Huge losses amid efforts to merge and restructure

passes The banking sector in Lebanon In an exceptional crisis, with depositors losing their confidence in the system after the banks acquired their money without any legal or constitutional basis. Amidst the losses they record, bankers resist attempts to push their shareholders to bear those losses, and try, instead, to place the burden on the government or depositors.

The country’s political class, blamed for decades of corruption and mismanagement that led to the collapse, is also resisting reform efforts. As the re restructuring the banking sector A major demand of the International Monetary Fund to get Lebanon out of its financial crisis that paralyzed the country.

The reforms proposed by the IMF are likely to force most of the country’s 46 banks, a huge number for a country of 5 million people, to close or merge.

During the period after the Lebanese civil war, which lasted for 15 years and ended in 1990, the banking sector offered high interest rates that attracted investments and deposits from all over the world. Today, most depositors do not have access to their savings after the country’s lenders for years made risky investments by buying Lebanese treasury bills, despite the rampant corruption and excessive spending of the country’s political class. In addition to smuggling millions of dollars to influential people and politicians outside the country.

These practices were among the causes of the economic crisis that began in October 2019.

Today, Lebanese banks do not provide loans or accept new deposits, and return citizens only a small part of their dollar savings at an exchange rate much lower than the market value.

money laundering

Despite informal capital controls, local reports indicate that billions of dollars have been laundered out of the country by senior political and financial officials.

In recent months, a number of angry depositors stormed bank branches in Lebanon to obtain their savings by force, which led to confrontations with employees who are in turn victims of the crisis. Since it began, the number of bank employees has decreased by a third, to less than 16,500 employees, and one of the every five branches.

The future of the banks is unclear. A preliminary agreement between the International Monetary Fund and the Lebanese government, reached in April, called for an “externally assisted bank assessment of the 14 largest banks,” but so far no action has been taken by the government or the lenders.

The banking sector announced its strong opposition to the proposed measures that would place the burden of the system’s losses on shareholders instead of depositors.

The government’s proposed economic recovery plan, announced in September, estimates financial sector losses at $72 billion, mostly at the central bank.

The plan indicated that the huge size of the losses means that the central bank cannot return most of the money to the banks, and the banks cannot return most of the depositors’ money.

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And a recent report by the World Bank stated that the losses are more than three times the gross domestic product in 2021, which makes the bailout operation impossible due to the lack of sufficient public funds, adding that the best solution is to “charge major creditors and shareholders the cost of restructuring banks,” not small depositors.

Banks opposed this solution, proposing to sell or invest state assets to offset losses in the long run.

Fund negotiations

Meanwhile, talks with the International Monetary Fund on proposed reforms have made little progress.

In October, the Lebanese Parliament agreed to amend the Bank Account Secrecy Law, which is also one of the IMF’s demands, but some say that these amendments are not enough. The central bank is still using several exchange rates at a time when the IMF is pressing for unification under the umbrella of one rate.

Progress on other proposed measures is now stuck amid a power vacuum in the presidency and cabinet.

Recently, Deputy Prime Minister Saad al-Shami, who is leading talks with the IMF, made statements that all deposits of $100,000 or less will be returned to depositors, while those with larger deposits will be compensated in the long run through a sovereign fund. “There is no fair plan for all depositors,” he said.

The Minister of Economy and Trade in the caretaker government, Amin Salam, also reminded that whenever the government discusses the distribution of losses and responsibilities, it is pushed in another direction by the banks. He added that the government realizes that it “must save the banking sector, because without a banking sector, we will not be able to get the economy back on its feet.”

(Associated Press, The New Arab)

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