In the opening of the monthly report of the Association of Banks in Lebanon, the Secretary General of the Association, Fadi Khalaf, enumerated the remaining bank asset classes. Among these categories are the deposits of Lebanese banks in correspondent banks, whose balance is close to $4.16 billion, while the corresponding $4.36 billion are liabilities in favor of foreign banks. This specifically means that the net assets of banks with correspondent banks, after calculating liabilities, record a negative balance of approximately $204 million.
The most important assets of other banks are their deposits with the Central Bank, which amount to $86.6 billion. As it is known, the Central Bank today refrains from paying these deposits to banks, after the value of its reserves in foreign currencies was limited to liquidity that did not exceed $9.74 billion in late February.
This is precisely what constitutes the huge accumulated losses gap, which represents the main source of the crisis in the Lebanese banking sector.
At the same time, the assets represented in bank loans to the private sector decreased to about $9.75 billion, while the value of the Eurobond portfolio, i.e. debt securities incurred by the Lebanese government in foreign currencies, fell to only $2.9 billion.
Noting that, since March 2020, the Lebanese government has refrained from paying the value of these bonds at maturity, which prompted Lebanese banks, since that time, to sell the overwhelming majority of their Eurobond portfolio to foreign parties.
In short, what all these numbers confirm is that Lebanese banks are clearly suffering from a solvency and liquidity crisis at the same time.
Today, it owes about $94.31 billion in foreign currencies to depositors, while the losses of the entire banking sector represent more than 77% of this value, as a result of the depletion of bank funds deposited in the central bank.
Despite the importance of reviewing these numbers frequently, to determine the size and type of the problem, it is important to ask why the Association of Banks is reminding of these facts, at this particular time.
It is practicalSeven years ago, the reports of the International Monetary Fund warned of a growing gap in the Central Bank’s budget, while the Governor of the Central Bank, Riad Salameh, was keen to pressure to delete 14 pages from one of these reports in 2016, in order to avoid alarming the financial markets.
Over the past years, and especially in the years that followed the banking collapse in 2019, periodic reports and studies of research centers recalculated the size of the loss gap every year, just as they re-examined the size of liquid or liquid bank assets.
Indeed, all the Lebanese know that there are two government plans that studied the size of the losses in detail, in 2020 and 2022, and reached similar results to the ones we are presenting today!
As for the most importantIt is that Lebanese banks have been suffering from a deficit in their accounts with correspondent banks (the difference between deposits and liabilities abroad), over the past years, at levels that exceed the deficit that exists today.
It is important to note here that many Lebanese banks have, during the past three years, sold part of their branches abroad, in order to be able to fulfill their obligations to foreign banks, which has greatly reduced this deficit.
In short, usefulThere is no doubt about the sensitivity and seriousness of all the figures that indicate the solvency and liquidity crisis that the sector suffers from. However, these numbers, which were recently reviewed by the Association of Banks, do not carry anything new that differs from what experts have been referring to for years, including experts from well-known international institutions!
For all these reasons, there is a need to investigate the objectives of the Association of Banks in raising this new confusion, by linking these data, which were suddenly raised, to the possibilities of total bankruptcy and the total loss of deposits, as suggested by some circles that revolve in the orbit of the association.
As for the most important thingIt is the association’s focus in the statement on the issue of deficits in accounts with correspondent banks, which suggests that banks will face a credit crisis in their relationship with the global financial system, which will push the country towards complete financial isolation.
This exaggeration ignores the fact that the Central Bank has allowed banks, throughout the past years of the crisis, to use part of its remaining reserves to pay their dues abroad, and to prevent this particular scenario from happening.
In all cases, it seems clear that the Association of Banks aims, behind all this new intimidation, to pressure in several directions.
First, it seeks to alleviate the pressures it is exposed to from the Lebanese judiciary, which recently issued a decision requiring a bank to pay a deposit in cash dollars for the benefit of a depositor.
It is also seeking to put pressure on Parliament to pass a law that legislates the restrictions it imposes on withdrawals and transfers, which will succeed in protecting banks from lawsuits.
At the same time, banks are also trying to press for solutions that are closer to their interests, at the level of laws related to their restructuring.
More clearly, the banks want to say that they are in a very fragile position, and that pressure on them with depositors’ lawsuits could push them towards their final fall, given the financial drain caused by the winning depositors’ lawsuits.
This explains the timing of the campaign launched by the Association of Banks, in parallel with its announcement of a return to a comprehensive strike again, in protest against the judicial prosecutions it is subjected to due to its refusal to pay deposits.
However, apart from the intimidation of the Association of Banks, it is important to point out that the Lebanese law, like all the laws of other countries, distinguishes banks and gives them a special status, and defines for them a specific way to deal with bankruptcy scenarios or stopping payments. In other words, banks cannot close their doors and dissolve themselves by themselves, once they collapse, as the association wanted to portray it to depositors.
In normal cases, the defaulting bank is supposed to pass through the supreme banking authority, which considers many options, including liquidation, restructuring, or merger and acquisition with another bank, provided that this is done according to the scenario that achieves the best outcome for depositors.
In the event of a comprehensive banking collapse like the one Lebanon is going through, emergency laws are supposed to be drafted to restructure the entire sector and distribute losses, according to a detailed audit that accurately defines responsibilities, and according to clear criteria that define viable banks, and this has not yet been done.
In clearer termsBanks have actually defaulted for many years, as indicated by their stopping paying depositors since late 2019. The main problem is that banks have continued to work in this way over the past three years, thanks to the implicit cover granted to them by the executive and monetary authorities.
Therefore, no clear legal path has been established to restructure it, deal with default, address accumulated losses, and produce a new and sound banking sector. As a result of what happened during the past three years, more losses have accumulated in the budgets, which will cause the depositor to incur more deductions from the value of his deposit in the future.
For this reason, depositors are not supposed to be intimidated by the Association of Banks with bankruptcy or default scenarios.
Rather, it is supposed to demand a legal path that recognizes the current status of banks as a faltering sector, and establishes a clear mechanism for determining the losses in each bank, and then dealing with them in a transparent and clear manner. As for continuing in the current state of stagnation, it will only result in more injustice against depositors.
