ABL chairman’s term of office renewed: We answer your questions

There was a time when elections of the board of directors of the Association of Banks in Lebanon (ABL) — the organization that brings together all of the country’s commercial banks and voices their interests — were very heated.

In the midst of the economic crisis, two candidates — the Chairman and General Manager of Banque BEMO Riad Obegi, and the CEO of Investment and Capital Bank Jean Riachi — ran against Chairman and CEO of Bank of Beirut Salim Sfeir, who was seeking a second term at the helm of ABL in the 2021 elections.

Four years into the crisis, in 2023, ABL decided to change habits by exceptionally extending the term of office of its current team and its chairman Salim Sfeir for one year.

The decision was made at the general meeting of ABL’s members, with a majority of 35 votes, a banking source told L’Orient-Le Jour on condition of anonymity, as they were not authorized to speak with the press.

“We needed 33 votes or 75 percent of the total number of members [44 according to our calculations] for this extension to be approved. There was no need to change ABL’s bylaws,” the source said.

Is this the first time ABL dispensed with the election of its board of directors?

This is not the first time since 1959 that ABL has not held an election to renew or keep its board of directors. Those who succeeded each other between 1994 and 2017, for example, were appointed by consensus. This system was introduced and maintained at the time to avoid dissent between the major banks, which were fiercely competing for key positions on the board. But the decision to extend Salim Sfeir’s term comes at a critical time for the banking sector, particularly in view of its position during today’s economic crisis.

Infuriated against the Lebanese government defaulting on its Eurobonds debt, in which many of its members had invested, ABL also considers that the financial recovery plans, endorsed by both the cabinets of Hassan Diab and Najib Mikati, and which meet the International Monetary Fund (IMF)’s conditions, require too much from the banks.

Lastly, depositors’ confidence in the sector, which has long been considered the mainstay of the economy, as well as the size of the sector’s assets, plummeted due to restrictions that have been in place against depositors for almost four years, with the help of the Banque du Liban (BDL) and due to authorities’ silence.

Does the extension of Salim Sfeir’s term of office mark a stand by ABL, or was it because it does not have another option?

The aforementioned banking source and Karim Daher, a lawyer specializing in tax law and the person in charge of the commission dedicated to the protection of depositors’ rights within the Beirut Bar Association, gave a clear answer: “None of the bank executives wants to go to the front.”

“The situation with depositors is highly charged and the context is not extremely positive, regardless of whether or not Lebanon manages to reach an agreement with the IMF in the near future,” said Daher.

“If an agreement is reached, the distribution of the country’s financial losses [more than $70 billion according to official estimates] will force the banks to make sacrifices. And without an agreement, the situation risks becoming even more explosive than it already is,” he added.

Daher indicated the post of ABL chairman, or even the “aura” of a Lebanese bank manager, “is no longer as highly regarded in Lebanon as it is abroad.”

The aforementioned banking source, for their part, said they believe “there will certainly be more interest in the post, if the situation is clearer in a year from now.”

A second banking source told L’Orient-Le Jour: “It’s simply not the right time to change teams.”

The source pointed out that several draft and law proposals critical to the sector are still in gestation. “There’s a text introducing formal capital controls and another one regulating the country’s financial recovery, both of which have stalled in Parliament. The one dealing with bank restructuring is still the subject of negotiations between the cabinet, BDL, the Banking Control Commission and the IMF,” the source said, adding that ABL must follow these files on a permanent basis.

Does this term extension have anything to do with the forthcoming departure of BDL Governor Riad Salameh?

The answer tends to be no, both within and outside the banking sector.

“The decision to extend Salim Sfeir’s term of office is part of the ABL’s own dynamic. This dynamic is unlikely to change after Salameh departure, despite the fact that he has been in office for 30 years,” said Diana Menhem, managing director of Kulluna Irada.

“It is unlikely that ABL will change its position when Riad Salameh is replaced, particularly signs there are few indications that the institution will radically alter its monetary policy after his departure,” she added.

The same is true of the first banking source, for whom “for the time being, Salameh’s departure has no impact” on ABL’s positioning with regard to issues concerning the banking sector.

What is ABL’s current position on a potential agreement with the IMF?

The same banking source told L’Orient-Le Jour that ABL is today “convinced that there is no way out [of the crisis] without an agreement with the IMF,” even if this has not always been the case in the past.

“ABL’s main reservation is that the reforms chosen should not lead to an uncompensated liquidation of deposits, but should enable them to be repaid over time, via a recovery fund,” the source said.

According to the second banking source, ABL is campaigning for the reforms to “sent positive signals to shareholders and investors,” by improving the business climate in the hope of convincing them to recapitalize the banks and resume financing the economy.

According to Menhem, some of the banks still intend to minimize their contribution to absorbing the country’s losses, relying on a “shadow plan that relies on the lirification of deposits and restructuring organized by BDL circulars.”

Are the banks really rallied behind Salim Sfeir?

According to Menhem, ABL members are very much divided. “On the one hand, there are the most fragile banks, which risk paying the price of a good restructuring of the sector that takes into account the reality of everyone’s financial balance sheets, and on the other hand, there are those with enough resources to survive,” she said.

“The former are trying to postpone or even abort any attempt at an agreement between Lebanon and the IMF, while the latter are ready to tone it down,” she added, without naming them.

The first banking source acknowledged the existence of dissenting opinions within the organization but insisted that ABL board is united.

“There have been isolated events: the letter of ABL advisor Carlos Abadi criticizing the constitutionality of the staff-level agreement between Lebanon and the IMF a year ago, followed by AMBank and Bankmed criticizing ABL’s governance. There has been no breakdown within the board of directors, but rather just some divergent opinions,” the source said.

The source pointed out that it is difficult to deduce anything from the attendance percentage at the general meeting. “The number of absentees is within the usual average,” they said.

This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.