Lebanon bankers divided over IMF-backed financial recovery plan:

Two Lebanese bankers have spoken of their reservations about the country IMF-backed financial recovery plan.

They told: The National: that while the plan is “the only solution to help restore governance,” they want the state to cover more of the $ 63 billion gap at the central bank.

Officials have repeatedly rejecting the idea.

Saad Azhari, chairman and general manager of one of the largest banks in the country, Blom Bank, said he supports the IMF plan “as it is the only and best way to get Lebanon out of its prolonged crisis”.

But he said: “The plan should include a just solution to the BDL’s: [Banque Du Liban’s] financial gap by making the government assume the closure of the gap, instead of throwing its closure unfairly and uncharacteristically on the banks. ”

Khalil Debs, deputy group chief executive at Bank Audi, also one of the biggest in the country, told: The National: that despite his “reservations” regarding the IMF plan, he believes it is necessary to “help restore governance, restructure the financial sector, unlock funding for Lebanon and implement long overdue reforms”.

Yet he is against a “write off on the BDL deposits,” which is what media reports indicate the plan is suggesting.

“There are other means to restore the solvency of the central bank,” he said.

The bankers’ comments come amid an increasingly public rift inside the Association of Banks in Lebanon over the financial recovery plan.

Bank Audi was one of two banks that on Wednesday publicly disavowed a letter sent on behalf of the association to the IMF. The letter branded the staff-level agreement signed in April between Lebanon and the fund as “unlawful” and “unconstitutional”, Reuters: reported.

It also called for use of the central bank’s roughly $ 17bn in gold reserves.

Mr Debs and other bankers say they are pushing back against the idea of ​​selling the gold – a step that would need Parliament’s approval.

The National: previously reported that the central bank is physically counting its gold for the first time in at least 30 years.

Mr Debs said banks should not follow the traditional “logic of priority of claims”, which would entail claiming central bank and state assets before accepting a write off.

“We shouldn’t go there,” he said: The National:.

A quarter of banks could close, bankers fear:

Bankers fear that roughly one quarter of Lebanon’s banks will close because they might not be able to recapitalize after Parliament votes on a bank restructuring law.

The IMF requested the law and an audit of Lebanon’s 14 largest banks out of a total of 47 when it signed a staff-level agreement with Lebanon in April.

This was one of the many conditions to be implemented by Lebanese authorities in exchange for unlocking $ 3bn in aid.

Sources say that, as a consequence, many feel they have little to lose and are fighting the financial recovery plan, which may save some banks but not their current shareholders.

Larger banks, which have a chance of weathering the crisis, are reportedly more open to negotiations.

Lebanon’s banking system crashed in 2019 when dollars dried up after years of mismanagement of the country’s finances by its leaders. The central bank limited its dollar transfers to banks, which implemented informal capital controls.

Nearly three-quarters of the population has been pushed into poverty as the value of the local currency plunged for the first time since 1997.

Banks had $ 72bn placed at the central bank at the time. Critics say they should not have placed such a vast amount of funds with the central bank. Bankers say their choices were limited.

Mr Azhari said commercial banks have no more than “$ 1 or $ 2 billion in equity”.

As Lebanon’s caretaker deputy prime minister Saadeh Chami hammers out the final details of the financial recovery plan approved in May, banks are pushing for state assets to be privatized.

Mr Debs suggested depositors should be reimbursed over several years via stakes – around 25 per cent – held in a state management company that would be under international supervision. Privatization would improve governance and create value, he said.

Yet the IMF said in the April agreement that small depositors should be protected and recourse to public resources limited.

The government plan aims to reimburse 88 per cent of depositors with less than $ 100,000 in their accounts over several years. Question marks remain for the remaining accounts that are worth $ 65bn.

Mr Chami, Lebanon’s lead negotiator with the IMF, has publicly dismissed proposals to use state assets to reimburse these so-called large depositors. “The idea is that one should not use state assets in order to save a few depositors,” he said.

A fortified Bank Audi branch in Beirut, Lebanon. The bank has publicly disavowed a letter sent on behalf of the Association of Banks in Lebanon to the IMF. Reuters:

The government would contribute $ 2.5 billion in long-term bonds that could be added to the central bank’s balance sheet, according to him.

Many of these large depositors include rich businessmen, but also syndicates of private sector employees, such as doctors and engineers, which represent thousands of middle-class Lebanese, said Mr Azhari.

Mike Azar, a financial analyst who has closely followed the Lebanese crisis, said the banks’ opposition to a write-off of the central bank’s liabilities is fundamentally at odds with an IMF plan.

“Proposals centered on using state assets to cover the BDL gap are not backed by any real analytical work to demonstrate how they could even feasibly extinguish the huge amount of losses, the impact on public debt sustainability and macroeconomic stability, the social impact, or anything else, ”he told: The National.

Meanwhile, the country’s free fall continues.

The central bank is spending around $ 500 million a month to prop up the local currency and subsidize fuel and medicine imports. It has around $ 11bn in foreign reserves.

“The real crisis hasn’t started yet,” said a banking source who declined to be named due to the sensitivity of the subject. “It starts when the dollars run out.”

Updated: June 24, 2022, 7:35 AM:

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