The lawyer representing the Association of Banks in Lebanon (BDL), Akram Azouri, at his press conference in Beirut on Tuesday. (Credit: Press conference)
More than four years into the crisis, during which the banking sector and the Banque du Liban (BDL) insisted that “deposits are still in the banks,” the message has changed to “The deposits are no longer there. The economy is what would help get them back.”
This is what Akram Azouri, the lawyer representing the Association of Banks in Lebanon (BDL), insinuated at a press conference held in Beirut’s Adlieh neighborhood. He commented on the State Shura Council’s decision of Feb. 6, following a challenge ABL lodged in June 2022.
ABL called for suspending a measure included in the government’s economic recovery plan, which provides for scratching “a large part of BDL’s commitments to [the country’s banks] to reduce the capital deficit and bring its net open position in foreign currencies to zero.” This plan was not adopted.
The State Shura Council ruled in its favor, invoking “the need for the administration to comply with constitutional standards,” and recalling that the preamble to the Lebanese Constitution expressly states that the (Lebanese) “economic system is liberal and guarantees individual initiative and private property rights.”
ABL’s argument
The State Shura Council’s decision “is a source of pride for the independence of the judiciary, and I doubt that there is any country in the Middle East that is independent and exercises control over the state,” argued Azouri.
“There can be no talk of a recovery plan if such a plan does not respect the sanctity of private property,” he added, indicating that this is a key condition for any hope of restoring the investors’ confidence.
He added that the decision “put in place a mandatory regulatory framework that the cabinet will not be able to breach,” and that the authorities’ obligation to respect the right to private property cannot be circumvented by the cabinet’s attempt to have Parliament pass these measures.
He said the State Shura Council was not called upon to rule on “the responsibilities” that led to the crisis, and the unilateral freezing of billions of dollar deposits by the banks that no law covers, but on the request that had been submitted to it.
The Council is to decide whether or not the cabinet could erase, without direct compensation, more than $60 billion of deposits and deposit certificates that the banks had registered with BDL over the years, to facilitate the distribution of more than $70 billion in losses which the financial system accumulated.
ABL believes it is possible to hold the banks responsible for their various investments — including Eurobonds, financial engineering and other investments — but not for the $44 billion they deposited with BDL and that the latter did not return.
“These were deposits, including $14 billion in compulsory reserves. The banks cannot be held responsible for not being able to recover their money deposited with the central bank,” said the lawyer. At the end of 2023, the banks held more than $90 billion in foreign currency deposits.
Azouri added that the desire to restructure BDL’s balance sheet, as part of the financial sector reforms at the expense of the banks’ assets, is a common feature of all the draft reform plans prepared by the cabinet since the country defaulted on its default foreign currency debt in March 2020.
“We have tried to treat BDL as a commercial bank in crisis [without] thinking about the day after,” he said, adding that “the deposits are no longer there ... They will be returned through the economy as soon as it picks up again.”
Lastly, Azouri said he "understood the depositors’ anger" hurt by the banking restrictions, but stressed that the banks had also lost a great deal during this crisis for which, in the ABL's view, the State bears most of the responsibility.
The small depositors’ opinion
According to the depositors’ union, ABL is invoking the protection of private property rights and part of their losses to evade any responsibilities and have the state pay the price for its mistakes.
“ABL has been avoiding any mention of the profits its shareholders obtained from the various investments they made in products created by BDL, while they were aware of the fragility of the country’s financial situation. This is added to the bonuses and salaries of the directors,” said lawyer Fouad Debs.
“Money that they then transferred out of the country before and sometimes even after the crisis began, to name but one detail,” added the co-founder of this union, which was set up in the wake of the Oct. 17, 2019 uprising and consists of around 3,000 members, mainly with small and medium-sized deposits.
“One only has to look at the dilapidation of the country’s infrastructure to understand that it was not the state that absorbed the billions of dollars that disappeared in the years leading up to the crisis, but rather individuals who fed off it,” he said.
According to him, “The audit carried out by Alvarez & Marsal and handed over last summer detected serious anomalies in the way BDL operated for years, suggesting that large sums of money were actually transferred abroad from 2015 to 2019 without being accounted for.”
He also referred to a report published Friday by the economist Toufic Gaspard on the firm’s audit. Gaspard worked with BDL in the 1980s and distinguished himself in 2017 by publishing another warning study predicting a crash with the same characteristics as the one that Lebanon experienced in 2019. All these factors should have rendered the arguments put forward by the State Shura Council in its recent decision virtually ineffective.
According to the depositors’ union, this decision will mainly contribute to destroying the state to benefit these same private interests.
“I’m afraid it’s no coincidence, but part of a coordinated attack by the banks and their allies in the political class, the judiciary and also among large depositors, in an attempt to impose a way out of the crisis that would force the State to privatize its assets to repay the losses,” Debs said.
He pointed to the fact that ABL is stepping up its offensive, citing the 2nd challenge it is expected to lodge between now and April 5, in an indirect attempt to recover the banks’ deposits with BDL by forcing the state to repay the nearly $70 billion it borrowed from the central bank.
According to a banking source, the restructuring and financial losses distribution plan that the government is preparing and plans to examine on Thursday could already be buried.
This article was originally published in L'Orient-Le Jour. Translated by Joelle El Khoury.