The depositors, will be the “losers” of the banking showdown, they haven’t received much attention thus far in the ongoing Bank Wars and Restructuring debates. With most of the power concentrated in the hands of the big banks and their board members, a few leveraged stock privateers, and a handful of lawmakers and government officials, those seeing the impact of these disparities firsthand: the depositors, have been relegated to the sidelines. This is precisely the question at the heart of this part of the Restructuring Debate: who exactly is it that is benefiting from the existing situation? Who benefits from the new restructuration banking strategy, from the steal hundreds of billions from depositors? Who benefits from the policy of the banks, and the pay to-play mentality with the law makers and officials? Who is benefitting from the decisions made in the cabinet rooms and government offices?
Over the coming weeks, Lebanon is planning a multiparter revolving around the apparent showdown between small and big banks in Lebanon on the issue of the survival of the fittest bank. This series promises to be as entertaining, enlightened, and important as any headline-grabbing series produced by any streaming channel of your choosing. Lebanon is gearing up for a high-stakes parliamentary showdown over the future of its banking sector. The debate centers on the survival of the fittest bank, pitting small banks against their larger counterparts in a battle for dominance. As the restructuring plans unfold, lobbyists, bankers, allies, and adversaries alike are poised to influence the outcome. This multiparter discussion will shape the trajectory of Lebanon’s financial system, with depositors and stakeholders watching closely to see who emerges victorious in this critical tug-of-war. The stakes couldn’t be higher for the nation’s economic future.
The current Lebanese banking crisis is probably more multi-faceted than anything a streaming analyst could possibly brainstorm. And, it does feature a battle of sorts between the rich players who have come under more international scrutiny of late — the big banks — and the small and mid-sized ranks who say the big boys actually owe them. And it does promise prizes for many… especially for depositors who have accounts in four separate banks! With so many entertainments in and around us, it can be easy to overlook the complexities, factual and otherwise, behind the current drama.
The draft law
The government has approved a draft decree to restructure the financial sector , the version is not anew it essentially reproduces the provisions of a draft drawn up in 2022-2023 by Saadeh Chami, Deputy Prime Minister in the previous government of Najib Mikati. Chami had decided to merge this text with another draft dedicated to the (correlated) issue of compensation mechanisms for depositors, but the former government had given up on adopting it at the end of February 2024. Don’t be fooled the issue of restructuring is closed to Darwinism than to where the depositors money have gone. Additionally, the draft law grants broad powers to the Central Bank of Lebanon in the restructuring process. The governor, Karim Souhaid, who is newly appointed and assumed office last week, will chair the dedicated body, assisted by deputy governors and three external experts in law, finance and economics, and the Banking Control Commission will also play a major role.
Once the assessment of assets and liabilities is completed, it will become possible to distinguish banks likely to be restructured from those that will have to be liquidated or merged with viable institutions. In this regard, the draft law refers to a “protected amount” of deposits, which it does not specify, and which will be developed in the bank resolution text.
The issue of banking restructuring, has been separated from that of depositor compensation, which remains very sensitive. The draft law adopts several internationally recognized principles in handling crises like the one shaking Lebanon since 2019. There is particularly the approach of managing losses gradually, starting with writing off the capital of insolvent banks, followed by recapitalization under strict conditions if the institution is deemed viable. A key step in this process is the assessment of the assets and liabilities of the institutions concerned. Once more it seems that the government of Nawaf Salam has shot itself in the foot.
Depositors Money in the bubble
There are 1260000 accounts in the Lebanese banking sector, with a total value of 86 billion dollars. According to previously published data, 61 percent of these bank accounts were identified as accounts with balances of less than Usd3,333, which were settled under the initial circulars issued by the Banque du Liban since the beginning of the financial crisis in 2019. This means that approximately 768,600 accounts are classified as small accounts, while only 491,400 accounts remain in the larger categories.
On December 27, 2024, the Banque du Liban issued a statement regarding Circulars 158 and 166, indicating that since the application of the circulars until 30/11/2024, the number of beneficiaries reached 431,448 depositors, with a total paid amount of Usd3,241,894,179.
According to these circulars, a depositor can only benefit from one account, which means that the remaining unprocessed accounts do not exceed 59,952 accounts. These numbers are based on official data from the Banque du Liban and are not mere speculation. Moreover, the Banque du Liban, through former governor Riad Salameh, issued “Circular 939” to banks on May 5, 2021, almost three years ago, asking banks to provide the balances of customers’ deposits in Lebanese pounds and foreign currencies as of 31/10/2019, and the balances of the same accounts as they became on 31/3/2021, with an emphasis on excluding any accounts opened after 31/10/2019 and any new funds (Fresh Accounts) in the existing accounts. The central bank also requested to provide the balances of customers’ deposits in Lebanese pounds and foreign currencies as of 31/12/2015 and 31/03/2021, including all accounts existing on the mentioned dates except for new funds (Fresh Accounts). Thus, it is clear that the classification of accounts and determining their details have been clear and specified since 2021.
