Timour Azhari

BEIRUT, (Reuters) – The Lebanon Banking Association rejected Monday’s draft government plan. It proposes a haircut for the bank and partial bail in on savers. They claim it will cause a loss of trust in the financial system.

Reuters saw a draft plan last month to fill a large hole in our financial system. The plan calls for just $25 billion to be returned from a total of $104 trillion in hard currency deposits, to help savers who are in U.S. Dollars. [L1N2UD1JU]

The majority of the remaining money would be converted into Lebanese dollars at various exchange rates including one which would erase 75% of deposits’ value. This estimate of losses in financial sectors is $69 billion. It also sets out a timeframe of 15 years for all deposits to be repaid.

This hypothetical plan suggests it could eliminate so-called “losses” to balance the books. “This approach…is a liquidation approach, and will cause a persistent loss of faith for generations to follow,” ABL stated in a written statement.

Although the ABL approval is not necessary for the government’s adoption and implementation of the plan, experts believe that support from the banks sector may be helpful in resolving the crisis. According to the ABL, it was not involved in the creation of this plan.

According to it, “If true”, the approach reported in dealing with losses suffered in the financial sector was not acceptable and won’t reverse the downward trend of the economy.

BAIL-IN

Although the ABL stated that it wouldn’t endorse any plan which would result in a “nominal haircut of customers’ deposits” and wipe out shareholders equity, it was open to accepting some losses from Eurobonds restructuring or private sector loans.

The banks of Lebanon have served as a major lender for the government over decades. This helped finance a corrupt and wasteful state, which eventually led to financial collapse in 2019.

Depositors were largely deprived of savings, and local currencies lost more than 90%.

As part of its efforts to get a bailout, Lebanon’s government started talks with IMF in January. To make this happen, a financial plan that is viable will be crucial. An earlier plan, which was prepared under the leadership of a 2020 government, was rejected by the banks, central bank, and influential political parties. It also ended IMF discussions at the time.

Last week, an IMF spokesperson stated that there was no comment regarding reports that some aspects of the plan had been rejected by the fund during talks that started in January.

According to Reuters, a source in Lebanon said that the IMF asked Lebanese officials “to work on certain parts of the plan.”

In an effort to fill the $69billion hole in our financial system, this draft plan proposes a bail in of large depositors up to $12billion, which is 72% of bank shares.

According to the ABL, bail-ins should be determined on an individual basis and for every bank. They should not occur until “we reach a comprehensive and consensual agreement with the government and the government has fulfilled its legal obligation of restoring Central Bank solvency.”

ABL noted that they were also opposed to bank shareholders holding majority shares in this sector, in return for $1 billion worth of capital.