While the losses of the banking sector would be estimated at 69 billion dollars, the committee in charge of studying the question constituted by the Prime Minister Najib Mikati, the Minister of Finance Youssef Khalil, the Minister of the Economy Amin Salam and the Governor of Banque du Liban Riad Salamé would consider shifting a large part of the losses of the private banking sector to depositors and not to shareholders, indicate some sources familiar with the matter.
In the line of sight, the dollar accounts opened before the establishment of informal capital controls by the Association of Banks in Lebanon but also those that were opened after November 2020.
In question, the gap today between the official exchange rate and those of the black market which worsened the losses of the banking sector after the Lebanese banks had entrusted the vast majority of their clients’ funds to the Banque du Liban, benefiting in return from financial engineering operations, currencies which have been used in particular to finance, in addition to the public debt, imports subsidized by the central bank for more than 10 years.
In addition, local banks are also faced with their investment in Eurobonds estimated at 13% of total losses.
Faced with this situation, the Lebanese authorities would consider a dual strategy.
On the one hand, the Lebanese authorities would like to ratify the so-called fresh-dollar deposits up to the parity of 8,000 LL / USD – this would concern 18,000 accounts equivalent today to 38 billion dollars of deposits or 37% of the sums. currently available in Lebanese banks -, the depositor facing the difference between the rate of 8,000 LL / USD to and 27,000 LL / USD and thus suffering a discount of 70% -.
This estimate of $ 38 billion in fees currently in the financial system – an astonishing amount due to the loss of confidence in the financial sector – is itself partly explained by financial flows entering foreign currency. foreign and mainly by the withdrawal via circulars 151 and 158 of the Banque du Liban to the tune of a parity of 3,900 LL / USD until the month of December then of 8,000 LL / USD since last week of previous funds l The establishment of capital controls then exchanged in foreign currencies on the black market and then transferred to so-called fresh-dollar accounts. Thus, the depositors who find themselves in such a situation face in reality a greater discount, a double penalty in a way since the haircut can thus exceed 90% of the initial sum, that is to say much more than the current deterioration of the Lebanese pound against the greenback.
On the other hand, on dollar accounts opened before October 17, 2019, they would be divided into 2 categories, those over a value of $ 500,000 – mostly belonging to people who had saved for ” ensure their pensions and part of which would be converted into treasury bills and another part ratified at the rate of 8,000 LL / USD and those whose amount would be between 50,000 USD and 500,000 USD. For the latter, a part could also be transformed into treasury bills, a part in Lebanese pound and another part paid in dollars. However, the percentages are not yet known.
Finally, for those equivalent to less than 50,000 USD, discussions would still be ongoing with an option to pay them in full in dollars or half in Lebanese pounds according to circular 158.
However, this double strategy also faces a new source of loss for depositors, who are thus doubly punished. For the local monetary authorities, it will be a question of increasing the money supply in Lebanese pounds, inducing a high rate of inflation which could bring the local currency to unprecedented historic lows, while the representatives of depositors are for the time being totally excluded from current discussions. This will allow the old dollar and liratified accounts to quickly lose their value, further increasing the pressure on the Lebanese pound.
Also, the implementation of this plan could be confronted on the one hand with the current paralysis of the government, but especially with the negotiations with the International Monetary Fund which wishes on the contrary to see the parity of the Lebanese pound be stabilized, some sources of the institution believing that a majority of the losses should be borne by the shareholders of the banks including Prime Minister Najib Mikati himself by limiting as much as possible the impacts on the money supply and not by the depositors.
Focus
The report published in 2020 by the Foundation for Defense of Democracies and entitled Crisis in Lebanon, Anatomy of a financial Collapse considers all the Lebanese banks studied as insolvent. They are also threatened by legal proceedings, accused of money laundering and because of the link of certain establishments with Hezbollah in the USA.
• Bank Audi SAL
• Bank of Beirut SAL
• Bank of Beirut and the Arab Countries SAL
• Bankmed SAL
• Banque Libano-Française SAL
• BLOM Bank SAL
• Byblos Bank SAL
• Lebanese SAL credit
• Fenicia Bank SAL
• Fransabank SAL
• IBL Bank SAL
• Lebanon and Gulf Bank SAL
• MEAB Bank SAL
• Société Générale de Banque au Liban SAL
Among the banks cited:
In total, the 14 banks taken into account would require an injection of 67 billion dollars, which is far from the maximum sums that Lebanon could obtain in the framework of international aid, that is to say 26 billion dollars (15 billion dollars loans via the IMF and $ 11 billion via CEDRE on the condition of putting in place the economic, monetary and financial reforms necessary to unblock them).
According to calculations made by a foreign expert, all the establishments would require massive injections of funds, going up to 11.9 billion dollars for the BLOM alone, followed by 11 billion dollars for the Bank Audi, amounts today impossible to pay. find in Lebanon itself. The risk of bankruptcy or even complete shutdown is therefore present for these establishments with significant losses for current shareholders.
They could only survive if they merge or haircuts the deposits present.
