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The application for annulment lodged by the Association of Banks in Lebanon (ABL) with the State Council against the Cabinet’s decision to cancel a large part of the Banque du Liban’s foreign currency liabilities to banks was deemed admissible in form. The cancellation was part of the Cabinet’s financial sector recovery strategy.
Interviewed by This Is Beirut, Professor Nasri Diab, who has opposed any form of haircut since March 2020, considers that the ruling made by the State Council, which at this stage only concerns the admissibility of the petition and the jurisdiction of this court to examine it, could, if upheld on the merits, give a serious brake for government measures to haircut bank deposits.
ABL had requested the annulment of Cabinet Decision No. 3 of May 20, 2022, approving the Strategy for the Recovery of the Financial Sector, exclusively in its part concerning the cancellation of a large part of the Banque du Liban’s foreign currency commitments to banks in order to reduce the deficit in BDL’s capital. Except that this cancellation practically means a haircut on the banks’ accounts with the Banque du Liban.
Diab underlined the importance of the decision, handed down by a chamber presided over by the Head of the State Council Fadi Elias, which considered the government strategy to be “an effective and prejudicial administrative decision and not, as alleged by the state in its defense, a general, non-effective and non-prejudicial orientation.”
For Diab, it is clear that the idea of reducing the financial sector’s “gap” by applying a haircut, originally envisaged in the Lazar plan in 2020, is still on the table. This haircut concerns depositors’ accounts with banks or banks’ accounts with the Banque du Liban, which in practice amounts to the same thing.
By agreeing to look into the matter, the State Council has given depositors renewed hope that any government attempt to trim their accounts will be blocked.
In the recitals to its decision, the State Council considered that the government’s contentious decision “is not linked to any future work that the government intends to undertake, but rather to an additional complementary decision, which retroactively enshrined the state’s definitive ownership of private deposits.”
When contacted by This Is Beirut, a banking source did not rule out a judgment on the merits by the end of the year, as the exchange of conclusions between the judicial authority and the ABL should not take long.
The source was also pleased with the content of the decision, which refers to a number of French and Lebanese jurisprudences on the subject.
