The facade of the ABL headquarters in May 2021. (Credit: MA)
Is there trouble brewing within the Association of Banks in Lebanon? The confidential information that L’Orient-Le Jour has gathered from several bankers in the past few months indicates that they are far from unanimous in support of the banking lobby’s publicly announced positions.
“ABL’s firmly entrenched positions no longer make any sense and are provocative to an increasing number of people,” said a banker, who declined to be named, like all of the banking sector professionals who spoke to L’Orient-Le Jour.
The sector’s official discourse has remained unchanged for two and a half years, focusing the blame for the financial crisis mainly on the state, accusing it of squandering the money lent by banks, against a backdrop of mismanagement and corruption.
This inflexible position was notably illustrated by a large-scale media campaign in April 2020, spearheaded in particular by an advertorial, dubbed, “give to Caesar what belongs to Caesar,” published in several newspapers.
In this ode to a sector “that alone supported Lebanon’s financial, economic and social stability over the last three decades,” the ABL drew its red lines that have since remained unchanged.
A month later, it published its ”Contribution to the government’s financial recovery plan [in reference to to the plan of Hassan Diab’s government],” in which it fully rejected the latter's choices, most notably when it prioritized that shareholders should bear the brunt of the losses amid a total restructuring of the banks’ capital.
The banking front then won a decisive victory. It ended up joining the negotiations, to which it was not initially invited, and torpedoing Diab’s plan, along with its allies at the Banque du Liban and in Parliament.
In a written response to L'Orient-Le Jour, ABL wrote, “The ABL, in its capacity as the largest creditor of the state, must necessarily be in close consultation with the IMF [International Monetary Fund], if not a party to the negotiations.”
Immutable agenda
For the public and for most observers, the message has become clear: the bankers are solidly united and have enough control to be a vital player.
This power of influence is the raison d’être of this association, which was formed in 1959 — three years after the banking secrecy law was passed — with the objective of strengthening cooperation between banks and “defending collectively the interests of the banking sector,” as stated on its website.
ABL has an immutable agenda: “Resisting any serious regulation of the sector, and pushing its agenda among political circles, in the corridors of the central bank and in the media,” said Hicham Safieddine, an assistant professor of the history of the modern Middle East at the University of British Columbia in Canada.
Since then, the ABL and its 12-member board of directors, — “which reflect a true picture of the sector that includes both large and small banks,” according to one banker — have always been careful to present a unified front.
Of course, “there has always been competition, but it was as part of a healthy commercial dynamic,” a banker said. In the absence of a compelling power over its members, “the banks could decide to not comply with ABL’s decision in case they disagree [with it].”
The disagreements have been rare enough to not make the headlines, except perhaps when the ABL decided to partly change the rules of the game with the political class.
In 2014, the then-ABL president and CEO of Byblos Bank, François Bassil, who was already reluctant to continue financing the public debt due to the total absence of reforms, managed to convince his colleagues.
“In the middle of a general assembly meeting, while the banks were preparing to go on strike in support of his decision, he received a phone call and came out livid: it was [Parliament Speaker] Nabih Berri, who urged him to put a stop to everything. This is when most of the banks left the meeting and he had to back down,” a banker recalled.
Contacted by L’Orient-Le Jour for comment on this episode, which other sources also confirmed, Bassil did not provide any.
Reformists vs radicals
Paradoxically, the way the crisis evolved and the consequences of the apparent triumph of the banking lobby gradually sowed trouble among some of the ABL members.
“Many bankers have started to tone it down,” a banker said. “One party has understood that the state does not have the money to cover BDL’s losses and that, even though it was required to do so, the latter are so colossal [more than $69 billion according to the government] that they require a contribution from every actor,” a banking source said.
“Most of the banks perceive that it is not up to us to put forward a plan, it is up to the government,” a bank manager said.
In other words, the estimate of the cost-benefit ratio of the hard-line wing within the sector is no longer the same as in 2020. That is particularly true since in the meantime, the initial suspension of negotiations, which only resumed this year, had already annoyed the IMF.
“The banks are testing the boundaries with the IMF and are ready to make more concessions once it stands back [from the negotiations],” said a financial sector source knowledgeable about the IMF negotiations.
While the official discourse remains unchanged, behind the scenes, these differences have ended up creating a polarization around two camps: on the one hand there is a radical wing that “decided to stand firm on the initial line.” And on the other, there is a more reformist wing that “is open to dialogue on the recognition and distribution of losses,” a bank manager said.
The positions of the other ABL members, consisting of some 30 banking groups, oscillate between the two poles.
Dissenting voices have thus begun to be heard at the meetings of the board for several months, but the hard liners continue to be inflexible.
