EXCLUSIVE Lebanese banks oppose government’s draft financial plan proposals

BEIRUT, Feb 7 (Reuters) – Lebanon’s banking association said on Monday it opposed proposals set out in a draft government plan reported by Reuters last week to tackle the financial crisis, saying they would lead to a long loss of confidence in the financial sector.

Responding to written questions from Reuters, the Association of Banks in Lebanon (ABL) said it had not seen an official version of the plan.

A Lebanese government source told Reuters the plan had not yet been finalized and was being discussed with the IMF.

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The project aims to fill a huge hole in the financial system and expects to return only $25 billion out of a total of $104 billion in hard currency deposits to US dollar savers. L1N2UD1JU

Lebanese banks have been a major lender to the government for decades, helping fund a wasteful and corrupt state that descended into financial collapse in 2019.

The collapse meant that depositors were largely deprived of their savings and the local currency lost more than 90% of its value.

“This hypothetical draft plan indicates that it can eliminate so-called ‘losses’ in order to balance the books. This approach … is a liquidation approach and will lead to a continuing loss of confidence for generations to come,” said declared the ABL. in their written responses.

“Apart from what has been published and reported in the media, we have not seen any official draft plan prepared by the government,” he said, adding that he had not participated in the project development.

According to the plan, the majority of dollar deposits would be converted into Lebanese pounds at several exchange rates, including one that would erase 75% of the value of some deposits. It estimates financial sector losses at $69 billion and sets a 15-year deadline for reimbursing all depositors.

ABL approval is not required for the government to adopt and start implementing a plan, but experts say support from the banking sector could help resolve the crisis.

“If true, this reported approach to dealing with losses in the financial sector is not at all acceptable and will certainly not reverse the downward spiral of the economy,” the ABL said.

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The ABL said it would not endorse a plan that would lead to a “nominal haircut on customer deposits” or eliminate equity altogether, but was willing to take some losses from the restructuring of euro- bonds and loans to the private sector.

The government began talks with the IMF in January as part of efforts to secure a bailout seen as crucial to start charting a course out of the crisis. A viable financial plan is key to this process. A previous plan drawn up under one government in 2020 was rejected by banks, the central bank and powerful political parties, ending talks with the IMF at the time.

An IMF spokesman said last week he could not comment on reports that the fund rejected aspects of the government’s plan during talks that began in January.

An official Lebanese source told Reuters that the IMF had asked Lebanese officials to “work on some parts of the plan”.

As part of efforts to plug the $69 billion hole in the financial system, the draft plan calls for a large depositor bailout of $12 billion, or 72% of banking sector stocks, reducing shareholders and creditors less than one third.

The ABL said any bailout should be assessed on a case-by-case basis for each bank and should only occur after “we reach a consensual and comprehensive agreement with the government, and after the government has fulfilled its legal obligation to restore Central Bank Solvency”.

The ABL also noted its “strong objection” to a proposal for banks’ shareholders to retain majority stakes in the sector in return for an injection of $1 billion in fresh capital.

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Reporting by Timour Azhari, Laila Bassam and Tom Perry; Editing by William Maclean and Nick Macfie

Our standards: The Thomson Reuters Trust Principles.

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