The Banque du Liban, in a new circular (Interim No. 646), published yesterday, has mandated that early repayment of certain categories of loans must be made exclusively in the currency in which they were drawn. So if a loan had been taken out in dollars, the borrower will no longer be able to repay it in pounds before the due date.

According to the circular, the measure concerns “all property loans”, those aimed at financing studies “in higher education” and “environmental loans (linked to projects) under 30 million Lebanese pounds”. The circular also states that early repayment can be made without prior agreement.

The text supports a practice established with the crisis that broke out in the summer of 2019, when the national currency fell and banks stopped making automatic conversions between pounds and dollars for their customers, as they did when BDL still managed to stabilize. the rate in the market of 1,507.5 pounds against the dollar.

The procedures

In theory, a customer who wants to repay a dollar loan before maturity will now be required to:

– Either by puncturing his accounts in “bank dollars” or “lollars”, terms denoting the currencies held down by the illegal banking restrictions in place since the beginning of the crisis;

– Either by buying bank checks in “lollars”, which are still traded in the dedicated informal market;

– Either, as a last resort, by paying in cash or by transferring the equivalent amount from abroad in “fresh dollars”, a term for the “real” dollars that can be exchanged at the market rate (nearly 40,000 pounds to one dollar in this week) or BDL’s Sayrafa platform (almost 30,000 books). This last clue remains possible as the BDL does not explicitly distinguish between bank dollars and fresh dollars in its circular. However, it had officially established it in its Master Circular No. 150 dated April 9, 2020.

On the other hand, the borrower who finds himself in these scenarios will no longer be liable for the penalties that are normally imposed for early repayment of mortgage loans before 7 years have passed after the contract. For housing loans subsidized by the mechanisms introduced before the crisis by BDL (via its previous recovery plans), the premature repayment of the loan will lead to the suspension of the financing of the subsidies by BDL (therefore the balance of the loan will no longer be subsidized ).

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BDL did not explain the reasons for this decision, the fourth to intervene in several categories of transactions since the Ministry of Finance’s announcement at the end of September on the gradual replacement of the official rate of 1,507.5 pounds with a new one, set as of 15,000 pounds, and which in principle should not apply to loans already taken out.

It could, for example, be a measure aimed at encouraging early repayment of loans at the beginning of a possible restructuring of the banking sector, which is being prepared by the government. Borrowers who wish to settle their obligations and are in the financial capacity to do so may thus be induced to empty their accounts in lollars or rush to the informal market for bank cheques. On a bank’s balance sheet, each amount of lollars mobilized to repay a loan corresponds to a reduction in its foreign exchange liabilities, and each loan repayment improves its bad debt ratio.

Note that “bank dollars” can no longer be used to fund card payments since last summer and can only be withdrawn at a rate of 8,000 pounds to one dollar. It should also be noted that in the informal bank check market, a check in lollars can be exchanged for 15 to 16% of its amount in fresh dollars, depending on the discount rates offered yesterday. Last Friday, BDL published three intermediate circulars at once :

• A first (No. 643), which formalizes the suspension of subsidies enjoyed by fuel importers and confirms their maintenance on wheat, certain drugs, raw materials for the pharmaceutical industry and milk for infants – at a rate of 1,507.5 pounds to the dollar, but in different ratios.

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• Another (no. 644), which requires commercial banks to obtain prior approval from the central bank for the opening of letters of credit for the import of hydrocarbons (petrol, diesel and gas) or for the payment of invoices regarding the final invoice, shipping document and unloading report.

• Finally, a third (No. 645) modifies the deadline according to which commercial banks had to place at least 3% of their foreign currency deposits with their correspondent banks in accordance with the mechanism introduced by the main circular No. 154, published at the end of ​August 2020.