BDL management must be sacked

By Dr. Ghassan Karam

It is usually the case that the accused of crimes both serious and not so serious to plead not guilty and to hire the best lawyers that they can find to convince prosecutors that they are innocent of the crimes that they have been charged with. Riad Salameh and his cabal at BDL are not an exception. As soon as official documents released by the government showing that BDL has a deficit of over $50 billion, larger than the GDP of Lebanon, Mr. Salameh issued a statement in which he claims that these losses are not true losses and that such negative results at central banks are not to be unexpected.  Well, there is some truth to the fact that every once in a while a central bank could encounter major difficulties in its efforts to attain its aim of stabilizing the economy through providing an elastic money supply, but I would challenge the whole BDL management to name an example when a competent central bank incurred loses that are greater than the GDP of the country in question. The BDL statement, in its effort to paint the results of its acts as normal, dared mention the US Federal Reserve, an institution that has reported profits of over $821 billion in the last 10 year period of 2009-2018. The same is true of the ECB which has reported net audited profits every year since its founding. BDL’s statement trying to rationalize its huge losses , its mismanagement and its incompetence can best be described by quoting Queen Gertrude in Hamlet by  Shakespeare: “The lady doth protest too much” which is often a sign of guilt and loss of credibility.

If BDL management is so confident of the way that they have performed their job then why is it that they do not provide any audited financial statements? How can they seriously suggest that the $55 billion loss will be made up by future earnings. What future earnings and how long of a time frame do they have in mind, centuries?

One of the most basic functions of a central bank is that or regulating its member banks in order to prevent banking runs and protect depositors. Can anyone at BDL speak about any success regarding this standard? The answer is obviously in the negative since not a single Lebanese bank can claim not to be in violation of Basel III minimum capital requirements. It would be surprising if there is a single bank in Lebanon that still has any positive equity if they mark to market the value of their holdings that are essentially Lebanese sovereign debt. There is no need in such a commentary to deal with many details but one clarification of Basle III might help. Minimum capital requirement to be maintained by banks should be 8% f the risk weighted assets, a tough standard to meet. Actually many think that most and probably all banks have no capital if these standards are to be placed in effect. To be fair, the time frame for Basle III has been extended twice since many banks have had difficulty in making the transition. The latest extension expires on Jan1, 2022, in about 19 months. There is a popular Chinese proverb that says :”Fish smells from the Head” which is a fair and clear explanation of the problems in the Lebanese banking sector. Had the regulator, BDL, been competent then measures would have been taken to prevent banks from taking so much risk and from the sector becoming Too Large to Fail. Ironically one can argue convincingly that BDL encouraged its member banks to take risk and to promote unrealistic interest rate payments . Yes the banks are to blame since they acquiesced but did they really stand a chance if they were to oppose their regulator?

No one would argue that the Lebanese banking system is healthy, that BDL has promoted proper and efficient policies or that Lebanon , a country burdened by these wrong policies over decades could escape severe economic contraction, social unrest and great impoverishment of its masses. Most of this did not have to happen. A major role that led to this outcome is the role played by BDL where the top of the pyramid, the head of the fish if you will, has consistently favoured policies whose outcome has been nothing short of disastrous to the Lebanese people. Riad Salameh and all his assistants and proteges must be removed from office.