The Parliament of Lebanon last, last month, partly raised the laws on banking secrecy in a rare decision to encourage transparency and revive the dispersed economy of the country.
Since the 2019 financial collapse which put the country torn apart by the war on its knees, the reform of the banking sector has been a prerequisite for obtaining the aid of multilateral loan institutions. The new law authorizes entities, including independent auditors, to directly access bank files in the last decade.
“The bill on banking secrecy is a tool,” said Sibylle Rizk, director of public policies at Kulluna Irada, a Beirut -based reflection group. “Now it must be used: whether by the banking authorities to restructure the sector, by the judiciary or by the tax administration.”
Since the 2019 crash, the local currency has dropped by 98% and most Lebanese cannot access their deposits. Banking losses are estimated at $ 76 billion, which raises the critical question: who will pay?
The production of a response that satisfies a multitude of games is now partly falls on Karim Souaid, a bank governor of Lebanon since March. The appointment of Souaid was controversial after being invited by the banks hall.
During his first day in power, he underlined the need to “gradually return all bank deposits, starting with small savers”.
But the immediate priority of the new governor must be “to launch bank audits to obtain a precise image of assets and liabilities”, explains Rizk. “He must also work on a framework for resolution of gaps on the basis of an equitable distribution of losses which considers the sustainability of public debt.” Legal executives on banking resolution and loss allocation must be approved by Parliament.
None of these reforms will be easy, she adds, but they are essential to unlock negotiations with the International Monetary Fund, restoring the capacity of the banking sector to finance economic activity and taming the Treasury economy, which has dominated since 2020. Last, the Watchdog Action Task Force (FATF) placed Lebanon on its gray list for money laundering.
“The Lebanese banking sector must reconnect with the international financial system, rebuild relations with corresponding banks, regain access to world capital markets and restore credibility,” explains Wissam Fattouh, secretary of the Union based in Beirut of Arab banks.
But to restore their reputation and ensure solvency, Lebanese banks will need new partners. Existing shareholders can increase holdings, but regional and international banks must also intervene.