Lebanon‘s authorities were taken aback by the content of the recent stance issued by the Central Bank, which included an explicit warning to both the government and the parliament about the repercussions of continuous delays in addressing the banking crisis.
The stance stressed the need for serious negotiations with creditors, warning of the deterioration of the country’s financial standing and the erosion of depositors’ rights over time.
Sources familiar with the matter noted the Central Bank’s disassociation from the comprehensive rescue plans proposed by the government through a series of individual and bundled legislative projects.
These plans faced legislative hurdles due to political and parliamentary rejection, mainly because they relied on the financial sector alone to bear the responsibility for an estimated loss gap of around $73 billion.
Additionally, there was a proposal to “write off” employment by banks held at the Central Bank, amounting to nearly $80 billion, leading to the inability to fulfill depositors’ rights totaling around $90 billion.
A banking official, speaking to The Middle East, highlighted the timing of the Central Bank’s stance and its content, coinciding with the Acting Governor of the Central Bank of Lebanon, Sa’im Mansouri’s, visit to Washington to participate in the spring meetings of the International Monetary Fund and the World Bank.
This move aimed to convey the same message to international financial authorities, emphasizing the importance of “developing a realistic and scientific plan for addressing the crisis, and the readiness of the monetary authority to comply with all applicable laws to accomplish these tasks.”
The message also includes notifications directed at regional and international regulatory bodies and the US Treasury Department, emphasizing the Central Bank’s commitment to developing mechanisms to combat financial crimes according to international standards and earnestly addressing observations to complete the processing of legal and procedural gaps related to six standards out of a total of forty standards that must be implemented, according to the observations in the latest report received by the Special Investigation Commission from the Middle East and North Africa Financial Action Task Force (MENAFATF).
The commission will update its assessment of the Lebanese file during its semi-annual meetings next month.
Indeed, the Central Bank’s statement reaffirmed that the continued delay in completing reform laws, amidst Lebanon’s exceptional circumstances, would weaken the financial position of the Lebanese state, the Central Bank of Lebanon, and the banks. Such a situation, if prolonged, “would harm depositors, whose rights diminish over time.”
Moreover, the continued delay in addressing the banking crisis has significant implications for Lebanese society as a whole and the national economy.
In light of this, the statement emphasizes the importance of expediting the development of a realistic and scientific plan to restructure and reform the banking and financial system, enact the relevant laws, and initiate negotiations with creditors, reiterating that the Central Bank of Lebanon is fully prepared to comply with all applicable laws to complete these tasks.
Regarding the verification of suspicious financial operations, particularly related to the support files spent by the government from foreign currency reserves during the tenure of the former Central Bank Governor, Riad Salameh, there is a confirmed necessity to start implementing Law No. 240, issued in July 2021, aimed at subjecting all beneficiaries of government support in US dollars or its equivalent in foreign currencies to external forensic audit.
The Central Bank’s statement reiterated its commitment to providing all relevant parties with a detailed inventory of all support files and called for the immediate initiation of investigations to avoid the passage of time on the crime or crimes that may have been committed during the support period, related to those files.
In the judicial dimension related to suspicious financial and accounting operations, especially regarding information about operations conducted by the Central Bank with a financial company between 2015 and 2018, it was clarified that, in line with its policy since August 1st of last year (the date when Mansouri assumed the governorship), close cooperation with judicial authorities is ongoing to reveal all facts.
