Lollar is closer
to become useless

Demand will stop when bank loans are paid back

Lollars (dollars in bank accounts prior to Nov. 2019) may eventually become totally unusable once private sector bank loans in foreign currencies have been fully settled, according to an article published in the latest issue of Lebanon Opportunities.

“The banks’ portfolio of lollar loans is nearing its end. Around half of the remaining debt is in bad loans. They are not expected to be redeemed. The balance will eventually be fully repaid from lollar deposits directly, or purchased in the black market,” said Joseph El Fadl, Deloitte’s retired global financial services group managing partner in the Middle East. Private sector loans in lollars shrunk by 78 percent to $8.3 billion by the end of June 2023, down from $38 billion at the eve of the crisis (September, 2019). Borrowers often used their lollar deposits to repay their loans. Those who didn’t have lollar deposits either repaid their lollar loans in lira at very low official rates or purchased lollars at a discount for this purpose. About $22 billion of loans were repaid in lira at the previous official rate of LL1,500 to the dollar and later at LL15,000 generating substantial gains to borrowers.

The average monthly decline in lollar loans dropped from $1.1 billion in 2020 to nearly $300 million in the first half of 2023. If the decrease continues at the current pace, the remaining loan balance will be completely settled by mid-September 2024. “When the loans are fully repaid, lollar checks will become useless,” El Fadl said.

Depositors, who are not indebted to banks, have been withdrawing their funds at huge discounts that reached 85 to 90 percent. This applies also to those who were doing so under circulars issued by the Central Bank (BDL). Withdrawals under Basic Circular 151 were executed at exchange rates far below the market rate. The latest rate used by this circular was LL15,000. Basic Circular 151 was effective until the end of 2023.

The rise in foreign currency inflows and the growing dollarization of the economy are also contributing to the decline in demand for lollars as depositors prefer to use the increasingly available cash dollars instead of incurring huge losses on their lollars.

New BDL policies, however, may slow down the demise of the lollar or could even revive it. According to sources, BDL is reluctant to extend Basic Circular 151. It prefers to use the official rate adopted in the public budget. The LL15,000 rate used in the banking sector is according to the 2022 budget. Wassim Mansouri, Acting BDL Governor, said when the new budget is approved, depositors will be able to withdraw their lollar deposits at the rate stated in the budget which will be close to the market rate. Basic Circular 158, at first allowed half of withdrawals in real dollars and the other half in lira at rates lower than the market rate. It was amended last September to allow withdrawals only in real dollars and consequently abolish the haircut. The remaining shortcoming of BDL circulars is that they limit withdrawals at low ceilings such as $400 per month for Circular 158.