BELIEF, Banking Crisis, Economic Update

Banks Go on Strike to Pressure Lebanese Government

14:03 | 28 February 2023LIMS output
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Banks Go on Strike to Pressure Lebanese Government

In the beginning of February, the Association of Banks in Lebanon initiated an open-ended strike, due to court rulings that affected several banks and requested lifting banking secrecy on their main shareholders. LIMS explained that the strike was triggered by the central bank’s circular that prevented banks from issuing checks without verifying their purpose and ensuring they will not be converted by clients into dollars to limit the demand on the Lebanese pound (LBP). But more importantly, the banks requested a capital control law, which would prevent lawsuits against banks, the time the government accomplishes banks’ resolution and restructuring.

At present, the banking sector in Lebanon is going through a solvency and liquidity crisis. Banks’ assets are primarily made of deposits at the central bank and to a lesser extend eurobonds issued by the treasury. Since the public sector is unable to return the banks’ funds, banks are in a situation of default on their liabilities. LIMS added that the strike hinders daily financial transactions, including payments and money transfers abroad. This situation also hinges on the central bank’s ability to activate its electronic exchange platform—known as Sayrafa— and to pump dollars into the market. Nevertheless, the overall trend of the exchange rate is determined by the supply of LBP in circulation. Psychological factors related to fears of banks failing affect short-term fluctuations, but the long-term direction of the exchange rate is driven by the balance of the LBP supply and demand.

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