The Association of Banks in Lebanon (ABL) entrance in Beirut. (Credit: National News Agency)
Parliament met for three hours on Friday to discuss, among other things, a draft law presented by the Finance Ministry on the restructuring of the banking sector, and will meet again on Tuesday to discuss the issue. This text is one of the two projects that the International Monetary Fund (IMF) is demanding be adopted by the end of April as a token of good will, the other being the revision of banking secrecy.
According to our information, consideration of the bill was postponed until Tuesday following a stormy debate, with some officials denouncing a hasty adoption of such a crucial law, given that the text only reached ministers very recently. Some ministers asked for more time to examine it. These include Justice Minister Adel Nassar, Industry Minister Joe Issa al-Khoury, Energy Minister Joe Saddi and Telecoms Minister Charles Hage.
“Parliament discussed the philosophy and issues involved in adopting the bank restructuring bill,” Information Minister Paul Morcos said after the meeting. “The importance of this law increases in light of the crisis Lebanon is going through, with regard to the preservation of depositors' funds,” he added, asserting that the bill is a necessity to advance towards achieving this goal.
Morcos stressed that “the adoption of this bill will constitute a first step towards the implementation of a reform plan protecting depositors' rights.” "Parliament concluded that it was necessary to study the text of the bill over the weekend and to meet again on Tuesday morning,” he added.
The Information Minister also reported that the government “has approved a draft decree to ... reduce customs duties on alcoholic beverages.” Last month, as part of the government's adoption of the 2025 budget by decree, without the text passing through Parliament, Cabinet had decided to increase taxes on locally produced alcoholic beverages. This decision was quickly denounced by the Association des Industriels Libanais (AIL) and industry professionals.
Morcos also mentioned that the Parliament had adopted a “draft decree aimed at specifying the details of the creation of a housing organization for volunteer soldiers.” “The government has approved the identification of cracked and uninhabited buildings in Tripoli, with the aim of providing alternative housing and the necessary credits for this purpose,” he continued. "Further surveys will be carried out progressively in other regions.”
The restructuring text, of which L'Orient-Le Jour was able to consult a copy dated March 27, essentially reproduces the provisions of a draft drawn up in 2022-2023 by Saadeh Chami, Deputy Prime Minister in the previous government of Najib Mikati. Chami had decided to merge this text with another draft dedicated to the (correlated) issue of compensation mechanisms for depositors, but the former government had given up on adopting it at the end of February 2024. Nawaf Salam's current cabinet is expected to deal with this highly sensitive issue separately and at a later date, according to our information.
The issue of banking restructuring, even separate from that of depositor compensation, remains very sensitive. The draft law adopts several internationally recognized principles in handling crises like the one shaking Lebanon since 2019. There is particularly the approach of managing losses gradually, starting with writing off the capital of insolvent banks, followed by recapitalization under strict conditions if the institution is deemed viable. A key step in this process is the assessment of the assets and liabilities of the institutions concerned.
Additionally, the draft law grants broad powers to the Central Bank of Lebanon in the restructuring process. The governor, Karim Souhaid, who is newly appointed and assumed office this Friday, will chair the dedicated body, assisted by deputy governors and three external experts in law, finance and economics, and the Banking Control Commission will also play a major role.
Once the assessment of assets and liabilities is completed, it will become possible to distinguish banks likely to be restructured from those that will have to be liquidated or merged with viable institutions. In this regard, the draft law refers to a "protected amount" of deposits, which it does not specify, and which will be developed in the bank resolution text.
The draft law includes detailed provisions on the modalities of liquidating non-viable banks, including the appointment of a provisional administrator with extensive powers. This administrator can, among other things, dismiss or replace board members or management, dispose of bank assets, or take action against anyone who held positions in the institution during the five years preceding the law's implementation.
Lebanon has been shaken by a severe economic and financial crisis since 2019, which has seen its currency lose more than 90 percent of its value and depositors no longer have access to their deposits.
This article was translated from L'Orient-Le Jour.
