“مقترح الحكومة الجديد: أزمة المودعين تمتد حتى 20 عاماً”

Government Proposal Extends Banking Deposit Crisis for 20 Years

Recent leaks about the updated government plan for reforming Lebanon’s banking sector reveal that depositors’ crisis could persist with complex and painful circumstances for over a decade for recoverable accounts, and up to 20 years for amounts exceeding the insured limit of $100,000.

These updated proposals, which are a revision of previously failed plans that did not reach the legislative stage, seem to deliberately exempt the state from its legal obligations to settle its overdraft from the central bank, by writing off most of the bank's investments worth about $80 billion. This approach shifts the burden of the financial gap, estimated by the government at around $72 billion, largely onto the depositors.

Plan Likely to Fail

According to banking sources, the stance of the monetary authority regarding these updated proposals is crucial, as it is the governing body for correcting related options and statistics. Concurrently, interim central bank governor Wassim Mansouri is working on new approaches to address the ongoing depositors' crisis amidst a backdrop of financial responsibility shifting.

The new government plan is expected to face the same fate as its predecessors, falling into political disputes and severe objections from depositors, both resident and non-resident. This could prevent its passage through parliamentary committees. The State Council had previously invalidated a Cabinet decision approving a financial sector recovery strategy, particularly regarding the cancellation of a significant portion of the central bank’s foreign currency obligations to banks, as it adversely affected depositors' rights.

Sources indicate a fundamental contradiction in defining the nature of the financial gap. The government’s advisory team insists it is a loss specific to the financial sector, while significant political, parliamentary, and banking entities view it as a debt owed by the state, documented in the central bank’s budget.

In both scenarios, legal or procedural excuses for holding depositors responsible seem to be absent. Deposit holders have already incurred substantial losses over the past five years through direct deductions or conversion of dollars at a lower rate compared to the current rate of 15,000 LBP for bank dollars versus 89,500 LBP for trading.

The forensic audit of the central bank’s balance sheets, conducted by the international firm Alvarez & Marsal two years ago, documents that the state borrowed about $48 billion from the central bank’s foreign currency reserves. Half of this was allocated to the Electricity Authority and the Ministry of Energy from 2010 to 2021, and around $7.57 billion was used to support consumer goods. Additionally, there is a prior record of $16.5 billion in currency support differences.

Repayment Until 2035 and Beyond

The new proposals suggest ensuring payment of $100,000 to each depositor regardless of the number of accounts or total amounts, with installments extending over 11 years, until 2035 at the minimum. Accounts with higher balances will be distributed as bank equity, subordinated debt securities, and zero-coupon bonds maturing in 20 to 30 years, along with bonds issued by a proposed fund for deposit recovery.

Priority remains in categorizing accounts as “eligible” for the $100,000 guarantee based on pre-crisis balances, and “non-eligible” for transactions post-fall of 2019, with guarantees reduced to $36,000. Additionally, part of the guaranteed deposits will be written off to match loans paid via bank checks, cash withdrawals, international transfers, and credit card usage.

The Special Investigation Authority at the central bank will also scrutinize deposits exceeding $500,000, with a reduced threshold of $300,000 for politically exposed persons, while eliminating interest exceeding 1-2% accrued from 2015 to 2020. Medium-sized deposits may face a tiered exchange option in LBP, with a possible cut of 55-75% of the amount.