Hi everyone so today im gna be talking about a very important topic that is affecting all of us

today which is the Lebanese financial crisis

1st im gna talk about an overview of the Lebanese economy than im gna talk abt which risks
were mismanaged and the lessons learned

• Lebanon is a small developing country located in a transitional point between the west
and the east,
• The Lebanese economy was characterized by a minimum of government
intervention in private enterprise combined with an income- and profit-tax-
free environment.
Although imports surpassed exports, elements such as tourism and money from
labourers working abroad helped balance the trade deficit. Income was generally on the
rise, and Lebanese products were finding a place on the international market.
The $ was used in day to day operations similar to the Lebanese pound

• The Lebanese economy relies solely on the service sector.

• The country struggled throughout history, surviving many wars, but the banking sector
was always a strong point in the Lebanese history, it is of the major pillar of its
economy. Deposits reached $170 Billion as at 31/12/2018, which is 3 times the
country’s GDP .
• NB: Luxembourg & Hongkong are the only 2 countries that had a higher ratio, so
Lebanese banks had really high deposits
• The banking sector was always complying with the requirements requested by the CB
and the International standards.
ie: Solvency,capital adequacy and liquidity ratios

• The lebanese banks maintained the minimum required ratios

As we all know
• The minimum liquidity ratio is 10% , the remaining percentage should be invested in a
profitable and diversified portfolio
• The main issue was that banks invested most of their deposits in the CB and the
Lebanese Government,
• Which were downgraded by the 3 credit rating agencies: S&P Global
Ratings (S&P), Moody's, and Fitch Group
• Thus,they experienced a high credit and concentration risk; which has led to the
absence of liquidity in the banks
• Today the depositors are unable to withdraw their own money form the banks, because
the CB and government couldn’t pay it back

Now lets take a look at six Lebanese banks with most deposits
Now lets talk about the risks that were mismanaged : concentration and credit
• Concentration risk is a bank's portfolio arising from concentration to a single
counterparty, sector or country.The risk arises from the observation that more
 concentrated portfolios are less diverse and therefore the returns on the underlying
assets are more correlated.

• And credit risk is the risk of default on a debt that may arise from a borrower failing to
make required payments.
Now in order to talk about the concentration risk lets take a look at the Lebanese bans
exposure to the sovereign: 135 billion was split as follows: read the numbers
Now lets take a look at the banks that are most exposed to the non exixstent foreign currency
cds at bdl
‘read’
As I said before banks invested 11 billion dollars in Eurobonds and 21.11 trillion in treasury bills
Lets look at the bank that are most exposed to the defaulted Lebanese sovereign eurobonds in
billion dollars ‘read’
Total Lebanese Government Debt makes up approximately 125% of total Bank’s Capital
amounting to USD 20 billion.

Now lets talk about the credit risk

Considering that the Lebanese Government announced that it will not pay its Eurobond
obligation maturing on March 9th and will halt all upcoming FCY principal and interest
payments in the future
 The credit quality of Lebanese Sovereign Foreign Debt are considered to be at default (i.e.
Stage 3 under IFRS 9).
Highlighting the severity of the problem, not only they did not pay the Eurobond but the
government did not put a clear plan on how to deal with the payments in the future.

Total Loans to the private sector amount to USD 47.6 billion, out of which 16.9% (as per IMF
estimates) are non-performing loans amounting to C/V USD 8.04 billion.
As a result
In line with BDL regulations, Bank’s should compute Regulatory ECLs on Lebanese Government
Eurobonds and BDL FCY Deposits at 45% and 30% of the total exposures which amount to USD
4.95 billion and USD 22.2 billion respectively.
If taken as a straight write-off, this will wipe out Bank’s entire capital as these losses represent
over 135% of capital.
However, as per BDL, Banks have a period of 5 years that can be extended to 10 years to book
these provisions.

What we can learn is that

Lebanon has a lack of expertise where needed which had led to a lack of government budget

So Lebanon needs a credible crisis management strategy that identifies crisis stabilization and
recovery measures along with number of dimensions, especially: the external, fiscal and
financial sectors, social safety nets, a growth framework and the governance deficiency
As mentioned before the Lebanese economy solely relies on the service sector, which is a weak
point when facing crisis. Having a domestic production boost the economy in hard times. So
Lebanese people should focus more on all the sectors including the private sector to improve its
economy.

• Banks should diversify their portoflio in order to minimize the risks

• Banks should assess the credit risk of their borrowers
• Banks should take into considerations all the scenarios that may occur
• Banks should not offer high interest rate specially that the international market offers a
very low interest rate .
• Banks should take into considerations all the risks before investing in any sector
• Banks shouldn’t have accepted the “Financial Engineering Game”
Which is when The cb were taking the foreign currency which is the $ from banks by paying
high i.r in the lbp.