General

Recently, there have been many incidents of depositors hitting banks in Lebanon. The Lebanese Banking Association announced on September 21 that all banks in the country will be suspended indefinitely until safety measures are in place.

Since 2019, Lebanon has been in economic distress, and has suffered successive blows such as the new crown epidemic and the Beirut port explosion. In addition, the government's deadlock in forming a cabinet and the inability to obtain large-scale international assistance have led to a collapse in the currency, high inflation, fuel, medicine and electricity. When basic materials are in short supply, the risk of social unrest increases.

On September 15, local time, the black market exchange rate of the Lebanese pound against the U.S. dollar fell below 38,000 to 1, a record low.

Due to the shortage of foreign exchange, the Lebanese government has adopted a series of measures to restrict the flow of funds. Banks refuse to pay "hard currency" such as US dollars to domestic depositors who withdraw foreign exchange deposits, and only allow payment in the local currency Lebanese pounds, and the exchange rate is much lower than the black market transaction price.

The Lebanese Depositors Association said earlier: "A war to get back deposits has begun." Last week, depositors stormed at least 10 banks to demand the return of their frozen accounts, and some got their money back.

Previously, all banks in Lebanon were closed from the 19th to the 21st. The Lebanese Banks Association said in a statement on the evening of the 21st that the current social atmosphere tends to use violence and security measures are lacking, and the personal safety of both bank employees and depositors cannot be guaranteed. The association decided to extend the strike.

The BBC reported that on the 14th of this month, a woman threatened the bank with a toy gun in order to get her money back and pay her family's medical bills. Since then, similar incidents have been staged continuously, with at least 5 reported by the media on the 16th alone. However, public opinion sympathizes with these perpetrators and believes that this group of people with no criminal record is forced to do so by life.

As Lebanon's economic crisis continues, "robbing" banks has become more common. On the local black market, the Lebanese pound has lost more than 90 percent of its value against the dollar. Lebanon has been reeling from a worsening recession since 2019, with 80% of its population, or about 3 million people, below the poverty line, according to United Nations data. Poverty and unemployment soared, and the value of savings accounts evaporated.

At the same time, the government has restricted people from withdrawing money from their bank accounts. Since late 2019, commercial banks in Lebanon have imposed their own capital controls by setting withdrawal and transfer limits. This led savers to withdraw dollars at high prices, which devalued the Lebanese pound and triggered a severe economic crisis.

The Al Jazeera report mentioned: "Every time you want to withdraw money, the speed of withdrawal will be much lower than the market value. For example, if you want to withdraw $700, they will only give you $200. This is devaluation in disguise."

Lebanon is counting on the International Monetary Fund (IMF) to issue aid loans to ease its financial difficulties, but the latter issued a statement on the 21st criticizing the Lebanese government for "slow reform".

The IMF delegation just concluded its three-day visit to Beirut and inspected the progress of the Lebanese side's implementation of reforms according to an agreement reached by the two sides in April, and concluded that it was "dissatisfied". "Despite the urgent need for action in Lebanon to address the deep-seated economic and social crisis...the implementation of reforms remains very slow," the IMF statement said.

Lebanon’s caretaker cabinet Minister of Economy and Trade, Amin Salam, said on the 20th that Lebanon hopes to implement the reforms required by the IMF so that it can get the much-needed aid of about 4 billion US dollars by the end of October, and also to obtain assistance from other countries and international institutions. Pave the way, but only if domestic parties show sufficient "political will". The governor of Lebanon's central bank previously estimated that the country needs at least $12 billion to revive the economy.

The Lebanese government has also introduced a capital control law that restricts the movement of foreign capital into and out of the country. The regulation was designed to legitimize and standardize the banking restrictions imposed at the start of the 2019 economic crisis, one of the prerequisites for launching the International Monetary Fund's (IMF) recovery plan, ideally to financially help cash-strapped Lebanon. However, the latest draft of the law is widely seen as a poor version that would worsen the economic situation of Lebanese savers.

International trade export enterprises must do a good job of risk prevention

Since the beginning of this year, the trade between China and Lebanon has maintained substantial growth. Import and export data show that from January to August this year, the total value of import and export trade between China and Lebanon reached 11.424 billion yuan, a cumulative increase of 90.6% over the same period last year. Among them, China exported 11.104 billion yuan to Lebanon, a year-on-year increase of 90.9%; China imported 320 million yuan from Lebanon, an increase of 81.8% year-on-year.

Considering the current serious economic difficulties and social unrest in Lebanon, international trade export companies may face serious situations in which no one receives or unloads the goods in transit after they arrive at the local port, resulting in high demurrage charges due to stagnation at the port. What's more, when the goods arrive at the port, they can't get effective contact with the buyer, which leads to poor channels for international trade exporters to resell and return the goods, and the losses continue to expand. In this regard, we put forward the following suggestions for the reference of export enterprises:

The risk of rejection is superimposed that the buyer loses contact, and export enterprises need to stabilize their positions

First of all, international trade export enterprises need to make a clear judgment on whether the risk of rejection occurs. For example, in a related case, after the goods arrived at the port, no one received the goods, and the buyer could not be effectively contacted, indicating that the risk of rejection had already occurred.

Secondly, after the risk of rejection occurs, the insured company should not panic, do not discount or give up the right to the goods without authorization, contact the insurance company in time, and make a loss report or claim within the time limit specified in the policy.

Finally, it is particularly worth noting that if an exporter encounters rejection, it must formulate a cargo handling plan based on the principle of maximum impairment for the rejected goods. After the plan has obtained the written consent of the insurance company, the goods will be processed again, and the resulting losses and reasonable expenses will fall within the scope of insurance liability.

Maintain smooth communication with buyers and be alert to emerging risk signals

It is recommended that exporters maintain smooth communication with the buyer at important points in the shipment of goods, such as the loading of the goods, the arrival of the goods, and the approaching payment date, to confirm the buyer's willingness to receive the goods. In particular, the seven days before and after the payable date are generally considered to be the best period for collection of payment.

If the buyer has lost contact, or has proposed a plan to receive the goods at an obviously unreasonable discount, or has clearly stated that it cannot accept the goods, these are the signals of the risk of rejection. The exporter should contact the insurance company in time to discuss solutions. Avoid further losses.

Pay attention to the situation in the buyer's area and predict transaction risks

It is recommended that international trade export enterprises pay close attention to the political and economic situation of the buyer's region when dealing with the buyer, and predict the possible risks of accounts receivable caused by the unfavorable macro situation. For example, a case has shown that the sharp depreciation of the exchange rate in Lebanon from the signing of the contract to the shipment will indirectly increase the probability of rejection risk.

For businesses in high-risk areas, it may be required to increase the prepayment ratio or adopt the method of payment before delivery, and timely apply for the buyer's limit in the insurance company to ensure that the risk exposure is controllable.