in cash.
The Association of Banks in Lebanon, which lobbies for the banks, released a statement calling the action an “open-ended strike" and criticized the court ruling, claiming it was detrimental to all depositors, because the banks cannot afford to pay out everyone else’s savings in full.
The demise of the banks is part of Lebanon's economic meltdown and unprecedented financial crisis that erupted in 2019 following years of corruption and mismanagement by the country's rulers. Over three quarters of Lebanon's population of 6 million has been plunged into poverty, and the Lebanese pound lost about 97% of its value against the dollar.
In an effort to avoid folding amid the crisis, the banks imposed informal capital controls, restricting cash withdrawals from accounts. Also, people with accounts in dollars are allowed only to withdraw small sums in Lebanese pounds, at an exchange rate far lower than that of the black market or the exchange rate used for buying and selling most goods.
This prompted some overseas depositors, locked out of their savings, to launch lawsuits to pressure banks to release their savings in full. In Lebanon, others opted to break into banks and forcefully take their own money, which led the banks to go on strike in September 2022 and close down amid security fears.
Last week, Lebanon's Court of Cassation overturned the verdict in a 2022 case in favor of Fransabank, sued by two depositors demanding their money in cash. The ruling overturned the previous verdict, which allowed the bank to pay them with a check.
Cashing that check however would enable the depositors to retrieve their funds at a significant loss.
It was the first legal decision of its kind since the crisis.
The banks' association said Tuesday that “the crisis is not a crisis of one bank or even all the banks” but one that “affects the entire financial and banking system", including Lebanon's central bank.
It called on the government to implement reforms that the International Monetary Fund has made a condition for an economic recovery program — a capital controls law, lifting banking secrecy, and restructuring the country's commercial banks.
The IMF has criticized Lebanon for its sluggish progress on the reforms since talks between the government and the IMF began in May 2020.
At the same time, banks have refused attempts to make their shareholders assume responsibility for the crisis, and have insisted that the government and their own depositors share the biggest burden for the losses.
