By Osama Habib — dailystar.com.lb — BEIRUT: Most Lebanese banks might be able to increase their capital by 20 percent on Feb. 28 and may partially be able to repatriate part of the 3 percent liquidity from abroad, but the challenges that lie ahead may be difficult to absorb in the future. All or most banks have apparently increased their capital by 20 percent, although many of them have not secured the 3 percent liquidity requirement, which could prompt the Central Bank to either put these lenders under its direct control or negotiate with them individually. Bankers interviewed by The Daily Star have warned that 2021 may be one of the biggest tests they will face as the lenders will be obliged to increase their capital adequacy ratio (Basel III requirement) by 8.5 percent before the end of 2021.

The Central Bank Thursday said that the Feb. 28 deadline for all banks to increase their capitals and repatriate 3 percent of the liquidity from correspondent banks will not be extended. “Contrary to what is circulated in many articles and analyses, Banque du Liban stresses that banks must comply with all the deadlines stipulated in its circulars to increase capital and secure external liquidity without any modification,” BDL said in a statement. BDL also stressed that after Feb. 28, 2021, banks must send all their data to the Banking Control Commission, which in turn checks them and sends the relevant reports to the Banque du Liban. “BDL also affirms that, according to the text of Article 70 of the Monetary and Credit Law, the stability of the banking sector is one of its duties and priorities, and therefore its approach will aim to take all measures aimed at addressing the situation of banks, leading to strengthening the stability of the banking situation and ensuring the funds and rights of depositors,” BDL added. Rami Nemer, the chairman of First National Bank, said his bank was able to increase the capital and secure at least 99 percent of the 3 percent liquidity requirement. “We already have over 9 percent of the capital adequacy ratio which is more than Basel III requirement. We did all these things to maintain our operations but I am still worried about the future if things in Lebanon continue to deteriorate like that,’ Nemer said. But many small and medium size banks were compelled to buy dollar banknotes from the black market in large volumes to secure part of the 3 percent requirement.

This unprecedented rush on the dollar has further devaluated the Lebanese pound which reached close to LL9,500 to LL9,650 in the past few days. The illegal traders have run out of dollar banknotes due to the big demand from the Lebanese banks. “Yes. I admit. I have bought dollar banknotes from the black market because the Central Bank of Cyprus refused to release part of our deposits at CBC. We are obliged to go to the black market or we could lose our license in Lebanon and this could lead BDL to seize all our operations,” the chairman of a bank told The Daily Star on condition of anonymity. Asked if he will liquidate his bank if he failed to repatriate 3 percent liquidity from Cyprus, the banker assured that he was not in the liquidation stage at the moment and would pursue all ways to stay in the market. “I personally can open another bank in Europe. But I am concerned about my staff and customers. I will continue to look for fresh [dollars] from the market although this task is not easy,” the banker explained.

The banker could not hide this frustration with the circulars of BDL, noting that the lenders are compelled to look for new ways to stay in the market. “The Central Bank is threatening to seize any bank which fails to comply with all the requirements. It should be the other way around. BDL borrowed money from us and did not pay us back our dues. We should press BDL to give us back all our money,” he said. Many large banks such as Audi have started to downsize their operations and merge all the private subsidiaries in Lebanon. On Feb. 2 this year, the Central Council of Banque du Liban issued circular No. 13310 related to deleting the name “Bank Audi for Private Services S.A.L.” from the list of banks and circular No. 13311 related to deleting the name “Bank Audi Business S.A.L” from the list of banks based on the minutes of the extraordinary general assembly of the shareholders of the two aforementioned banks.

This included the decision to approve the transfer of ownership of all the assets, rights, liabilities and obligations of the two banks to the name of Bank Audi S.A.L and to delete their name from the list of banks. But despite all these attempts to beef up the capital and reduce the costs of operations, the Lebanese banks are not out of the woods yet. “My view is that circular 154 and other circulars are nothing more than populist circulars from BDL. They are a drop in the ocean and will not change the fundamentals a bit,” a chairman of a leading bank said. “As for what happens after Feb. 28, my guess is nothing at all as far as the Alpha banks are concerned. Maybe they’ll eventually take over or merge some of the smaller banks for the show, in which case they’ll make sure to choose banks from different confessions to maintain the balance,” the banker noted.

According to a financial analyst, “nothing will change because BDL is as clueless as ABL, and the blind is leading the blind. The name of the game is just to gain time.” He even went further than that by admitting that some banks are cheating in their audited statements to make the banks look good. “If we cheat like we are cheating today in the audited statements, and consider that dollars and lollars are one and the same, we can meet Basel! But if we value our $ assets – which are lollars actually – at 15 to 30 cents, then all banks have lost between two to four times their equity. Kelna bil hawa sawa. (We are all in the same boat),” one banker said. Her warned that if Lebanon and the banks do not come up with a serious and comprehensive financial recovery plan, “all those baby turtle steps will not matter at all.”

He cautioned that banks and the country would face the Venezuela scenario if no action was taken by the concerned parties. “Unless of course we tell depositors your dollars are lollars and also worth 15 to 30’ real cents. Lebanon’s situation is disastrous to the extreme. We are about to enter a Venezuela situation,” the banker warned. Some economists considered that the capital of banks needs to increase by $20 to $25 billion because the current increase of $3 billion is totally insufficient to cover losses in government debts and placements with the BDL, not to mention the increasing non-performing loans to the private sector due to bankruptcy and default.