Despite the reassuring words of Banque du Liban Governor Riad Salamé yesterday regarding the soundness of the banking sector, a new report published by Standard & Poors casts the cold with estimates of discounts reaching more than 100% of GDP before any official devaluation of the Lebanese pound against the dollar.
This restructuring and discount of the assets of Lebanese banks could even reach 134% of GDP in 2021, estimate the authors of the report who accuse the monetary authorities of having made the depositors assume these losses and not the shareholders of the banks via circular 154 which called for an increase in the institutions’ own funds.
The report recalls that 60% of banks’ assets are invested in the form of Certificates of Deposits invested with the Banque du Liban and 11% in the form of Eurobonds and Lebanese pound treasury bills.
In addition, the BdL itself owns 44% of public debt and 26% of bank debts.
Key point of the report, the cost of restructuring could exceed 100% of GDP, 134% at worst even.
Three scenarios are thus evoked, with a cost ranging from 30% to 134% of GDP and their respective impacts on customer deposits which could result in haircuts of 4% to 63%. Note that according to the 3 scenarios, the banks’ own funds are all exhausted in the end, preventing a revival of the Lebanese economy.
