Firstly, according to the central bank's budget, Khalaf highlighted that the banks' deposits at the Lebanese Central Bank reached approximately $86.6 billion as of mid-February 2023.
Secondly, the banks' deposits at correspondent banks were negative, with a balance of -$204 million as of January 31, 2023. Lebanese banks' obligations towards correspondent banks amounted to $4.369 billion, while their deposits were only $4.165 billion.
Thirdly, the Eurobond portfolio, which the government announced had stopped servicing since March 2020, was valued at $2.9 billion after markdowns.
Finally, loans to the private sector in foreign currencies reached $9.785 billion as of January 31, 2023.
According to Khalaf, these figures demonstrate that Lebanese banks lack liquidity, whether in terms of their deposits in local currency at the central bank, which cannot be withdrawn in cash or transferred abroad or in terms of their negative balances at foreign banks or their non-liquid Eurobond portfolio.
"As for loans to the private sector, debtors are paying them back either in Lebanese pounds or through bank checks that are deposited with the central bank as the only option, while the fate of the depositors' other funds remains uncertain," Khalaf added.
Khalaf added that this flawed mechanism, engineered by the state, has led to the repayment of around $28 billion in loans since the beginning of the crisis, which the depositors have lost as liquidity that should have been returned to them.
The report highlighted that today's rich are yesterday's creditors, with $28 billion in profits going to creditors at the expense of depositors due to the state's negligence and poor planning. Overall, the report offers a stark picture of Lebanon's banking sector, which is grappling with a severe liquidity crisis and a mounting debt burden.
Recapitalization
Khalaf mentioned some people consider that the solution lies in bank shareholders recapitalizing their banks from their private funds to restore stability to the sector.
However, according to Khalaf, Banks in Lebanon have been associated with the names of their board chairpersons to the extent that many believe they own the bank.
"Some may be surprised to learn that some board chairmen own no more than 10 percent of their bank, with the rest of the shares being held by local and foreign shareholders or by small shareholders who bought their shares through the Beirut Stock Exchange," Khalaf added.
Khalaf considers that bank owners are divided into four categories:
Board chairpersons and members who may not individually own enough to recapitalize their banks.
Major Lebanese and foreign shareholders, most of whom had deposited the majority of their funds in the bank, which they have now lost, and are not prepared to risk investing in banks whose profits may go to the Deposit Recovery Fund in the coming years.
Small shareholders who bought their shares through the Beirut Stock Exchange, who account for a significant proportion of the bank's capital. Their shares have eroded with the sharp decline in bank stock prices, and it may be difficult to persuade them to reinvest in the Lebanese banking sector at this time.
From this perspective, Khalaf considers that the principle of bank recapitalization may be attractive to those who do not understand its intricacies. Still, the reality is that legislative and regulatory bodies must study the available options for each bank individually. This is expected to be done by the Banking Control Commission and the Higher Banking Authority as part of the restructuring project.
Banking Secrecy:
On the issue of banking secrecy, Khalaf reaffirmed the statement by the association earlier, which demanded the Lebanese state enact an urgent law that completely cancels banking secrecy retroactively, and allows banks to provide banking information on all their customers' accounts, including their managers, shareholders, and others, since the date of their opening, to whomever the judicial authorities and others want, thus ending the farce of accusations and suspicions that are being directed against them and their shareholders.