Desperate Lebanese depositors take their banks to court

JIT WAS not how Rebecca Ego planned to use her law degree. In 2020, she was accepted into a master’s program in America. It would cost $20,000 after scholarships, money she had in the bank. In Lebanon, however, it is almost impossible to withdraw money from the bank: lenders have imposed harsh and arbitrary capital controls amid a financial crisis. Mrs. Ego was informed that she could not withdraw her funds.

Like hundreds of Lebanese, she sued her bank for breach of contract. The case has been dragging on for two years. One of his banks subsequently closed his account, cashing his savings in the form of a check that no other bank will accept. “There is no legal basis for any of this,” she says. “But there is no judge who says that.”

For nearly three years, Lebanese banks have been zombies. The crisis dates back to 1997, when the central bank, Banque du Liban, pegged the pound at 1,500 to the dollar. He maintained the peg by borrowing dollars from commercial banks at double-digit interest rates, a state-run Ponzi scheme that collapsed in 2019.

Lebanon defaulted the following year. Financial sector losses are estimated at $68 billion (130% of pre-crisis losses GDP). Earlier this year, the pound fell to 34,000 in the parallel market, a depreciation of 96%.

On April 7, the IMF concluded an agreement with Lebanon, which could include a loan of 3 billion dollars. Before the fund’s board votes on the package, however, it wants the Lebanese government to take steps to restructure the financial sector, such as passing a law tightening capital controls. Parliament dithered on the issue for two years. A vote scheduled for April 20 has been postponed. With legislative elections scheduled for May 15, it is unclear when this could happen.

The vacuum let the banks impose their own rules. Most depositors can only access small amounts of pounds. Withdrawals from dollar accounts use unfavorable rates.

Local courts offer little relief. The Union of Depositors, which represents thousands of savers, estimates that there have been more than 300 lawsuits against banks to date. Only a few have been resolved.

Foreign judges were more expeditious. In December, a French court ordered Saradar Bank to pay $2.8 million to a client in Paris. In February, a London court issued a similar judgment in favor of a Lebanese-British businessman. Bank Audi, one of the lenders ordered to transfer money to him, warned the decision would lead to “unequal treatment” of depositors.

To show its commitment to fairness, Bank Audi has closed dozens of accounts held by UK citizens or residents. The same goes for at least one other lender. The depositors say they were offered a chance to reopen their accounts if they signed a contract that waived their right to sue and said they could not make overseas transfers. Otherwise, their balances would be paid by check, all but useless in a country with a defunct banking system.

A few have tried more desperate measures. In January, the owner of a cafe in the eastern Bekaa Valley doused his bank lobby with gas and demanded $50,000 from his account. He got his money (his sister says he signed a receipt). Some Lebanese applauded his audacity. Others have seen a symptom of all that afflicts their country, where force trumps the rule of law.

The lawsuits may soon have little effect: the Capital Controls Act would nullify them. “It’s like an amnesty for bankers,” explains Fouad Debs of the Union of Depositors.

The government has proposed guaranteeing accounts under $100,000, although depositors may have to wait up to eight years to withdraw all of their savings. Larger balances would receive a discount.

Even if Lebanese banks escape legal judgment, their industry seems destroyed for a generation. Lebanon has become a monetary economy. Many businesses no longer accept card payments. The sprawling diaspora, which once funneled billions to Lebanese lenders, will likely keep its money overseas. “If we don’t see the banks paying the price for what happened,” says Ms Ego, “we can never trust them again.”

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