Lebanon’s financial prosecutor has frozen the assets of almost half the crisis-hit country’s banks and their executives, piling further pressure on an already stressed financial sector.
The move against the banking sector, once seen as the pillar of Lebanon’s economy, comes as Beirut’s worst financial crisis for decades pushes the heavily indebted government towards its first default, and as popular fury towards the country’s ruling classes has focused on financial elites.
Judge Ali Ibrahim ordered the asset freeze on 20 Lebanese banks and their directors on Thursday after personally interrogating several top bankers this week.
The state news agency, which made the announcement, gave no details of which lenders were targeted. But several senior bankers told the Financial Times that they believed a handwritten list circulated on WhatsApp, apparently from the financial prosecutor’s office, was credible.
The freeze has sparked confusion in Lebanon’s financial sector, as bankers said that they had not been told what it entailed. The Association of Banks in Lebanon convened financial executives and lawyers for crisis talks on Thursday evening, two banking executives said.
The ABL declined to comment, citing legal uncertainty. Mr Ibrahim’s office could not be reached for comment.
There is fierce public anger in Lebanon towards lenders, who profited from high interest rates before a dollar liquidity crunch last year revealed they had locked most of their cash with the central bank.
Economists fear depositors could be hurt if banks need rescuing. Meanwhile tough restrictions on hard currency withdrawal and overseas transfers, meant to stop capital flight, have worsened economic pain for Lebanon’s hard-hit population.
Adding to the rancour, it is popularly suspected that people with political or banking connections offshored billions of dollars.
“The purpose [of the freeze] is to show the depositors we are saving your money,” said Roy Badaro, a Lebanese economist. “This is what the crowd wants.”
Lebanese authorities have previously announced investigations into overseas transfers and a fire sale of government debt by the liquidity-starved local banks. One bank board member complained of “witch-hunting”.
Local banks have been lobbying the government to meet a $1.2bn Eurobond payment due this weekend, arguing that default would spoil Lebanon’s borrowing record and force a massive writedown of the commercial banks own assets. But with the central bank’s foreign reserves shrinking fast, it has become politically unpalatable to prioritise debt servicing over making dollars available for imports the country relies on.
James Swanston, economist at Capital Economics, said that with the asset freeze, “the authorities seem to be trying to pressure banks” to co-operate over the bond payment.
One option would be for banks to swap the maturing bonds they hold for a fresh debt issuance, which would be paid off later and have a lower interest rate Another would be for banks to buy the Eurobonds held by foreign investors, possibly easing a potential debt restructuring.
Source: Economy - ft.com
