Lebanon’s cabinet is expected to pass a proposed banking law later this week after a majority of ministers signalled support for the bill endorsed by Prime Minister Nawaf Salam, a political source told The National on Monday.
The proposal would redistribute the country’s financial losses, borne overwhelmingly by ordinary Lebanese since 2019, between commercial banks and the state.
“The general expectation is for the bill to pass before Wednesday,” one political source said, adding that it has majority backing and may undergo minor amendments before a vote is taken - unless some ministers "succumb to pressure".
Prime Minister Nawaf Salam last week described the draft law, which places most of the financial burden on the state and commercial banks, as “a roadmap to getting out of the [financial] crisis”. He called it “imperfect but fair”.
The law would be a major step towards unlocking international financial assistance – the International Monetary Fund (IMF) has made any bailout conditional on Lebanon implementing long-delayed structural reforms, including reforms to the banking sector. But the draft law must still overcome several hurdles – it must first pass Cabinet before being sent to parliament for approval, amid criticism from multiple sides.
Since taking office in January, Mr Salam and President Joseph Aoun have pledged that necessary reforms and legislation will be put in place.
Dozens of protesters gathered outside Baabda Palace as the cabinet session took place, denouncing the proposal to force them to bear the brunt of Lebanon’s losses.
The proposal has drawn criticism from both sides, leaving the government seeking a middle ground: depositors say it forces them to absorb the losses, while commercial banks argue it unfairly places the burden on them.
Still, according to Fouad Debs, co-founder of the Depositors Union, the proposed bill is “imperfect and unfair, but the best we have until now.”
Who is responsible?
Lebanon’s financial crisis erupted in 2019, when the Lebanese pound rapidly devalued and banks imposed de facto capital controls, locking depositors out of their funds in a bid to stem the outflow of dwindling US dollar reserves. The World Bank has described the economic collapse – driven by fiscal mismanagement, financial engineering and political corruption – as one of the worst financial crises in modern history.
Under the draft law, depositors would be able to retrieve up to $100,000 of their funds over four years. Around 84 per cent of depositors fall below that threshold, according to Mr Salam.
The wealthiest depositors would instead be compensated through long-term, asset-backed securities backed by the state.
Mr Debs of the Depositors Union warned that compensating big depositors with bonds tied to state assets - including “gold reserves and real estate” – could risk putting public property into the hands of a wealthy elite. He said, “The law should be modified to safeguard deposits and state assets, which should not be owned by the top 1% of society.”
The draft law also, according to Mr Debs, effectively ignores millions of dollars lost by depositors who have slowly withdrawn restricted amounts of cash from their accounts at vastly under-valued rates since 2019 due to capital controls.
“We're up to six years in and there's no solution. Their approach is, what’s gone is gone. That’s it.”
The IMF, which closely monitored the drafting of the bill, has repeatedly stressed the need for authorities to recognise and allocate losses, restore the banking sector’s viability “consistent with international standards”, protect small depositors and ensure public debt sustainability.
The Associations of Banks in Lebanon (ABL) criticised the draft law last week in a strongly worded statement, saying the bill contained “serious flaws” with provisions that would “seriously undermine the banking system and its sustainability, and prolong economic recession”.
“Instead of holding the state, as the primary party responsible for the losses resulting from its mismanagement with the Central Bank of Lebanon, accountable, it unfairly places the burden of these losses on commercial banks in Lebanon. It is unacceptable for the state to evade its responsibilities and shift them onto the banks,” the ABL said.
Mr Debs of the Depositor’s Union, which defends depositors and lobbies for their rights to access their funds, scoffed at the ABL statement: “We have to work on modifying this law in order to protect deposits and the state more, and the other way around by putting banks first.
