Today the Podcast Podcast Economy

Will Lebanese banks survive social protest?

In Lebanon, nearly a month after the beginning of the demonstrations, there is still no government, no exit from crisis in sight. This protest movement born of the economic frustrations of the population threatens to lead to a banking crisis.

This is the great fear of the Lebanese today, in "panic" mode on social networks. After Bank Audi, the largest bank in the country, Byblos Bank, the third, had to firmly deny this weekend the rumors of bankruptcy and the final closure of the wickets on Monday, November 11. This Monday is simply a holiday in Lebanon for the birthday of the Prophet. And it is a welcome respite for all Lebanese banks.

Since they reopened last week, after 15 days of curtains drawn, they are stormed. Their customers want to quickly withdraw their savings in dollar or Lebanese pound, the value of the national currency being protected by its fixed parity with the greenback. The demands are increasingly difficult to meet, because these banks do not have sufficient reserves to meet them, their assets are blocked at the Central Bank of Lebanon where it brings them a lot of money while sleeping.

Lebanese banks are one of the most dynamic activities in the country's economy.

Despite the civil war, despite the financial crisis of 2008, this small country around the Mediterranean has earned its reputation as "Switzerland Middle East" thanks to the vitality and resilience of banks. The sector is gigantic, hypertrophied, say the most critical. Bank deposits represent more than three times the national GDP.

The accounts are fed by the fortunes of the diaspora or neighboring emirates, magnetized by the discretion of the country. Instead of lending to businesses or individuals to develop the real economy, Lebanese bankers have become accustomed to placing the money of their wealthy clients at the Bank of Lebanon, which offers much higher rates to support the pound. and to finance the state debt.

This debt represents 150% of GDP. The public deficit borders the 10%, the trade deficit 30%. Its finances are therefore very constrained, but Lebanon can continue to live beyond its means thanks to the skill of Riad Salamé. The irremovable governor of the Bank of Lebanon, the central bank of the country, has developed ingenious financial arrangements to run the system smoothly for more than 20 years.

Flaws appear from 2016

The wind started to turn much earlier. Inflows to Lebanese banks increased sharply after the debacle in 2008, when wealthy expatriates are looking for a safe haven for their assets; and when confidence returns, starting in 2011, these flows decline. But for the editing to work, much like the Ponzi channel, you always need new inputs. This financial cavalry is now out of breath.

The risk of default in November mentioned this weekend was dismissed by the outgoing Finance Minister. But the threat hovers. With, it is true, a good safety net: the debt of the country is still in the hands of the Lebanese. To avoid the financial crisis, the debt could be restructured by cutting the huge profits made over the last 20 years by banks and their clients. This would be the beginning of a real challenge to a rent economy today rejected in the street by the protesters.

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