What will happen to deposits after February 2021?

Eva Abi Haider – Republic –

In his last speech, the governor of the Banque du Liban drew up a roadmap for the banks for the next four months, with the fate of the Lebanese banks determined at the end. Are there any risks to deposits? Can the central implement its threats if it turns out that the number of banks that cannot meet the conditions is not underestimated?

In his statement to the Lebanese Depositors Association, Riad Salameh, the governor of the Central Bank of Lebanon, called on banks to strictly implement the Central Bank circulars, asking them to reconfigure their obligations, increase their capital by 20%, repay the funds transferred between 15 and 30% and reconfigure 3% in their accounts with correspondent banks, provided that the Banque du Liban acquires banks that do not implement these steps.

There is no doubt that adhering to these provisions is not an easy task in light of the economic and financial collapse in Lebanon. Whoever takes their money out of banks will never pay it back, and no investor will ever invest in the sector again after their reputation has suffered. It remains that the most difficult condition is to insure 3% of your accounts with correspondent banks. While waiting for the expected projection of the sector, whose characteristics will be clarified in February, perhaps what matters to the citizen today is the destination of the deposits.

In the context, the former head of the Banking Supervision Committee, Samir Hammoud, explained: “When the Central Bank declares that if the banks are not able to comply with the procedures that are required of them until next February, he will put his hand on the banks that go bankrupt, but rather aims to lay hands on the shares of the owners Banks to protect deposits, and thus replaces the association of shareholders in the election of the board of directors and in the placement of shares, directly or indirectly, albeit permanently or temporarily, in order to protect the deposits. Hammoud assured that there is no fear about the ability of the Central Bank to protect deposits because today’s obligations, even if they are in dollars, are in local dollars, that is, in Lebanese pounds, and the central bank’s commitment to insure in pounds Lebanese is not a burden for it.

Hammoud stressed that Lebanese banks are committed to supplies that are required of them in accordance with international accounting standards. Consequently, if the shareholders wish, voluntarily or involuntarily, not to increase their capital and private funds and refuse to convert the money of the depositors into shares, in this case and by taking possession of the shares of a bank or its property, its assets in the Central Bank and its assets that it had previously granted are covered by the obligations owed to it through deposits. Consequently, the assets of all banks, with the exception of a few that do not exceed the number of fingers on one hand, cover the liabilities, but this reality is no longer sufficient today.

Hammoud considered that placing the central hand in a troubled bank has become easier today, as in the past, that is, before the financial crisis, in case of default, the depositor would smuggle his dollars abroad, but today You transfer your money from one bank to another, that is, your deposit remains in Lebanese banks and nothing changes it except ownership of the bank. He explained that as long as the capitalization is in Lebanese pounds, it is easy for the Central Bank to insure it to cover the needs of the depositors.

In response to a question, Hammoud explained that in order for banks to be able to cover the funds requested of them according to accounting standards, they must increase their own funds, and the Central Bank will not allow the bank to continue that cannot increase its capital. . Consequently, you will have to lay your hands on it and cover the private funds necessary to continue your work. In the event that three or four banks have stalled by default, the central bank can merge them after acquiring them. Under current conditions, no bank will take a similar step on its own, since nowadays no bank is interested in merging with another bank, because this step will increase its commitment to deposits towards depositors, which means that it will increase the pressure on him in terms of meeting the demand for withdrawal of deposits, not especially dollar deposits. Based on this, Hammoud considered that it is necessary for the Central Bank to continue in the plan that was set for the banks, and to be able to achieve the desired goals, knowing that the banks will not be satisfied with the conditions set by the Central. For this reason, Hammoud hoped that the Central Bank would open a door in the next stage through which to allow the recovery of shares to whoever they want.

The destination of the deposits

Regarding the destination of the deposits in case the Central Bank puts its hand in any bank, he said: The declaration of the Central Bank that it will acquire the bank that does not comply with the conditions it establishes should reassure the depositor. Central were to harm depositors, it would have resorted to Law 2/67, that is, bankruptcy. So the bankruptcy court deals with the defaulting bank, and in this case the depositors’ money becomes vulnerable to perishable, but what the central is trying to do today is to get as far away from the bankruptcy law as possible, and move the file of troubled banks towards the supreme banking authority, that is, to push towards the merger or self-liquidation, so that La Banque du Liban acquires the assets and liquidates them.