Following three years of stalemate and delay in setting a plan in place to solve the financial crisis which struck Lebanon in 2019, the Lebanese Government has drafted a Law regulating the Restructuring of Banks and will soon be sent to the Parliament for due discussion. This law has been drafted by the Central Bank in Lebanon (Banque du Liban) in collaboration with Banking Control Commission of Lebanon as well as experts from the International Monetary Fund (IMF). It aims to determine which banks will be liquidated and the ones that shall continue their business activities based on multiple factors such as the assets of each bank, their ability to repay depositors money and their ability to recapitalize.
Al Jadeed met with Marwan Kheireddine; banker, politician, economist and financial expert; to shed more light on this draft law and how it affects Lebanese banks, depositors and the economy as a whole.
What are your views on this draft law?
I believe this draft law is a necessary step whether it was requested by the IMF or not. It determines which banks require a capital increase and the amount needed; and those that are viable to continue their business activities. In my opinion, it shall pave the way for restoring the public’s trust in the Lebanese banking sector after it was unfortunately compromised for 3 years. This trust must be regained, gradually, by applying an IMF program and enforcing the right financial laws sooner rather than later. Thus, we will be able to start our reform journey and hopefully fix what has been broken in the Lebanese economy during the last 3 years.
What is the implication of the Lebanese State in the crisis especially after defaulting 3 years ago?
Today we hear a lot of people coming after banks while few call upon the Lebanese state to shoulder its responsibilities. As banks, we are truly cautious that a vindictive plot is afoot aiming to hold banks responsible for more than they can afford. Banks are certainly partially responsible for what has happened in the country; however the State has the lion’s share of the responsibility. The Lebanese State has taken out loans based on laws and regulations, in virtue of treasury bonds. It seems that the government is trying to repay its debts at the exchange rate of LBP 1500 which is unfair and will result in a grave loss the banks cannot recover from. This will affect the value of people’s deposits which we are completely against.
When the government defaulted in March 2020, it announced that it shall start negotiations with T-bills holders in good faith to repay the debt. Up to this date, the negotiations have not started yet and no plan has been put in place. The state is the biggest client for banks, financial institutions and the Central Bank; the situation cannot be rectified before an adequate recovery plan is put in motion.
Will this bank restructuring draft law lead to more discord among banks?
I doubt it will lead to discord. I actually believe it will determine which banks are equipped to persist. Some banks have more exposure to governmental debt than others.
