The Finance and Budget Parliamentary Committee headed by MP Ibrahim Kanaan has recently finalized its draft capital control law which aims to enact temporary and exceptional restrictions on withdrawals and transfers. The draft law was approved by the Committee on Monday June 7, 2021 and will be submitted for review by the parliament in the coming days.

It is worth noting that the first draft of the capital control law which was published in April restricts transfers outside Lebanon barring some exceptional cases (detailed below), with the Central Council at BDL setting the ceilings (not to exceed $50,000 per year) on transferable amounts for the below exceptions:

-Settling educational tuitions incurred before October 17, 2019 in addition to any lodging costs for the concerned person or dependent family members;

-Honoring monthly instalments of personal housing loans initiated outside Lebanon;

-Settling taxes or financial commitments to foreign authorities; and

-Paying monthly subscriptions on internet applications.

In a related note, the draft law aims to cap cash withdrawals (except for salary accounts) at LBP 20 million per month, with said limit being subject to possible amendments by the Central Council at BDL. As for USD denominated accounts, the conversion price to LBP will be determined by BDL, taking into consideration the rates set by the soon to be incepted exchange platform. The draft law also calls for allowing depositors with foreign currency accounts prior to the year 2016, to withdraw/transfer outside Lebanon 50% of the aforementioned LBP threshold in foreign currency notes. The draft law also prohibits converting funds from LBP to any foreign currency unless the concerned bank has the required cash position to cover said conversion. Finally, the draft law stated that fresh funds are not subject to any of the restrictions stated above.

The first draft of the capital control law was subject to comments addressed by the Association of Banks in Lebanon (ABL) addressed a letter to the Chairman of the Finance and Budget Committee Mr. Ibrahim Kanaan on April 21, 2021. In details, the ABL thanked the Lebanese Parliament and the Finance & Budget Committee for the draft capital control law, reiterating in this respect its supportive stance for a capital control law in order to protect depositors’ best interests. Furthermore, the ABL noted that enacting a capital control law would ensure monetary stability and revitalize the economic cycle. In addition, and with regards to transfers abroad, the ABL commented that exemptions should be kept at a minimum given the limited financial resources at hand. In this vein, the ABL noted that financing these exemptions must be done by exclusively using banks’ free foreign currency deposits at the Central Bank as foreign currency deposits in the banking sector have dropped by $12.5 billion between October 2019 and February 2021 freeing some $1.8 billion in mandatory foreign currency reserves deposited at the Central Bank. Accordingly, the ABL proposed capping these exemptions at $20,000 per annum (instead of the $50,000 stipulated in the draft law) conditional upon securing obtaining documents that prove that the concerned parties do not have sufficient revenues abroad to cover any of the following commitments:

-Transfers to students that will be capped at $7,000 per annum

-Hospitalization cases not available in Lebanon based on a recommendation from an independent medical committee

-Mortgage payments due abroad that used to be previously financed before October 2019

-Paying taxes due abroad on income in Lebanon

-Paying insurance policies issued prior to October 17, 2019

As far as cash withdrawals are concerned, the ABL commented that they must be done strictly in local currency at the exchange rate specified on BDL’s electronic platform, noting that the financial & monetary authorities need to approve the exchange rate and the caps on withdrawals that depositors are allowed to perform. Furthermore, the ABL stressed on the need to limit cash withdrawals in an endeavor to tame inflationary pressures and their effects on the market exchange rates. In addition, the ABL stated that foreign currency denominated loans must be paid in the currency of these loans, taking into account the exemptions according to BDL circulars pertaining to personal & housing loans.