Lebanon's government on Friday approved a draft law to distribute financial losses from the 2019 economic crisis that deprived many Lebanese of their deposits despite strong opposition to the legislation from political parties, depositors and banking officials.
The draft law will be submitted to the country's divided parliament for approval before it can become effective.
The legislation, known as the "financial gap" law, is part of a series of reform measures required by the International Monetary Fund (IMF) in order to access funding from the lender.
The cabinet passed the draft bill with 13 ministers in favor and nine against. It stipulates that each of the state, the central bank, commercial banks and depositors will share the losses accrued as a result of the financial crisis.
Prime Minister Nawaf Salam defended the bill, saying it "is not ideal... and may not meet everyone's aspirations" but is "a realistic and fair step on the path to restoring rights, stopping the collapse... and healing the banking sector.”
According to government estimates, the losses resulting from the financial crisis amounted to about $70 billion, a figure that is expected to have increased over the six years that the crisis was left unaddressed.
Depositors who have less than $100,000 in the banks, and who constitute 85 percent of total accounts, will be able to recover them in full over a period of four years, Salam said.
Larger depositors will be able to obtain $100,000 while the remaining part of their funds will be compensated through tradable bonds, which will be backed by the assets of the central bank.
The central bank's portfolio includes approximately $50 billion, according to Salam.
The premier told journalists that the bill includes "accountability and oversight for the first time.”
"Everyone who transferred their money before the financial collapse in 2019 by exploiting their position or influence... and everyone who benefited from excessive profits or bonuses will be held accountable and required to pay compensation of up to 30 percent of these amounts," he said.
Responding to objections from banking officials, who claim components of the bill place a major burden on the banks, Salam said the law "also aims to revive the banking sector by assessing bank assets and recapitalizing them.”
The IMF, which closely monitored the drafting of the bill, previously insisted on the need to "restore the viability of the banking sector consistent with international standards" and protect small depositors.
Parliament passed a banking secrecy reform law in April, followed by a banking sector restructuring law in June, one of several key pieces of legislation aimed at reforming the financial system.
However, observers believe it is unlikely that parliament will pass the current bill before the next legislative elections in May.
Financial reforms in Lebanon have been repeatedly derailed by political and private interests over the last six years, but Salam and Lebanese President Joseph Aoun have pledged to prioritize them.
