BEIRUT: Head of the Association of Banks in Lebanon Salim Sfeir defended the country's banking sector and its economic recovery plan in a video-conference call with the American Task Force for Lebanon.
During an hour-long Q&A with Sfeir Wednesday night, ATFL members presented the organization as a vehicle for US-Lebanese relations, its role in contributing a large share of remittances back to Lebanon and its desire to “understand the ABL proposal.” Sfeir, in turn, expressed hope that Lebanon’s American friends would come to the country’s aid.
"We need as a country to convince the international community that we are serious about reforms and transparency," Sfeir said. "Major efforts are needed to end corruption and cronyism."
The ABL proposal is an alternative economic rescue plan that argues against any default on internal debt that would threaten depositor’s savings, commonly known as a haircut. Instead, the association proposes that the shortfall should come from state assets such as Casino du Liban and Middle East Airlines.
Sfeir lambasted the political class for offloading a crisis of its own making onto the banks, criticizing the government’s decision to default on the Eurobond in March as unnecessary and drawing on Lebanese banks’ proven resilience through successive wars and political crises.
ATFL members questioned Sfeir on the viability of the ABL proposal, specifically whether any figure had been agreed in the banking sector on the capital-shortfall sum. Sfeir conceded that no final figures had been agreed, alluding to losses linked to currency devaluation, but affirmed ABL’s hope of keeping 40-50 percent equity in order to mount a recovery.
Rumors of capital flight from Lebanese banks since the imposition of informal controls last year were also raised. With statistics in hand, Sfeir assured them that the decline in total deposits from September ($173 billion) until July this year ($150 billion) had been relatively small and largely represented the servicing of foreign liabilities.
Discussion moved on to lending rates, with one ATFL member deploring the loans Bank du Liban took from commercial banks at a 17 percent interest rate as “too good to be true.”
Sfeir played down this figure, saying average rates never exceeded 8 percent and that the 17 percent rate represented no more than a tenth of depositors, before affirming that he did not defend the high rate.
When asked whether Lebanese banks had been forced to buy Treasury bills, Sfeir said lenders had not invested in T-bills for the past five years. Central Bank Governor Riad Salameh, during a conversation with the ATFL a year earlier, also denied that banks had been forced to buy T-bills.
During discussions on the US maximum-pressure policy regarding Iran and the adverse effect it was having on Lebanon’s economic recovery, Sfeir acknowledged that while it was up to Lebanon to deal with its internal issues, the country could not be expected to get involved in regional matters.
One member, however, critiqued this narrative. “The issue of Iran converges with another US priority – dealing with cronyism and corruption,” he said. “We do not want to throw good money after the bad. The puzzle we see is whether Lebanon is willing to reform,” the member added, noting that the International Monetary Fund seemed more aligned to the government’s proposal than ABL’s.
Many questions indicated concern for depositors’ savings and how Lebanon could reemerge as a safe destination for remittances. Another member questioned ABL’s intention to preserve deposits entirely, saying, “We would be open to a decrease, whether a haircut on interest earned or deposits themselves, if there were measures to rebuild confidence so we could come back to Lebanon.”
The closing discussion focused on a restructuring of the Lebanese banks. Sfeir, asked for his views regarding claims that Lebanon was over-banked, pointed to the high employment banks provided. He rejected Lebanon’s low GDP as justification to shrinking the country’s banking sector, instead blaming the low GDP on the failures of successive government to develop the country’s economy.