BELIEF, Banking Crisis, Economic Update, Haircut

Government’s “Lirafication” Plan to Save Banks

11:04 | 28 February 2022LIMS output
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Government’s “Lirafication” Plan to Save Banks

Once the economy’s most-valued sector, Lebanon’s banks are shutting down branches and laying off employees in droves to adjust to the harsh financial crisis. In a bid to resolve the banking crisis, the Lebanese government submitted a plan to the IMF distributing the bank’s losses on depositors. The “Lirafication” plan consists of converting dollar deposits to Lebanese pounds on multiple exchange rates, depending on deposits’ brackets.

LIMS explained that the whole banking system is made up of zombie banks, unable to fulfill their basic functions of taking deposits and giving loans. All banking activities now consist of having clients withdraw their dollar denominated deposits in Lebanese pounds (LBP) at a harsh, below market, exchange rate following the central bank’s circulars. Yet, LIMS criticized the government’s plan showing how the Lirafication leads to hyperinflation and currency devaluation, further pauperizing the population.  Instead, LIMS favored a different approach that would see the public sector (both the government and the central bank) pass sizeable reforms to gradually pay off their debt to the commercial banks, allowing the latter to pay their depositors.

Meanwhile, the central bank announced its latest decision to allow fresh dollar account holders to obtain LBP at the preferential Sayrafa exchange rate when using their debit cards at point of sales and in ATM machines. LIMS clarified that customers would no longer need to withdraw cash dollars and exchange them on the black market, given that the Sayrafa rate is very close to the black market one. In doing so, the central bank hopes to incentivize depositing US dollars at commercial banks again, in turn allowing the Lebanese economy to restart using fresh dollars. 

  • Details Of Central Bank’s Decision On Fresh Dollar Accounts, February 3, 2022: Al Jadeed, TV Interview AR
  • Important Questions On The Potential ‘Lirafication’ Of Deposits, February 7, 2022: Leb Economy, Article AR
  • The Fate Of Dollar And Housing Loans, February 15, 2022: Al Jadeed, TV Interview AR
  • The Fate Of Banks Deposits After Unification Of Exchange Rates, February 20, 2022: Lebanon News, TV Interview AR
  • Banks Shut Down Tens Of Branches And Lay Off Thousands Of Employees, February 20, 2022: Annahar, Article AR
  • Lebanon’s ‘Zombie Banks’ Downsize To Weather The Crisis, February 20, 2022: France 24, Article EN
  • Banking Sector Almost Paralyzed, Restricted To Withdrawals, February 22, 2022: Tele Liban, TV Interview AR