Salam to announce long-awaited banking law draft

Prime Minister Nawaf Salam will announce on Friday a long-awaited banking draft bill, which envisions sharing losses from the 2019 economic crisis between banks and the state, a Lebanese official said.

The legislation, which has come to be known as the fiscal gap law, is a key demand from the international community, which has conditioned economic aid to Lebanon on financial reforms.

Salam "will address the Lebanese people ahead of distributing the long awaited (fiscal) gap draft law to ministers of cabinet, and cabinet will start discussing it on Monday," a Lebanese official who requested anonymity told AFP.

The law 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.

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.

The International Monetary Fund, which closely monitored the drafting of the law, had previously insisted on the need to "restore the viability of the banking sector consistent with international standards" and protect small depositors.

The Associations of Banks in Lebanon criticized the draft law on Monday, saying in a statement that it contains "serious shortcomings" and harms commercial banks.

Since assuming power, President Joseph Aoun and Prime Minister Nawaf Salam have pledged to implement the necessary reforms and legislation.

In April, Lebanon's parliament adopted a bank restructuring law, as the previous legislation was believed to have allowed a flight of capital at the outbreak of the 2019 crisis, when ordinary depositors were deprived of their savings.

The fiscal gap law could still be blocked by parliament even if the cabinet approves it.

Politicians and banking officials have repeatedly obstructed the reforms required by the international community for Lebanon to receive financial support.