Lebanon’s “zombie bank” shrinks to survive the financial crisis

Banks in Lebanon, once the pinnacle of the economy, have closed branches, laid off large numbers of employees and resized to meet the harsh realities of the widely criticized crisis.
Before the World Bank fell into the world’s worst financial crisis since the 1850s in 2019, a small country in the Mediterranean had an oversized but prosperous banking sector.
Beirut, the capital, is a booming regional financial hub, attracting savers eager to profit from high interest rates and the Bank Secrecy Act.
However, more than two years after the crisis, the reputation of Lebanese creditors has collapsed.
The dizzying currency collapse, coupled with banks imposing strict withdrawal restrictions and banning remittances abroad, is helping ordinary depositors watch their savings evaporate.
Still, bankers have been accused of bypassing the exact same capital controls. Helping the political elite spend billions of dollars abroad is agitating the crisis.
Their trust has been destroyed, citizens are now keeping new income away from banks, and banks are being deprived of the money they can lend.
“Today’s entire banking system is made up of zombie banks,” said economic analyst Patrick Maldini. “They are no longer working as banks-they don’t give loans, they don’t take new deposits.”
As a result, the industry is forced to shrink its business.
According to the World Bank, in 2019 Lebanon ranked second in the region with bank branches per 100,000 people, holding a total of approximately $ 150 billion in deposits.
Deposits by Arab investors and Lebanese expatriates have pushed the banking sector to its peak at three times the value of the country’s economic production.
However, according to the Lebanon Bankers Association (ABL), more than 160 branches have been closed and 919 branches are operating nationwide since the end of 2018. The number of employees has decreased by about 5,900, and by the end of last year the workforce in this sector had decreased to about 20,000.
“Lebanon is an abandoned country,” ABL chief Salim Sfeir told AFP, referring to the negligence of state authorities.
The association argues that the sector is “forced to adapt to the shrinking economy,” despite others blaming banks for overall economic activity that has plummeted by more than half since 2019. ing.
The Lebanese pound, officially fixed at 1,507 on the greenback since 1997, has lost more than 90% of its value in the black market.
This slide has allowed banks to adopt high exchange rates for their transactions, even though the official rates have not changed.
Those with a dollar account had to withdraw cash at a fraction of the black market rate, mostly in Lebanese pounds.
“When we apply international accounting standards, almost every Lebanese bank goes bankrupt,” said investment banker Jean Riachi.
The Lebanese government defaulted on its external debt in 2020, overturning the country’s desire to quickly secure new international credit and donor funding to stop the crisis.
The ruling elite, plagued by internal rifts that have repeatedly left the country without government, have not yet agreed to an economic recovery plan with international creditors.
Disagreements between governments, central banks and commercial banks over the magnitude of losses in the financial sector have hampered negotiations with the International Monetary Fund, which first began nearly two years ago.
In December, Prime Minister Najib Mikati’s government set a loss on the financial sector of about $ 69 billion as an important step towards the progress of the IMF talks.
However, global lenders said earlier this month that efforts had been made to agree on a rescue package, but revealed that more work was needed, especially from a “financial sector restructuring” perspective. Analyst Maldini said the proposal for a bank restructuring has been discussed by several governments.
Central bank chief Riad Salameh said banks that couldn’t lend had to “withdraw from the market.” However, according to Maldini, significant progress in restructuring has been hampered by the political elite, who hold large stakes in some major banks.
For out-of-pocket depositors, the details of the restructuring arrangement are a secondary concern.
“I just want to get my savings back,” said Hicham, a businessman who asked him to use his name just for privacy reasons. “Everyone involved must take responsibility.”