- 14
- Feb.
- 2024
Government Plan for Bank Resolution Put on Hold?
modified on 11 Apr. 2024 à 15:47 Read : 3 minute(s) A A A
On Tuesday, the administrative court ruled on the dispute between the Association of Banks in Lebanon (ABL) and the State. The Council of State invalidated the government's plan to abolish bank reserves at the Banque du Liban (BDL). A major blow, which calls into question the validity of the banking resolution proposed by the government.
On Tuesday, the Council of State issued a ruling annulling Council of Ministers decision 3/2022 of 20/5/2022 on the financial sector recovery strategy, insofar as it concerns "the elimination of a large part of the Central Bank's foreign currency commitments to banks, in order to reduce the BDL's capital deficit and close its net open foreign currency position with the BDL."
In its ruling, the Council of State considered this article to be in breach of the Lebanese Constitution and the law. Thus, the administrative court's decision confirmed the "sacred" nature of deposits and gave depositors hope of recovering their money.
Association of Banks
In a nutshell, the Association of Banks in Lebanon (ABL) is not against any financial recovery plan drawn up by the government, but it considers that the government does not have the right to ask the Banque du Liban (BDL) to cancel the banks' reserves with it. This is because eliminating their reserves consequently leads to an elimination of customers' bank deposits.
Now that the Council of State's ruling has been handed down, the ABL is in a position to draw up a "serious" and "feasible" plan for the gradual repayment of depositors. Any bank restructuring plan must include the recovery of bank reserves from the BDL. The question of eligible and non-eligible deposits would be a matter of detail in view of the question of principle.
Negotiations
Reliable sources told This Is Beirut on Tuesday evening that the first deputy governor of the BDL, Wassim Mansouri, and the office of caretaker Prime Minister Najib Mikati, had each contacted the ABL during the day, expressing their willingness to enter into talks on a banking resolution. In this context, they reportedly affirmed that the banking restructuring plan proposed by the government is not "sacred" and that it is "negotiable."
According to the same sources, the State obviously does not have the means to pay back the money it owes to the banks immediately, but it can do so on the long term. The same sources recall that BDL holds foreign currency reserves of almost $9.5 billion, gold reserves of around $18 billion, a 99% shareholding in the national airline (MEA), a majority shareholding in Casino du Liban, and land in Paris and New York via intra Invest.
A Resolution That Falls Apart
The government's banking resolution plan, which has been circulating in the media since last Friday and was due to be discussed at the Council of Ministers meeting scheduled for February 22, has fallen through.
In its broad outline, the banking resolution provided for the creation of a "Special Authority for Bank Restructuring," which would be endowed with broad powers not subject to judicial or legal appeal, ordinary or extraordinary (article 33).
The members of this Special Authority would be appointed by a decree issued by the Council of Ministers on the recommendation of the BDL. This would have opened the door to political clientelism. This is without recalling that article 18 of the government's banking resolution granted the "Special Authority for Bank Restructuring" the power to exercise its functions "without the need to obtain the approval of the restructuring bank's shareholders, its creditors, its board of directors, its general management or any other partner with which it deals."
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