Since September 2019, commercial banks in Lebanon have largely ceased granting loans, leading to a decrease in loan balances over the subsequent years (until December 2022, the closing date of our studied period[1]). Not only that, but during the same period BDL issued instructions (Circular 648) that USD loans could be settled at the official exchange rate, not the prevailing and much weaker parallel or market rates. Consequently, we see from Table 1 below that total resident loans fell from 98.6 trillion LBP to 39.5 trillion LBP between September 2019 and December 2022, with individual loans falling the most from about 30 trillion LBP to 10.5 trillion LBP. More importantly, given the workings of Circular 648 and the disparity in applied exchange rates, did these loan paybacks involve losses to banks? And if yes, what was their magnitude? That is what we would like to explore in this economic spotlight. One proviso: Circular 648 applies to retail loans only, but as we will see later in the spotlight, we will adjust our estimates to account for this fact.
[1] We end on December 2022 since the official exchange rate was changed to LBP/USD 15,000 by February 2023.
For the full report, click on the link below:
Estimate of Losses Incurred by Banks on Loan Paybacks Sept 2019-Dec 2022