Retrenchment of the Lebanese Banking Sector: Oct 2019 – Apr 2023

For a sector not being mainly responsible for the crisis, the banking sector has paid however a very steep price for it – and it is not over yet. Whether this process of slow but continuous ‘hemorrhage’ will be ultimately conducive to a rapid and efficient restructuring of the sector – like the infamous and discredited medical treatments of the middle ages —  is yet to be seen but ‘do not hold your breath’.

As the table above clearly shows, the sector’s size at the official exchange rate more than halved by April 2023 as assets fell to $115.6 billion. Deposits faired more or less the same, falling by 42% to $97.7 billion, with LBP deposits amounting to no more than $4 billion! The biggest drop was for loans that were reduced by 82% to $9.7 billion only. More important, the decline was associated with multiple losses to banks as the USD loans were settled at the official exchange rates that were considerably less than the free market ones. Given all this, it comes as no surprise that shareholders’ equity fell by 75.8% to $5 billion. This drop involved a fall in the USD component of equity from $9 billion to $3.8 billion. In addition, the $5 billion in shareholders’ is inclusive of the $4 billion (20%) increase that banks had to undertake early in the crisis as part of BDL regulation – without these, shareholders’ equity would have been down to just $1 billion!.

The main balance sheet items in the table above do not include banks’ deposits at BDL which stood at $85.6 billion in April 2023, with more than $82 billion in USD. In this context, and in a rare victory for banks since the crisis has erupted in Oct 2019, the decision by the country’s Consultative Council that BDL/government has to pay back these deposits is a welcome relief to banks and should reinforce their ability to cope with any restructuring agenda in the future.