Depositors in Lebanon may not get all of their money

A senior French official said it could be difficult for banks in Lebanon to stick to the principle that depositors should not lose any of their deposits, according to the minutes of a meeting in which France has identified steps to help the crippled banking sector.

The remarks came during talks in Paris on September 10th between senior French officials and a delegation from the Association of Banks of Lebanon. Reuters had a copy of the confidential minutes of the meeting.

France has spearheaded international efforts to push politicians clinging to their positions in Lebanon to implement reforms necessary to attract aid and alleviate a crippling crisis in the banking sector, which has prevented depositors from receiving most of their money.

"While it is a matter of principle for the ABL that depositors should bear no losses, it may be difficult to defend this to the end. But this is a matter of negotiation," said Pierre Duquesne, french President Emmanuel Macron's envoy to coordinate international support for Lebanon.

The Central Bank of Lebanon and commercial bank bankers are seeking to prevent a "reduction in the value of deposits", or a formal reduction in balances held in deposit accounts.

But depositors with dollar accounts in Lebanon say they have already lost money, because they cannot withdraw money or because they can do so only by converting it to the Lebanese pound for less than market prices.

The value of the Lebanese pound, which has been pegged to the dollar for more than 20 years, collapsed during the financial crisis. The French Foreign Ministry has not yet issued a comment.

A senior Lebanese banker who participated in the talks told Reuters that during their meetings with French officials on the president's initiative, they felt they supported the banking sector's prosperity.

A French diplomatic source said the talks were part of efforts to implement Lebanon's economic road map.

In addition to Duquesne's statements regarding deposits, he also addressed other required measures, including the rapid application of capital restrictions and the merger of banks in a country with 64 banks controlled by 32 groups.

On the restructuring of Lebanon's external and internal debt mountain, Duquesne said a range of measures needed to be taken. "There is no magic solution," he added.

The minutes of the meeting show that representatives of the Association of Banks of Lebanon, including the president of the association Salim Sfeir, said that the banks are ready to join the "collective efforts" to resolve the crisis, and outlined proposals including support for the establishment of a fund to mobilize state assets.