A small Lebanese bank that was well-implanted in the rural Shiite community is to be sold or liquidated after it was accused by the United States of facilitating banking activities for the Iran-backed party Hezbollah, Lebanese bankers said.
Jammal Trust Bank (JTB), which has 80,000 customers, was added to the US list of terrorist financiers on Thursday, meaning US sanctions were placed on it. This automatically cut the bank from its corresponding bank in the US and its access to dollars.
As a result, it is likely the bank will soon cease activity and be either liquidated or sold.
“JTB cannot transfer money any more,” said economist Jassem Ajaka. “Deposits are now under the guardianship of the central bank. The bank is finished.”
The bank’s designation came as a “shock” to the local banking sector, ex-minister and bank director Marwan Kheireddine told local media.
While the central bank reassured the public that any "legitimate" deposits were secure, the Lebanese government did not react to the sanctions. A retired politician with close links to the US administration told The National that the lack of response was due to fears among Hezbollah's allies, including President Michael Aoun's Christian Free Patriotic Movement, that they would be next on the US sanctions list.
The move came as the US ramps up financial pressure on Iran-backed Hezbollah, which it considers to be a terror organisation. But Lebanese leaders repeatedly warned that by targeting banks, a pillar of the local economy, the US will only further destabilise the country, which is already threatened by a looming financial crisis.
Lebanon’s banking sector has been keen to comply with US decisions in the past, reportedly closing a high number of suspicious accounts after former US president Barack Obama imposed sanctions on financial institutions that deal with Hezbollah in 2015.
The demise of JTB comes eight years after the Lebanese Canadian Bank was sold to the country’s third biggest bank, SGBL. The US had accused it of involvement in money laundering and drug trafficking operations with ties to Hezbollah. The bank denied the charges.
LCB was the eighth-largest Lebanese bank and the transaction was valued at the time at US$500 million. JTB is one of the country’s smaller banks and its assets represent less than 0.4 per cent of the Lebanese banking sector. One banker said its value would be lower than LCB’s, but impossible to estimate at this time.
Established in 1963, JTB is one of the rare Shiite Muslim-owned Lebanese banks — the sector is traditionally dominated by big Christian and Sunni families.
JTB specialises in micro-loans in remote areas, highlighting in its 2017 annual report its “long history of microcredit programmes that have embraced the unbanked since the 1980s”. It said is has opened between “two and three mini-branches per year” to “attract deposits from an otherwise underserved segment”.
Mr Ajaka said that JTB’s value was in that it was present where other banks were not.
“The bank profited from the absence of other banks in some areas to make a name for itself. For example, it is the only bank with a branch in the small southern village of Qana,” he said.
However, a strong presence within the rural Shiite community is automatically viewed with suspicion by the US administration because of Hezbollah’s influence among the Lebanese Shiites.
“It’s a very delicate situation,” said one banker. “Even a seamstress that borrows money to buy a sewing machine might have a husband or a brother involved with Hezbollah.”
“Out of 80,000 clients, it is not surprising that one of them may have links with Hezbollah,” said Sami Nader, director of the Levant Institute for Strategic Affairs.
The US treasury accused JTB of “deep co-ordination” with Hezbollah that “dates back to at least the mid-2000s and which spans many of the bank’s branches in Lebanon.”
"Jammal Trust knowingly facilitates the banking activities of US-designated entities openly affiliated with Hezbollah, Al Qard Al Hassan and the Martyrs Foundation, in addition to services it provides to Hezbollah’s Executive Council," wrote the US Treasury in August.
One banker said there were rumours that JTB concealed lending money to Al-Qard al-Hassan by asking the association to deposit gold valuables at the bank as collateral instead of opening an account.
"The bank would give them the value of the valuables in cash, which they would reimburse until it was entirely paid back," he said.
Other Lebanese bankers and analysts, who also wished to remain anonymous, were unable to confirm these accusations. Some thought they were plausible, while others suggested that the bank may not have been aware of some of its clients’ links with Hezbollah.
Clients of other small Shiite banks, such as Fenicia bank and MEAB, have started moving their assets to non-Shiite banks, according to one banker, who did not wish to be named.
“We are receiving lots of phone calls from clients from those banks. They want to protect themselves,” he said.
However, opening an account for a member of the Shiite community is also risky for the bank. “As soon as a Shiite wants to open an account, we conduct a very detailed background check. We don’t want to end up like JTB or LCB,” said the banker.
As a result, the community’s money might be increasingly be pushed out of the formal banking system, warned political analyst Imad Salamey.
“There will be a lot more cash transactions in the market instead of formal transactions,” he said. “That means that financial institutions will not be able to closely monitor them, giving more leeway to Hezbollah.”