By Mona Alami — arabnews.com — RIYADH: The recent Lebanese court order restricting lenders from moving money abroad is the fallout of deep rot long building in the banking sector. This comes on the back of the country’s mounting debt amidst the deteriorating economic condition – the crisis that many blame on Lebanon’s corrupt political class and the government which defaulted on repaying the debts to banks. On March 24, Lebanese judge Ghada Aoun ordered the Lebanese customs administration to prevent six Lebanese banks from sending money abroad. The banks targeted were Bank of Beirut, Bank Audi, Creditbank, Bankmed, SGBL and Blom Bank. “Lebanese banks are technically broke, but until this moment, they aren’t legally so,” said economist Roy Badaro in an interview with Arab News. He explained that the word ‘illiquid’ might be more appropriate as no one really knows about banks’ possible undeclared assets. In addition, no Lebanese bank has so far officially declared bankruptcy. Badaro said banks are in denial of their situation. “Their main issue is that they were lured by the unhealthy profits offered by the government to finance its debt. Meanwhile, they abstained from financing the economy,” he pointed out.
Liquidity crisis
As the Lebanese government is embroiled in massive corruption charges, the state has amassed over a $90 billion debt that it is no more capable of paying, which in turn affected the liquidity of banks. The banking sector responded to the asset freeze with a two-day strike on March 21 and 22. This might be repeated if more pressure is placed on the banking sector, warned a banking source on condition of anonymity Judge Aoun is a close ally of President Michel Aoun, who is demanding a forensic audit of the Lebanese central bank, in the wake of Lebanon’s default on over a $90 billion debt as a fallout of state mismanagement and corruption. Ironically, Aoun’s party has been in power for the past decade and exclusively handled the electricity portfolio. Experts believe the latter accounts for over 40 percent of the debt. Industry observers tracking the development fear the banking sector’s insolvency crisis that has been triggered by the state’s failure to meet its debt payments is expected to worsen with time. The sector will further unravel, with banks having to shut down possibly.