Banks of Lebanon … “Oh my Lord, myself!”

The first quarter of 2021 will be very “hot” for Lebanon’s banks. A quote repeated by most veteran bankers in Beirut, especially those who kept up with the collapses of the 1980s and the boom of the last three decades.

Soon, the Lebanese banking sector is on the path of solutions to the crisis. The deposits are in possession of what remains of liquidity, and the capital is looking for someone to follow the circular of the Banque du Liban, to feed them with about 4 billion dollars before February 2021, otherwise ineffective banks they will be transferred to the custody of the Banque du Liban to offer to merge them into one large bank after purifying them of bad deposits (could be Establishing a private bank for these deposits) and cleaning and reselling them again to new investors, internal or external. Therefore, a long-term path may not end in about five years, depending on the best scenarios.

Senior bankers are currently busy restructuring their banks based on a basket of measures and procedures derived from the following: correcting the relationship with clients in terms of meeting the maximum possible ceiling of their cash withdrawal requests, re-attracting funds fresh, specifically from abroad, to reactivate the dry liquidity position, negotiate with shareholders to distribute a mechanism to improve requirements The new capitalization imposed according to Central Circular No. 154, increasing the capital of banks by 20% of their shares, for an amount of 4 billion dollars, creating an external liquidity free of obligations of 3% of the dollars deposited in it, promoting the approval of the Capital Control Law with scientific basis capable of Protecting the money of depositors and clean the reputation of banks from the liquidity “defect”, even if this leads to the closure of several branches, to He dealt with PEPs and the return of “smuggling funds”. Note that banks seek to withdraw the Bail In option after it has become an essentially parallel with the Haircut principle, because in the “faulty” bank situation a real injection of capital is not taken into account, since the capital increase is assumed to be determined with 100% new capital. In addition, the reservation on the Haircut and the Bail In stems from the view that the liquidation of deposits to the ownership of shares in banks can negatively affect the value of deposits as a result of falling share prices, as well such as the impossibility of attracting money from abroad at the time of the “crown” that is not suitable for banking employment, paying to move towards the deposits to seize them and deprive their owners of them. Likewise, this option will cause a change in the structure of bank administrations, with the fear that they will become “sectarian” or “sectarian” banks.

Outside of these new foundations, it has become difficult for Lebanese banks to continue as they have since the start of the boom in the early 1990s, and it has enabled them to make huge profits that allowed them to play a significant role in supporting the national economy and finance the needs of the state for years and years. However, what are the obligations of the only roadmap available to banks? And who will survive the 63 banks, whose size is now beyond the ability of the economy and government funding to seize them?

The requirements to launch the bank restructuring workshop are being discussed in Beirut, specifically in terms of starting it on its own, that is, relying on Bank of Lebanon directives and circulars, or the need to wait for the formation of a new government to redesign the loss map in a manner consistent with new developments and increase its size by more than $ 15 billion. . In both cases, the time factor will not help the eligibility of the capital increase before the end of February 2021, since only a few who are capable of a number estimated by some of them with less than 10 banks will be saved, while others believe that the Banque du Liban will allow around 20 banks to bypass so that the sector is ready for any rebuilding workshop. Economic.

The holders of the first opinion calling for the beginning of the bank restructuring without waiting for the coming government affirm that the Supreme Banking Authority will be assigned the process of “screening” the banks, so that the Banque du Liban acquires, at zero cost, the shares of the banks that have not fulfilled their request for a capitalization increase (part of it is liquidity) and the capital commitment. Control. At that point, you tend to merge them into a large bank or offer them for sale, probably indoors. In both cases, the deposits will be preserved because it will open a workshop to purify the deposit portfolio and set up a private Bad Bank in which to place all the “bad deposits” to clean up the bank balance sheets. Other options and suggestions are still being considered.

As for those who believe that it is necessary to wait for the formation of a new government, they trust that the government will redefine the size of the financial gap (losses), and the parties that will bear it, so that the Banking Control Commission determines the part that it is viable and the part that is lost, as long as the future government inspires confidence. And specifically regarding the roadmap of the rescue workshop, which is supposed to be based on objective, scientific and logical foundations, far from the proposals of the Hassan Diab government’s “recovery plan”, which led the financial sector, depositors and shareholders the basket of losses caused by the Lebanese state for decades.

In the first operational steps, it is expected that the Banque du Liban, within a few days, will send a letter to the banks asking them to define their work plan in the period between now and next February, to show through the responses if they are sustainable or not, so it will extend the time for you to prepare for the bank ownership mechanisms that you will get out of the market. According to the criteria you will determine, survival will not be limited to large banks or what falls within the “Alpha Group” (which includes 17 banks), since the opportunity may be available for any small bank that is still considered ” clean “according to the rule prevailing after the crisis. Among the most important of these criteria are the bank’s ability to continue, the willingness of shareholders to inject money, and the continuation of the relationship with correspondent banks.

On the basis of “Oh my Lord, my soul”, the banks of Lebanon seek the forest of salvation. This is what brought 6 of the top bankers to Paris a few days ago, on a leaked visit, from which their goal and results were leaked. However, the “Financial Times” newspaper revealed that the bankers “visited” after being “rejected” by foreign banks. They tried to defend their point of view in front of French officials. “He quoted them as saying they want to play a role in rebuilding Lebanon. Bloomberg reported that the bankers who met with the French president’s envoy to coordinate international support for Lebanon, Pierre Dokan , tried to convince Paris of the futility of the Diab government reform plan, since it is based on “bankrupting” the entire sector.

And the agency considered that the attempts of the Lebanese banks to anticipate the formation of the new government, “throw the possibility of more chaos regarding the rescue plan.” The leak that Dokan said in a confidential report revealed by the agency “Reuters”, that “it may be difficult for Lebanese banks to adhere to the principle that depositors should not lose any of their deposits”, which means that Paris is somewhat convinced from the bankers’ point of view after reserving it for its contribution to the decline. The dangerous result of your loans to the state beyond your ability to repay and your role in the illegal extraction of some deposits.

With the end of Hassan Diab’s plan forever, the future government is expected to start from scratch to identify the financial gap that has grown as a result of the “fluidity” that dominated the policies of the interim government, and that led to the freezing of funds. negotiations with the International Monetary Fund and Lazard’s failure to negotiate with external creditors, since Lebanon announced that it would stop paying on March 7. Among all the options presented, it is imperative to adopt a proposal to establish a sovereign fund to invest the property of the state, not to sell it, which would allow it to pay off the debts that arise from it with the banks and later with the depositors.

Wholesale profits await Lebanon’s banks, but the most important of them remains Circular No. 154, which aims to restore liquidity and capital, because it will conduct the “review” workshop. Which bank will fail the merit test and which will pass the limits?