In a move that could pave the way for a significant recovery of lost depositor funds, Banque du Liban (BDL) Governor Karim Souaid has expressed support for legislation that would compel borrowers who repaid loans during the financial crisis at artificially low values to pay the full, actual amounts owed. The statement, relayed by a delegation of depositors following a recent meeting with Souaid, marks a noteworthy shift in tone from prior proposals which had focused largely on imposing taxes rather than demanding full restitution.

According to sources familiar with the meeting cited by Nidaa Al-Watan, Souaid was unequivocal in his endorsement of a law obligating those who repaid loans in "lollars"—dollars trapped in the banking system—or in Lebanese lira at official rates far below market value, to settle the difference based on the real value of their original loans. By some estimates, this could lead to the recovery of between $15 billion and $20 billion in funds.

To date, various proposals have been submitted to address the issue, most of which involved levying a windfall tax on those who benefitted from repaying loans at devalued rates. Souaid's approach, however, goes further, advocating the recovery of the entire gap. This proposal is rooted in his broader assessment of Lebanon’s financial collapse as a “systemic crisis"; a classification he believes justifies the introduction of extraordinary legislation beyond the scope of existing laws.

“In cases of systemic crises, it is not enough to merely apply current legal frameworks,” Souaid argued. “Exceptional laws tailored to the crisis must be passed and implemented during the recovery phase, after which the normal legal order can be restored.”

Souaid's comments reflect a belief that the financial meltdown, which began in October 2019, cannot be addressed without a comprehensive government-led recovery plan and an accompanying legal framework. Among the exceptional laws he has in mind is one that would retroactively require borrowers who repaid loans at devalued rates to pay the outstanding difference, thereby aligning repayment values with the original dollar-denominated loan amounts.

The issue stems from a massive wealth transfer triggered by Lebanon’s financial crisis, in which loan repayments made in devalued currencies effectively shifted wealth from depositors to borrowers. In a 2022 report, the International Monetary Fund (IMF) estimated the total profit made by borrowers—or, conversely, the loss to depositors—at around $15 billion. Since then, the number has likely grown due to the continued repayment of loans at below-market rates.

In 2019, the total value of private sector loans extended by Lebanese banks stood at approximately $55.5 billion, including $37.5 billion in foreign currencies and $18 billion in Lebanese lira. By the end of 2024, that figure had shrunk to just $7 billion. The sharp contraction was largely due to borrowers repaying loans either in lira at the official exchange rate of 1,500 per dollar, or through bank checks with actual market values far below the nominal amounts.

Crucially, the beneficiaries of these discounted repayments were not only small borrowers who had taken out car or home loans before the October 2019 crash, and whose deposits became inaccessible and incomes eroded. Large investors and wealthy individuals also capitalized on the situation. According to Souaid's proposal, it is these major borrowers—those who can afford to repay—that should be compelled to return the real value of their loans, or at least a substantial portion.

MP Alain Aoun, a member of the Parliament’s Finance and Budget Committee, voiced support for including such a measure in the forthcoming Financial Balance Law, also known as the Gap Resolution Plan.

“This proposal reflects a fair and balanced approach,” Aoun told Nidaa al-Watan. “Depositor funds were either absorbed by the state or loaned to the private sector. Some were lost due to corruption and mismanagement, and we must hold those responsible accountable. But private sector debts, especially large ones, that were repaid at discounted values must also be reexamined.”

Aoun backed a previously floated idea of a “windfall tax” targeting borrowers who profited unexpectedly by repaying loans at below-market rates. The purpose of such a tax would be to redistribute excess profits made in specific sectors to serve a public good.

To illustrate, Aoun gave the example of a borrower who owed $100 million but repaid only $10 million due to favorable exchange rates. “That’s a $90 million windfall profit—money that should have gone to depositors,” he said.

Under this logic, those who did not repay their loans or who made no profit would be exempt from the proposed tax. Aoun suggested placing a cap on the loans that would be subject to such measures to ensure fairness.

The proposal aligns with earlier ideas put forward by former interim BDL Governor Wassim Mansouri, who advocated for a one-time tax on investor profits derived from crisis-era loan repayments. His plan aimed to recapture part of the funds lost through currency arbitrage, targeting large, dollar-denominated loans repaid at the official rate of 1,500 lira. The tax revenues, under his proposal, would be deposited into a special fund for depositors, with tax rates projected between 15% and 17%. Housing and consumer loans would be excluded, with the focus placed on major commercial and investment loans. Implementation, however, hinges on parliamentary approval.

Legal Debate over Retroactive Measures

While there appears to be growing political will for some form of repayment recovery, legal experts caution that such a move, especially if applied retroactively, could face significant constitutional hurdles.

Legal expert and constitutional attorney Said Malek told Nidaa al-Watan that while retroactivity is generally prohibited under Lebanese law, exceptions can be made under extraordinary circumstances, particularly when public interest is at stake.

“The state must acknowledge its responsibility under the Code of Money and Credit, specifically Article 113, which obliges it to cover the losses of the central bank,” Malek said.

By classifying the collapse as a systemic crisis, Malek added, Lebanon would be opening the door to exceptional legislation that assigns responsibility to all stakeholders. This could include a law requiring full repayment of underpaid loans.

However, Malek emphasized the legal complexity.

“Those who repaid their loans in accordance with the law at the time, whether through the legal tender or under the Code of Money and Credit, are considered to have cleared their debts. Judicial precedent supported this view, even though there’s been a recent shift in some rulings. Still, passing a law now that penalizes borrowers retroactively would likely be struck down by the Constitutional Council,” he warned.

Yet, there remains a legal path forward if such a law is framed as an exceptional measure in response to an unprecedented financial collapse. The World Bank has described Lebanon’s crisis as one of the three worst economic crises globally since the mid-nineteenth century; an assessment that, according to Malek, justifies the use of exceptional laws.

Indeed, the controversial banking secrecy law was passed under similar exceptional circumstances and applied retroactively, though it too remains open to legal challenge.