Lebanon conflict likely to block deposit refund plan

• Depositor repayments may be stalled
• Heavy aid and reconstruction costs
• Economic slowdown will mean new audits

A landmark plan to unlock funds for bank depositors in Lebanon is likely to be delayed as a result of the conflict between Israel and Iranian-backed Hezbollah militants.

Just before the end of 2025 Lebanon’s cabinet endorsed the plan to pay billions of dollars to customers whose life savings were frozen by banks during the country’s financial crisis.

The plan, which drew criticism from most banks, must be passed by parliament before depositors get their money.

“The current war in Lebanon will have a mandatory impact on the 2026 budget, with humanitarian aid and the reconstruction taking precedence over the financial restructuring and the banking reforms,” said Jassem Ajaka, an economics professor at the state-controlled Lebanese University in Beirut.

“It will lead to economic slowdown, which will necessitate new audits on the financial sector and the central bank,” said Ajaka.

Last December the prime minister Nawaf Salam said his one-year-old government had finalised a draft law to pay back depositors, many of whom have been waiting for six years already.

Depositors with funds below $100,000 would recover all their money in cash within four years, Salam said. These savers account for 85 percent of the total.

Those with deposits of more than $100,000 would receive the first $100,000 in cash and the rest would be paid in bonds, he said.

Unlocking depositors’ funds and restructuring the banking sector are among the conditions imposed by the International Monetary Fund to finalise a rescue package for Lebanon.

The Association of Banks in Lebanon (ABL) said last year that nearly 50 commercial banks owed around $70 billion to depositors at the end of March. 

• Lebanon says no need for gold sales to repay depositors
• Change in Lebanon is unfinished business
• Lebanese deserve better from their ruling classes

Before the financial crisis erupted in late 2019 the central bank’s dollar-based assets surpassed $40 billion, but have now fallen to about $11 billion.

Lebanon has the second largest gold reserves in the Arab world after Saudi Arabia. They soared to their highest level of around $45 billion in late January, but fell by almost $11 billion in February after the price per ounce dropped, according to ABL secretary general Fadi Khalaf.

Last year the World Bank said the conflict between Israel and Hezbollah cost Lebanon nearly $11 billion in construction and recovery loss.

This was before the latest Israeli strikes on Lebanon. Quoting local sources, Lebanon’s MTV said last week that the hostilities could inflict losses of $8 billion-14 billion if they end shortly. 

But if they drag on and Israel targets infrastructure, the figure could rise to $20 billion-30 billion, it said.

In early February Lebanon approved its 2026 budget of around $5.9 billion, most of which is allocated for wages and other current expenditures. However the budget, which projects zero deficit, did not take into account the eruption of the latest conflict.