Banks Association strongly objects to long-awaited banking law draft
The Association of Banks in Lebanon has issued a statement expressing its "fundamental reservations and strong objection to the draft law presented to Cabinet concerning financial regulation and the handling of deposits, due to its provisions and procedures."
ABL said the draft law’s provisions “constitute an unjustified and unacceptable infringement on the rights of banks and depositors, and lack sound legal and financial standards and established precedents for addressing banking crises in other countries."
The Association emphasized that "any sound legal and financial approach to addressing the crisis, particularly concerning the so-called 'financial gap,' requires, as a prerequisite, a precise and transparent determination of the size of this gap at the Central Bank of Lebanon, based on audited and consolidated accounting data.”
“It also requires a realistic financial simulation that takes into account the actual size of the losses and the true value of non-performing assets, which clearly demonstrates that the draft law leads to the write-off of banks' own funds and those next in line in the loss-bearing hierarchy stipulated in Law 23/2025, thus impacting depositors' funds," ABL warned.
It argued that "the measures and solutions proposed in the draft law fail to consider the actual capacity of banks to meet their obligations to depositors."
Prime Minister Nawaf Salam had on Friday published the long-awaited banking draft bill, which distributes losses from the 2019 economic crisis between banks and the state.
The draft law is a key demand from the international community, which has conditioned economic aid to Lebanon on financial reforms.
In a televised speech, Salam said "this draft law constitutes a roadmap to getting out of the crisis" that still grips Lebanon.
The draft will be discussed by Cabinet on Monday before being sent to parliament, where it could be blocked.
The law stipulates that each of the state, the central bank, commercial banks and depositors will share the losses accrued as a result of the financial crisis.
Depositors, who lost access to their funds after the crisis, will be able to retrieve their money, with a limit of $100,000, over the course of four years.
Salam said that 85 percent of depositors had less than $100,000 in their accounts.
The wealthiest depositors will see the remainder of their money compensated by asset-backed securities.
"I know that many of you are listening today with hearts full of anger, anger at a state that abandoned you," Salam said.
"This bill may not be perfect... but it is a realistic and fair step towards restoring rights, halting the collapse."
- 'Banks are angry' -
The International Monetary Fund, which closely monitored the drafting of the bill, had previously insisted on the need to "restore the viability of the banking sector consistent with international standards" and protect small depositors.
"Banks are angry because the law opens the door to them sharing any part of the losses," said Sami Zougheib, researcher at The Policy Initiative, a Beirut-based think tank.
He told AFP that banks would have preferred that the state bear full responsibility.
The text provides for the recapitalization of failing banks, while the government's debt to the Central Bank will be converted into bonds.
Salam said that the bill aims to "revive the banking sector" which had collapsed, giving free rein to a parallel economy based on cash transactions, which facilitate money laundering and illicit trade.
According to government estimates, the losses resulting from the financial crisis amounted to about $70 billion, a figure that is expected to have increased over the six years that the crisis was left unaddressed.
Since assuming power, Salam and President Joseph Aoun have pledged to implement the necessary reforms and legislation.
In April, Lebanon's parliament adopted a bank restructuring law, as the previous legislation was believed to have allowed a flight of capital at the outbreak of the 2019 crisis.
The new bill stipulates that politically exposed persons and major shareholders who transferred significant capital outside the country from 2019 onwards -- while ordinary depositors were deprived of their savings -- must return them within three months or face fines.
The draft law could still be blocked by parliament even if Cabinet approves it.
"Many lawmakers are directly exposed as large depositors or bank shareholders, politically allied with bank owners, and unwilling to pass a law that either angers banks or angers depositors," Zougheib said.
Politicians and banking officials have repeatedly obstructed the reforms required by the international community for Lebanon to receive financial support.
Source: Naharnet
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