The Financial Restructuring Plan (FRP) issued by the Council of Ministers in July 2024 was the latest in a series of plans, and perhaps the most reasonable (or least un-reasonable). What we want to do in this Economic Digest is to provide a summary of the Plan and then, more importantly, a tentative estimate of the losses that would be incurred by the main entities involved.
The plan estimates total USD deposits at $86.1 billion (bn). Measure 1 (M1) divides deposits between eligible deposits at $40.1 bn and ineligible deposits at $46 bn (deposits post 10/2019). Measures 2 to 10 are as listed in the table below:
| Amount | Measures | Features |
| $4 bn | M2: Non-Compliant Accounts | $2.5 bn eligible $1.5 bn ineligible |
| $9.2 bn | M3: Excess Interest | $4.8 bn eligible $4.4 bn ineligible |
| $11.8 bn | M4: Cash settlement for eligible deposits up to $100,000 | 50% paid by banks and 50% by BDL, over 11 years |
| $6.9 bn | M5: Cash settlement for ineligible deposits up to $36,000 | 75% paid in USD (split equally by BDL and banks); 25% in LBP at market exchange rate issued by BDL and covered by Government, over 11 years |
| $21 bn | M6: Lirafication for accounts between what is left after M5 and $500,000 | At average exchange rate of 37%; 45% for eligible; and 30% rate for ineligible; LBP issued by BDL and covered by Government, over 11 years |
| $9.4 bn | M7: Bail In from remaining accounts: $5 bn for shares in Tier 1 capital $4.4 bn for subordinated bonds | Total new capital with restructuring at $3.4 bn: $2.8 bn of Tier 1 capital (33% or $920 mn for depositors and 67% or $1.88 bn for shareholders); and $600 mn for subordinated loans by depositors |
| $11.8 bn | M8: Zero-Coupon at present value of $2.9 bn | Zero-coupon bond (financed initially by BDL but covered by the government) for 20-30 years at discount rate 5.73-5.97% |
| $11.8 bn | M9: Non-Guaranteed Deposit Recovery Fund (DRF) | $5.3 bn eligible $6.5 bn ineligible Over 20 years |
| Residual (If available) | M10: Perpetual Bond issued by BDL | In LBP at interest rate of 6-months TB minus 2% |
Note that the sum in USD of the amounts involved in measures M2 to M10 are $86.1 bn. And given that excess interest and non-compliant accounts amount to $13.2 bn, then ‘valid deposits’ are $72.9 bn. Given the above descriptive summary of the plan and not accounting for the losses arising from the time value of money, the estimated losses for the major entities are:
Depositors:
| Source of Losses | USD bn |
| Lirafication at 0.63 the LBP exchange rate | 21 x 0.63 = 13.2 |
| Bail In Shares | 5 – 0.92 = 4.1 |
| Bail In Subordinated Bonds | 4.4 – 0.6 = 3.8 |
| Total Losses | 21.1 |
Hence, losses at $21.1 bn are 28.9% of valid deposits ($72.9 bn). This assumes that the income from the DRF is honored and the zero-coupon bonds are held to maturity.
As such, depositors will get $51.8 bn ($72.9 bn – $21.1 bn) back. These will be divided into monetary and non-monetary payments. Monetary payments will be $17 bn in USD and the equivalent of $9.5 bn in LBP. Non-monetary payments will be $920 mn in bank shares, $600 million in subordinated debt, $11.8 bn in zero-coupon bonds, and $11.8 bn in promissory notes from the DRF.
Banks:
| USD bn | |
| Shareholders’ equity as of 10/2019 | 21 |
| Shareholders’ equity as of restructuring | 1.88 |
| Losses | 21 – 1.88 = 19.1 |
We assume that, as was rightly the case, shareholders’ equity was $21 billion just before the crisis started in October 2019.
BDL:
| Source of Losses | USD bn |
| Payment for Eligible Deposits | 5.9 |
| Payment for Ineligible Deposits | 2.6 |
| Total Losses | 8.5 |
BDL’s losses of $8.5 bn do not take into account the losses from the perpetual bond (M10) in case of positive residuals.
Government:
| Source of Losses | USD bn |
| Coverage of Lirafication of 25% of Ineligible accounts of $36,000 | 1.7 |
| Coverage of Lirafication at 37% the exchange rate of accounts up to $500,000 | 7.8 |
| Zero-coupon Bond | 2.9 |
| DRF Payments | 11.8 |
| Total Losses | 24.2 |
The total sum of losses (in bn, $21.1 + $19.1 + $8.5 + $24.2) is equal to $72.9 bn which is exactly equal to the ‘valid deposits’ of $72.9 bn. Perhaps not a coincidence!