The Association of Banks in Lebanon (ABL) released its Circular No. 198/2020 in which it spotted the light on the most important issues raised during the monthly meeting held on October 1, 2020 between Banque Du Liban (BDL), the Banking Control Commission (BCCL), and the ABL. In detail, the Central Bank Governor Mr. Salameh commented that the Lebanese economy is suffering badly due to a myriad of factors namely the absence of any corrective measures by the government pertaining to reforms, the ambiguity on how to deal with the consequences of the government’s decision to default on its Eurobond payments added the fact that talks with the IMF have stalled. The Governor added that if the current situation were to persist, there will be no return to economic growth. Mr. Salameh also added that the public treasury is suffering and that the Central Bank, upon the request of the Ministry of Finance is financing the treasury deficit in Lebanese Pound (LBP) in one hand, and subscribing to maturing treasury securities on the other. The Governor also notified the ABL that he informed the government that reserves at hand will be sufficient to subsidize the import of primary goods (fuel, wheat and medicine) at a rate of LBP 1,500/USD and food products at a rate of LBP 3,900/USD for two to three months and that the Central Bank will not be tampering the required FX reserves on customer deposits. Mr. Salameh hoped that the government will manage to issue subsidized cards that will protect the purchasing power of the social class that is mostly affected by the deteriorating purchasing power and living conditions.

With regards to basic circular 154, the Governor stressed on the need for banks to abide by the provisions of said circular which aims to reconstitute banks’ liquidity with their foreign correspondent banks, commenting that banks will be able to honor the 3% foreign liquidity threshold. He also emphasized that banks efforts to channel back deposits that have been transferred abroad (15% for customers and 30% for PEPs to be repatriated) will also help strengthening the sector’s foreign currency liquidity. Mr. Salameh also clarified that the second purpose of BDL basic circular 154 is to recapitalize the banking sector by possibly more than 20%. Mr. Salameh highlighted that the Central Bank and the BCCL will strive hard to adopt all measures to overcome the crisis and beef up liquidity and capitalization in the banking sector to help banks regain their role to finance the economy.

As for students’ foreign tuition, the Governor reminded that BDL issued a circular in this respect and that the provisions of said circular must be adopted by banks. The ABL saw the necessity to find a mechanism to avoid misuse of the law whereby an applicant benefits from more than one bank. The parties involved in the meeting have unanimously agreed to wait for a circular to be issued by the Ministry of Finance that specifies how all these aspects will be addressed.

Finally, the Governor clarified that the drop in BDL’s foreign currency reserves during the second half of September 2020 by $2.2 billion is primarily due to banks’ settlement of foreign currency denominated loans to the Central Bank.