Shortening the banking sector by only five banks... is it a rumor or a preparation for a painful procedure?

Shortening the banking sector by only five banks... is it a rumor or a preparation for a painful procedure?

| Friday 16 September 2022

Exclusive, “Akhbar al-Yawm” agency

Ajaka to "Akhbar al-Yawm": Merging does not mean that deposits have disappeared and Salameh refuses to go bankrupt

Since the beginning of the economic and financial crisis, the attention has always been on the banking sector, and at the same time a lot of rumors have been aimed at it, the most prominent of which is its shortening by only five banks, which causes concern about the fate of deposits.

Are these rumors truthful, or are they intended to prepare the public opinion for steps and actions that may be painful?!

In this context, economist Professor Jassem Ajaka explains that the Guardian authority over the sector is the Bank of Lebanon, and therefore no action can be taken except through the central bank that issues licenses, pointing out that the government may force the Bank of Lebanon by laws to comply with what it wants, but it has no authority over banks.

In an interview with "Akhbar Al-Yawm" agency, Ajaka recalls Circular No. 154 issued by the Banque du Liban in August 2020, which requested raising the capital of banks by 20% and increasing liquidity by 3%, and urged its clients who made transfers abroad to return part of them to Lebanon. The banking supervision committee was tasked with monitoring the application of the circular.

He adds: Although the committee ended its mission in February 2021, it has not published any report officially, and all we hear in this area are leaks that we have not verified to be true. The central bank is fully aware of the situation of banks that send daily, weekly, monthly, quarterly and semi-annual reports to it and to the supervisory committee, meaning that the situation of banks is "followed-up" by both sides "day by day", and therefore the picture is clear.

Ajaka continues, pointing out that the governor of the Bank of Lebanon, Riad Salameh, in conjunction with the issuance of the circular, had confirmed in a media appearance that he would not allow banks to go bankrupt.

Ajaka explains that the constant in this field is the condition set by the IMF - in the framework of its negotiations with Lebanon - requesting an assessment of the first 14 banks to be conducted by one of the international companies, and therefore there can be no talk of closing banks or opening others before the assessment requested by the IMF.

In response to a question, Ajaka expresses his belief that there is a strategy followed by the banking supervisors to wait for what the government will do. He says: the government's plan talks about guaranteeing deposits without a ceiling of one hundred thousand dollars within a certain framework, but it was noteworthy that the deputy head of the caretaker government, Saadeh al-Shami, said during the budget discussion session that began yesterday that these deposits are guaranteed in case the banks do not go bankrupt.

Based on the foregoing, Ajaka concludes to clarify that the Banque du Liban can act with any troubled bank, as it did with the Lebanese Canadian bank and Jamal Trust Bank, in terms of transferring deposits from one place to another, if the decision is made to close one of the banks, and concludes: merging banks does not mean that "deposits have disappeared".

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