Lebanon banks to layout their own financial rescue plan

Lebanese banks are working on their own national financial rescue plan after rejecting the government’s proposals, Reuters reported.

Banks are seeking to provide more protection for the sector and to prevent a large-scale write-off of capital, which was proposed in the government economic rescue roadmap.

The Association of Banks in Lebanon (ABL) has harshly rejected the government plan, which was passed in parliament last week, and said the organisation was not consulted on its policies, despite being “a key part of any solution”.

In a statement, the ABL warned the plan could “further destroy confidence” in the country and said the organisation could “in no way endorse [the plan]”.

“As laid out in the Plan, the domestic (bank) restructuring will further destroy confidence in Lebanon both domestically and international… [and] is likely to deter investment in the economy thereby hindering any recovery prospects.”

The group also condemned the measure’s reliance on donations and assumption of “international financial support, in particular from the IMF”.

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The government’s plan hinges on a $10 billion bailout from the International Monetary Fund (IMF) and the release of $11 billion in reform-conditional aid pledged at the 2018 CEDRES conference.

Additionally, a central feature of the plan relies on a bail-in by bank shareholders worth an estimated $70 billion to cover financial sector losses. A bail-in would wipe out the bank’s capital from large depositors, a move which ABL Chairman Salim Sfeir called “very negative”.

The ABL has also criticised the government plan for failing to address the issue of inflation, and the potential for hyperinflation, while terming revenue and expenditure measures “vague”.

It is unclear how the bank’s financial rescue plan, expected to be released in a week to ten days, will seek to tackle these issues after Sfeir declined to provide details of the proposals.

However, Sfeir told Reuters: “We are talking about putting together with the government a new plan and by all means this new plan has to preserve the minimum equity [at banks] needed to restart a new cycle for the economy”.

Adding, “nothing sustainable could be done without the banking sector”, and that the bank’s plan will be “more realistic” than the government’s proposals.

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