“When some dared to say that we should recognize the financial losses and face the reality, the discussion got heated and the radicals made it clear that they would not change their position,” a “reformist” banker said.
In its response to L’Orient-Le Jour, the ABL reiterated its traditional language on all disputed points. While it expressed readiness to take “a fair share of the burden” related to the “portfolios of eurobonds [on which the state defaulted in March 2020] and loans to the private sector, which are already substantial losses,” it considers that the state “has the responsibility to bear all the losses that may affect its central bank,” which “according to all international standards [remains] a safe haven for bank liquidity.”
Ditto with regard to the haircut deemed unavoidable by the majority of experts: “The banks are against imposing any losses on deposits in all currencies to avoid any direct harm to the depositors’ rights.”
However, the ABL did not provide any details on its position on the financial losses estimate.
The internal divisions within the lobby exceed the viability of the hardline position. They are rooted in real diverging interests between banks, particularly vis-à-vis bank restructuring. Because with the economic rescue plan, on which the government is working in a bid to obtain a loan from the IMF, the future image of the sector is on the table as well.
“The process will necessarily be drastic: the size of the sector will shrink considerably after its reconstruction,” an informed source said.
In the current negotiations — and in light of the IMF’s rejection of a first draft of the government plan — it is hard to know the capital stock and liquidity requirements, among other potential criteria, to ensure a bank’s viability.
It is however certain that “not all banks are in the same boat. Some are trying to buy time because they know that they can’t meet the criteria, whatsoever,” a source familiar with the file said.
Other observers believe that it is more than a mere poker game. “Above all, it is a negotiating position. Even the most radical ones are now aware that their line was not realistic,” said a banker.
The strategy of the hard-liners thus consists of playing the worst case scenario card, while waiting for guarantees related to the levels of capital and capital injection. On the other hand, some banks, including large ones, are in a more comfortable position: “They know well that they will still stay in the game no matter what, or find the necessary funds for their recapitalization,” one of the above-mentioned sources said. This group would thus take a more pragmatic stance regarding the recognition of losses.
“They understood that in case they continue to oppose any rescue plan, the sector will only consist of ‘zombie’ banks in which the diaspora will never put a penny. It is better to save a part of the sector, however small, instead of losing everything,” a banking source said.
Shifting lines?
However, this process of turning the sector into zombie banks is a direct consequence of the total absence of any government measures to end the crisis for two and a half years, which is largely due to the blocking strategy of the “banking party.”
This apparent contradiction points to another potential point of division, partly linked to the differences in the banks’ ownership structure.
“The owners of family establishments who own a majority of shares are those who have the most to lose,” a banker said.
They therefore have a personal interest in buying time rather than acknowledging that the game is over, he said.
“They don’t want to admit that their capital is not worth anything anymore, even though it would mean that their banks will turn into non-performing institutions, in the hope for a miraculous economic recovery,” said the financial sector source.
None of the interviewees was able to say how many establishments fall into this category or their weight in the sector as a whole.
In the meantime, the internal balance of power continues to evolve. The leak of the draft government plan presented to the IMF in early February, and the public rejection by ABL that followed led to a new bout of arm-wrestling behind the scenes.
Admittedly, in its Feb. 7 response to questions from Reuters on this “hypothetical” plan, the lobby reiterated the same mantra — “alleged losses” included — but this time the orchestra did not follow its conductor.
“Why did the ABL comment on a hypothetical plan that was already rejected by the IMF and that is strongly criticized elsewhere?” said a banker who, like others, was surprised to see the content of ABL’s response after its publication.
“After a few phone calls, they realized that the chairman [Salim Sfeir] had acted on his own, without consulting with the other board members,” said another banking source.
“The board of directors meets regularly and its members are always updated about all activities and decisions [which are] communicated to the whole sector by the ABL general secretariat,” the lobby denied in its response, (submitted beforehand to the 12 board members).
Following an internal emergency meeting, Sfeir softened his tone and contacted Prime Minister Najib Mikati to stress “the sector’s goodwill when it comes to laying out the rescue plan,” local media reported.
Does this indicate that the lines have shifted? Time will tell.
Before June, during the last ABL board elections, almost all of its members had their term renewed by the 60 members of the general assembly, including the branches, although there were two candidates who publicly announced that they have a different line.
The first is the CEO of the BEMO bank, Riad Obegi, who has said that “it was necessary to bring new ideas in the banking sector” and that he “was surprised at obtaining about 15 votes.”
The second is Jean Riachi, CEO of FFA Private Bank Group, who explained “I wanted to express my disagreement with the positions of the ABL since the collapse of 2019, [but] I knew that I was very much in the minority.”
“Reformist banks no longer need to go through ABL if they want to express their opinion, but they could come back on the scene when the time is right,” an informed source said.
This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury and Sahar Ghoussoub.
