“Zombie” banks live off public money … and two-thirds of their assets are in the “Central”

Assets in the Bank of Lebanon
Since the start of the collapse, banks have continued to liquidate various forms of their assets: loans from the private sector, after banks refrained from granting new loans, and are satisfied with the collection of loans previously granted is. Government debt bonds in Lebanese pound, which banks are currently content to take off from the state. And government debt bonds denominated in foreign currencies, that is, the Eurobond, which banks have been selling on international markets for two years. Even the net assets of foreign banks are still being gradually liquidated.

Consequently, the most important asset item within the bank balance sheets is the banks’ investments with the Banque du Liban. It rose to the equivalent of $ 113 billion, from assets of nearly $ 172 billion. In other words, banks’ investments at the Banque du Liban are now equal to about two-thirds of their total assets, reflecting the nature of the interdependence between the budgets of the banking sector and the budgets of the Banque du Liban, which in turn suffers from a loss gap estimated by the financial recovery plan at about $ 60 billion. Note that the increase in the value of this item is related to the interest accruing on banks’ investments in the Banque du Liban.

As the Banque du Liban is unable to pay these obligations to the commercial banks, the only way that allows banks to use their investments with the Banque du Liban is to create cash in Lebanese pounds (with the exception of small amounts secured by the Banque du) Lebanon to finance part of the process of repayment of small deposits according to Circular 151).

The term “zombie banks” is therefore being applied to Lebanese banks more than ever today. It is a financial term used to refer to troubled financial or banking institutions, whose balance sheets are filled with losses and they continue to function solely due to the benefit of public money, or out of implicit official support. In other words, the state of these banks is similar to the situation of the zombies – half-dead – in horror movies, because they have lost the elements of normal life, but they are not yet completely dead, while they exist on public money, like zombies living on the blood of their victims.

Eurobond liquidation
All the terms of the placements are on the way to liquidation. Banks’ investments in Eurobonds, ie public debt securities in foreign currencies, no longer exceed $ 4.52 billion, a decrease of 46.18 percent, compared to the same period last year. This factor was driven by the sale of these bonds in foreign markets. This has meant that the percentage of euro bonds held by banks today does not exceed 14 percent of the total euro bonds traded in the market. This development in particular makes the task of debt restructuring very difficult for the Lebanese state, as it is forced to negotiate with foreign creditors specializing in the extortion of defaulting creditors.

The identity of all mortgage holders is still unknown until now, but the sale of most of them, after being withheld from payment, probably went to funds that specialize in speculating on the mortgages of difficult debtors. By buying bonds at low prices, and then negotiating to collect the highest percentage of their value from the debtor (i.e. the Lebanese state in our case).

liquidation of other assets
Other bank assets also went into liquidation. Private sector loans have lost about 23 percent of their value in one year, which today is limited to about $ 22.37 billion, with the vast majority of bank lending programs being discontinued and banks focusing on collect the value of the loans granted. Government debt bonds denominated in Lebanese pounds, which are owned by banks, also fell in value by about 22 percent, with banks stopping subscribing to new debt bonds, and the state continuing to borrow from the Banque du Liban to repay the bonds held by banks.

The most significant indicator of the decline in the volume of liquidity controlled by banks was the decline in the volume of funds in bank accounts at correspondent banks, which fell by 17.67 percent in just one year, to be limited to only $ 4. 43 billion. Knowing that this exact amount was supposed to increase over the past year, rather than decrease as it did, given the existence of Banque du Liban circulars imposing the formation of ready liquidity for bank accounts at correspondent banks . This is what some banks have secured by selling their foreign branches. In short, the decline in the value of this particular item reflects the failure of the “recapitalization” circulars that the Banque du Liban has tried to market as a solution over the past year.

Finally, all of the above point to the continuation of the accelerating negative shifts in bank balance sheets, which are gradually increasing the scale of the crisis the sector is experiencing, and even increasing the magnitude of the losses suffered by depositors therein. As for the radical treatment of this crisis, it is impossible to clearly identify the losses within these budgets, the losses of which are mainly due to the investments of banks at the Central Bank, and then the mechanism for spreading these losses to the different parties.

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