The discussion on the moral quandaries
Reading the proposed law, one is left with the ethical implications of the restructuring. The moral quandaries within the issue of restructuring are many. For instance, should the small banks be happy and relieved about the ‘solution’ of the central bank or the ministry of finance? It is essential to note that there are very important issues surrounding the ethics of restructuring that should be thought of. The discussion on the moral quandaries is, inter alia, important to delineate the area of financial ethics. And it is through the directors and vice presidents who hold the philosophy of the banks to think about banking practices in times of crisis, or whether the practical issues in the business of fiduciary should always remain limited to the technical accounting metrics.
Perhaps the most important issue that should be always raised, is the moral standpoint. In other words, the choice of restructuring can affect the stakeholders differently, and especially the vulnerable small depositors who are seeing their life savings dissolute. There are also the choices of the banks that reflect what the governance think about the bond holders, in the way of securitization and who pays the price of the ‘bad risks’ of excessive lending of the past. Lebanese banks have failed the governance test and closed their doors to their depositors while spending money on a new “game of thrones” offering new loans in the market.
Souhaid, urged all banks to gradually recapitalize based on international standards, adding that those unable to do so will need to merge or face liquidation — without jeopardizing depositors’ rights. “All banks must increase their capital by gradually injecting new funds,” Souhaid said during his speech at BDL headquarters in Beirut. “Banks that cannot or do not want to merge must do so, and if they are unable to merge, they will be liquidated in an orderly manner, so as to preserve depositors’ rights.” In thinking about the popularity of the restructuring in all of governance it is important to reflect on the nature of the banks as also having supervisors who guide the banks in the way that they think directorships set the potential and also risk-management policies of the banks. The need of instability is important to pay for independent managerial practices which can at times function without institutional involvement
Lebanese banks have imposed illegal restrictions on deposits since 2019, following the country’s economic and financial collapse, largely seen as the result of corruption and malpractice within the financial sector. Souhaid promised to ensure that BDL “remains independent in its decisions and free from any interference.”
The Restructuring Rumble: What’s the Big Deal?
The need for restructuring banks is due to the accumulation of a series of issues in the banking system in Lebanon; these banks have been bled dry of their liquidity due ( counting a few reasons ) to bad loans, poor risk management practices, financial instability and informal dollarization.
The depositors, will be the “losers” of the banking showdown, they haven’t received much attention thus far in the ongoing Bank Wars and Renewal debates. With most of the lobbying concentrated in the hands of the banks and their board members, a few leveraged stock privateers, and a handful of lawmakers and government officials, those seeing the impact of these disparities firsthand: the depositors, have been relegated to the sidelines. The reality is that the institutions of profit and the politicians and officials they court are almost exclusively doing the benefiting, and for that matter, the losing is being borne entirely by the depositors.
This is precisely the question at the heart of this part of the Banking Debate: who exactly is it that is benefiting from the existing situation? Who benefits from the new restructuration banking strategy, from the steal hundreds of billions from depositors? Who benefits from the policy of the banks, and the pay to-play mentality with the law makers and officials? Who is benefitting from the decisions made in the cabinet rooms and government offices?
Where does the government stand?
The role of the government in Lebanon is crucial when speaking about banks’ operations and how each bank is doing financially. In other words, the Lebanese government might be the real puppet master that has to puppet every one of the financial decisions taken in the country. Now, one might ask which decisions in particular, and the answer lies within every policy as well as approach taken and applied by the government. For instance, when the government takes steps toward putting in place a labor policy, it should look into the decision it made on the work week. The reason lies in the footprint such a decision leaves on banks’ stability. The story continues here, as one might wonder why certain banks do better than others, and the answer lies within the government approach and policy. Which macro as well as micro economical data has the power to enable every one monetary decision? The rules set by the central bank that tell us who should do what at which moment in time, and what is the regulation of the register installed at every bank
The ‘Choices’: A Daring New Future
Small banks are portrayed to be the underdogs of the banking sector and, just as in any showdown, they have their strengths and weaknesses. Lebanese banks have found themselves in choppy economic waters since 2019, and no matter if you are a small or big bank, you are bound to be impacted by the collapse of the system. However, some institutions have faced the crisis with optimism, saying they are able to ride out the storm and make it through the other side. And the ones that do will stand in stark contrast to others that were blown over by the hurricane winds of the banking disaster.
As the Lebanese banking crisis rages on, the question is no longer academic. The majority of existing depositors are unable to access their savings in Lebanon. And as the economy continues to sink, the allure of having some money on standby for whatever catastrophe may strike has rarely been more appealing. The key is finding a place for your savings that you can trust won’t disappear overnight or where they won’t face penalties should you need to get your hands on the funds. There was apparently a significant concentration of depositors whose funds came from the international community or from relatives abroad. These wealthy individuals are considered to be wiser and having higher-quality funds — in other words, deposits with baggage attached that some ‘bigger’ banks here seem to want to dissuade from entering their accounts, whether because of some badly worded internal circulars or the odd employee with a huge chip on their shoulder. Many account holders wonder where else they can stash their cash. The easiest part of the decision is zeroing in on a bank — if you can call the remaining sanctioned banks that offer savings accounts banks, that is. The other part involves deciding on the amount you’d be comfortable keeping with them.
For once the devil is not in the details , it is the details themselves!!
Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW
