Risks to deposits: Lebanon's banks push back against financial gap law

Report by Lea Fayad, English adaptation by Yasmine Jaroudi 

Lebanon's banking sector is mounting strong opposition to the government's proposed financial gap law, warning that the draft legislation could deepen losses, threaten bank stability, and ultimately endanger depositors' funds.

Banking sources say the draft law is based on inflated figures, particularly regarding so-called illegitimate funds slated for write-off. While the government estimates these at around $34 billion, banks argue the actual amount would not exceed $20 billion. The discrepancy, they say, means the real losses facing the sector would be significantly higher than officially acknowledged.

Banks also warn that the absence of clear, bank-by-bank data on losses and post-law viability raises the risk of widespread bank failures. Without detailed assessments of each institution's ability to continue operating, the law could accelerate the collapse of multiple banks and further jeopardize deposits.

A second major concern centers on provisions requiring banks to recapitalize and attract new investors. Bank officials describe this as unrealistic, saying it is doubtful that investors would inject fresh capital to cover legacy losses in a high-risk country lacking a clear economic recovery plan or long-term vision.

The third point of contention concerns amendments that reinforce a ban on using Lebanon's gold reserves, in line with existing legislation that prohibits any encroachment on them. Banks criticize this restriction, saying it would further constrain the Banque du Liban (BDL), limit liquidity options, and hinder efforts to meet deposit repayments or service outstanding bonds.

Against this backdrop, banking associations are set to hold a general assembly next week to assess their options, including the possibility of challenging the draft law in court if it proceeds in its current form.