- Edited
After the banks presented their alternative bailout plan, and shed light on the deficiencies in the government plan that is being discussed with the IMF, bank administrations at this stage go to arranging the internal house, through procedures that sometimes surprise depositors ...
After the uproar caused by the government plan regarding the method adopted in approaching the issue of estimating losses and distributing them in a manner that threatens the fate of the financial sector as a whole, and the depositors are being unfairly illogical proportions of potential deductions (haircut), it has become clear that this holistic approach will not pass, and that dealing with banks is inevitable On a case-by-case basis, to sort out banking institutions, and to know the true position of each bank, in order to build on what is required.
Based on this reality, the banking departments have started taking measures to fortify their books and prepare the bank to be able to float and continue when the rescue plan that is supposed to lead to exit from the impasse begins according to a clear time schedule.
These arrangements sometimes surprise applicants with regard to what they consider irresistible temptations. The offers offered by banks include the following:
First - negotiate with borrowers to write off their debts in return for attractive discounts, so that the able borrower can pay a certain percentage of his debt, in exchange for writing off the full value of the debt.
Second - converting loans in dollars into loans in pounds, in exchange for setting higher interest rates, based on the difference between interest on the dollar and interest on the pound.
Third - Converting deposits in pounds into dollar deposits, with low interest, against freezing these deposits for periods of time ranging from two years to five years, on the official exchange rate (1507-1514).
Fourth - Presenting attractive offers to employees who approached the retirement age for early retirement, in exchange for additional compensation, which may exceed their compensation if they wait until they reach the legal age.
In addition to these temptations, attempts have been made to create new products based on the principle of increasing the size of any deposit that enters the bank as fresh money. However, these products stopped after the Banque du Liban intervention and prevention.
All these procedures seem to be losing to the banks, and are attractive to the depositor in terms of the benefit that he may achieve as a result of these offers. Why do banks take these steps?
In fact, there is a major cause, and some side causes. However, it should be noted that these procedures are not generalized and standardized among banks. In other words, every bank chooses the procedures that suit it to offer it to depositors. But this does not prevent that the depositor may benefit from these procedures, because the special position of banks at this stage may allow this, as long as there is an intersection of interests between the two parties.
The main objective of banks from exceptional procedures lies in improving and fortifying the internal position of banks, whether in terms of reducing the volume of debts, or in terms of reducing the cost of deposits, (replacing deposits in pounds with dollars), or in terms of increasing interest income on deposits (replacing dollar loans with loans in pounds), or In terms of reducing the operating cost of the bank (reducing the size of the human system through early retirement).
These steps would fortify the bank and put its accounting books in a better position, when each bank starts assessing individually, to determine its fate, whether by enlarging the capital, floating or merging with another bank.
It should be noted that the mass of deposits in lira is not insignificant, which is equivalent to about 30 billion dollars, which means that banks pay annually about two billion dollars in interest on these deposits, while replacing them with dollar deposits, on the low interest rate, may reduce the cost by about one billion And half a billion dollars annually.
In addition, converting these deposits in pounds to dollars, and freezing them for years, will reduce the pressure on the parallel exchange market, so that the percentage of depositors who withdraw their money in pounds per month to buy dollars from the market and store them will decrease. Also, whoever has a large deposit in pounds, may take advantage of the circumstance to convert it into dollars at the official rate, so that he has compensated for the loss of its original value before the dollar's rise. Also, converting large deposits into dollars may cause some to sell even small quantities of dollars to secure their needs, which means offering more dollars in the parallel market, thereby easing the pressure on the lira.
From these facts it can be concluded that the banks that move today in terms of ensuring survival as a priority, give some depositors an opportunity to make up for their losses, or to achieve unexpected gains. In this way, the two sides of the equation come out winners, in principle.
After the uproar caused by the government plan regarding the method adopted in approaching the issue of estimating losses and distributing them in a manner that threatens the fate of the financial sector as a whole, and the depositors are being unfairly illogical proportions of potential deductions (haircut), it has become clear that this holistic approach will not pass, and that dealing with banks is inevitable On a case-by-case basis, to sort out banking institutions, and to know the true position of each bank, in order to build on what is required.
Based on this reality, the banking departments have started taking measures to fortify their books and prepare the bank to be able to float and continue when the rescue plan that is supposed to lead to exit from the impasse begins according to a clear time schedule.
These arrangements sometimes surprise applicants with regard to what they consider irresistible temptations. The offers offered by banks include the following:
First - negotiate with borrowers to write off their debts in return for attractive discounts, so that the able borrower can pay a certain percentage of his debt, in exchange for writing off the full value of the debt.
Second - converting loans in dollars into loans in pounds, in exchange for setting higher interest rates, based on the difference between interest on the dollar and interest on the pound.
Third - Converting deposits in pounds into dollar deposits, with low interest, against freezing these deposits for periods of time ranging from two years to five years, on the official exchange rate (1507-1514).
Fourth - Presenting attractive offers to employees who approached the retirement age for early retirement, in exchange for additional compensation, which may exceed their compensation if they wait until they reach the legal age.
In addition to these temptations, attempts have been made to create new products based on the principle of increasing the size of any deposit that enters the bank as fresh money. However, these products stopped after the Banque du Liban intervention and prevention.
All these procedures seem to be losing to the banks, and are attractive to the depositor in terms of the benefit that he may achieve as a result of these offers. Why do banks take these steps?
In fact, there is a major cause, and some side causes. However, it should be noted that these procedures are not generalized and standardized among banks. In other words, every bank chooses the procedures that suit it to offer it to depositors. But this does not prevent that the depositor may benefit from these procedures, because the special position of banks at this stage may allow this, as long as there is an intersection of interests between the two parties.
The main objective of banks from exceptional procedures lies in improving and fortifying the internal position of banks, whether in terms of reducing the volume of debts, or in terms of reducing the cost of deposits, (replacing deposits in pounds with dollars), or in terms of increasing interest income on deposits (replacing dollar loans with loans in pounds), or In terms of reducing the operating cost of the bank (reducing the size of the human system through early retirement).
These steps would fortify the bank and put its accounting books in a better position, when each bank starts assessing individually, to determine its fate, whether by enlarging the capital, floating or merging with another bank.
It should be noted that the mass of deposits in lira is not insignificant, which is equivalent to about 30 billion dollars, which means that banks pay annually about two billion dollars in interest on these deposits, while replacing them with dollar deposits, on the low interest rate, may reduce the cost by about one billion And half a billion dollars annually.
In addition, converting these deposits in pounds to dollars, and freezing them for years, will reduce the pressure on the parallel exchange market, so that the percentage of depositors who withdraw their money in pounds per month to buy dollars from the market and store them will decrease. Also, whoever has a large deposit in pounds, may take advantage of the circumstance to convert it into dollars at the official rate, so that he has compensated for the loss of its original value before the dollar's rise. Also, converting large deposits into dollars may cause some to sell even small quantities of dollars to secure their needs, which means offering more dollars in the parallel market, thereby easing the pressure on the lira.
From these facts it can be concluded that the banks that move today in terms of ensuring survival as a priority, give some depositors an opportunity to make up for their losses, or to achieve unexpected gains. In this way, the two sides of the equation come out winners, in principle.
