Banking sector to recover within 10 years if necessary action takes place: expert

3^min

Since 2019, Lebanon has been witnessing a financial crisis. However, a finance expert in London expressed that the situation could resolve within five to ten years if a program that helps small depositors and makes big depositors partners in new banks is implemented.

"We would like to see joint action by the (big) depositors to work with the banks, the government, and the IMF, if they can be brought in, to restructure a system that has failed — and the failure of the system was comprehensive," said George Kanaan, CEO of the Arab Bankers Association, a non-profit professional organization in London.

According to an interview with Arab News, he told the English-language daily newspaper that corruption and a waste of revenues played a small role in the failure, as the financial system collapse was caused by management incompetence, especially in Banque du Liban.

"The central bank governor was brought in a long, long time ago, and he overstayed any reasonable period of governance (and) mismanaged events, possibly because of ignorance, possibly because it seemed to work so let it happen, or pressures from the political establishment," Kanaan said.

Adding that the "black hole" in the country's banking system is about $100 billion, as around a third of it is loaned to the Lebanese state, and "about two-thirds of it went to supporting the pound and a fixed exchange rate of 1,500 Lebanese pounds to the dollar. This strategy implemented after the civil war helped "stabilize the economy and put it on a sound footing," Kanaan said.

However, the CEO of the Arab Bankers Association affirmed that between five and ten years, Lebanon could have a new, fully recovered system, and with people "with their money back," Kanaan said, adding that any system can be reformed every five years.

"(But) you are going to have to address the top tier of the depositors with a bail-in, similar to (what happened in) Cyprus, when all the big depositors become shareholders in new banks, and the middle depositors will have to be addressed through some sort of securitization or bonds program."

Since the bail-in intends to rescue a failing financial institution by making its creditors and shareholders bear the cost of recapitalizing the institution by converting some or all of its bail-in debt into common shares.

Adding that the recovery will happen faster if significant revenues start to flow in. Concluding that "the interesting thing on the horizon is the gas and oil discoveries offshore," which the country is due to begin exploiting.