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LONDON: Lebanon’s financial crisis has resulted in a ‘well-thought-out program’ to take care of small depositors, address the needs of medium depositors and enlist large depositors as partners in new banks. If implemented, it could be resolved within 5 to 10 years. According to London financial industry experts,
According to the International Monetary Fund, Lebanon’s economy “continues to deteriorate to unsustainable levels.” Gross domestic product per capita fell by 36.5% between 2019 and 2021 and is expected to shrink further this year.
George Kanaan, CEO of the Arab Bankers Association, a London non-profit professional organization whose members work in banking and related industries in the Arab world and the United Kingdom, said: “But three years passed and nothing happened.”
Head of ABA since 2009, Mr. Kanaan has worked for prominent banks in New York, London and Saudi Arabia since 1975. “But a complete failure of a system is almost unheard of in history.”
The Lebanese pound lost about 90% of its value during the country’s economic crisis and continued to fall to record lows, surpassing £60,000 to the dollar on Friday.
“We want (large) depositors to work with banks, governments and the IMF to work together to rebuild a failed system. The failure of the system was comprehensive. told Arab News in an interview.
He said corruption and waste of revenue and resources were really only a small part of the failure, and that the financial system collapsed largely as a result of its inability to manage it. Bank.
European investigators are investigating allegations of state fraud and the actions of Riyad Salameh, who has been central bank governor for 30 years. He and his brother Raja are accused of illegally stealing more than $300 million of him from banks between 2002 and 2015.
“Central bank governors were brought in a long time ago, maybe because of ignorance, maybe because it seemed to work, maybe because it seemed to happen, or because of political pressure to establish.” said Kanaan.
“The black hole in Lebanon’s banking system is about $100 billion,” he added. “About a third of that was loans to a very bad client called the Lebanese government, and about two-thirds of that was used to support the sterling and the fixed exchange rate of 1,500 Lebanese pounds to the dollar. I did.”
The strategy, implemented after the country’s 15-year civil war ended in 1990, initially worked because it helped “stabilize the economy and lay a sound foundation,” Kanaan said. I’m here.
When all the big depositors become shareholders of new banks, the top layer of depositors will have to be dealt with with a bail-in, similar to what happened in Cyprus.
George Kanaan, CEO, Arab Bankers Association
However, the subsequent exchange rate decision was left to the market, which would have ended in about three to five years, he added. However, this did not happen.
Fast-forward to the global financial crisis of 2008, and money was “flowing” into the country, Kanaan said. Lebanese banks were seen as safe havens as they were not suffering like banks in other countries and were not involved in the “risky” and “sophisticated instruments” used by Western banks. was done. Therefore, it was considered “counterintuitive” to abandon a fixed interest rate on the dollar at that time.
“After the honeymoon period, the country began to enter a vacuum period: no cabinet, no president, the country stopped doing anything and the economy began to recede,” he said. rice field.
“If the pound had allowed the market to move, it would have gone down. And by dropping, it would have sent a signal to the market, politicians, everyone. They continued to blindly support the pound, thus giving the Lebanese a very false sense of security and wealth.”
Smaller depositors were largely unaffected at first and got some of their money back. Very large depositors also “had to remain silent,” Kanaan said. Most of them were banking in Lebanon and could not do business elsewhere. Either they were directly sanctioned, they feared being sanctioned, they came from questionable jurisdictions, they were involved in disreputable deals or tax evasion, or they had many other investments to get past them. But eventually the whole system collapsed.
“Very sad,” said Kanaan. “Now people who are 70 are going back to work because they need to live. They can’t retire anymore.
He put the blame on the bankers first and foremost because it was their job to make sure the depositors got their money back. They should have defied Livanbank’s order to lock depositors out of dollar accounts and block transfers to other countries, he added.
“There’s a problem there,” Kanaan said. “Central banks literally forced people to do what they wanted and people acquiesced, creating a system that is in some ways insane.
It wasn’t really a system. There was a bank and branches called the Central Bank of Lebanon. All branches were exact replicas of neighboring branches. They are all forced to take on the same risky asset, so they cannot be distinguished. ”
Since the crisis began in May 2019, Lebanon’s food prices have risen almost tenfold, unemployment is very high and three-quarters of the population are in poverty, according to the IMF.
Such brutal contractions are usually associated with conflicts and wars, the World Bank notes. The situation is exacerbated by an influx of refugees, the COVID-19 pandemic and a devastating explosion at the port of Beirut in August 2020.
In addition to being denied access to their savings and participating in mass protests, more and more people are taking the law into their own hands and resorting to extreme measures to get money, such as bank siege and sit-ins. I rely on They involve weapons and hostages.
“In five to 10 years, the new system will be fully recovered and most people will be able to get their money back,” Kanaan said, adding that any system could be reformed every five years. He added that there is
“[But]when the big depositors all become shareholders of the new banks, similar to[what happened in Cyprus]the top layer of depositors will have to be dealt with by bail-in, while the middle depositors will not. It will have to be addressed through some sort of securitization or bond program.”
Bail-In provides relief to insolvent financial institutions by demanding the cancellation of debts owed to creditors and depositors. Effectively, this is the opposite of a bailout with cash inflow relief by an outside party, usually the government.
Kanaan said the recovery will come more quickly if there is an influx of significant or “unexpected revenue.”
To this end, “an interesting thing on the horizon is offshore gas and oil discoveries,” he added.
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