Lebanon’s central bank held closed-door meetings with commercial banks in Paris this week to assess the resources available to repay depositors and determine how lenders can be recapitalized and absorb mounting losses, as the country struggles to advance legislation aimed at addressing its prolonged financial crisis.

The meetings, held on October 27 and 28, brought together several banks selected by the Association of Banks in Lebanon (ABL) and Banque du Liban’s (BDL) financial advisers, Rothschild & Cie, according to a statement issued by the central bank on Saturday.

The discussions focused on two main issues: the capital banks would need to resume normal operations and absorb losses, and the banking system’s current and projected liquidity, including assets held by both the central bank and commercial lenders that could be converted into cash.

The aim was to establish how much money is actually available to meet obligations to depositors and determine realistic repayment amounts and timeframes under a future financial stability and deposit recovery law.

BDL said the discussions formed part of a prudential review intended to prevent authorities from making promises that exceed the financial system’s actual capacity.

The central bank also rejected media reports suggesting that other parties had taken part in the meetings, saying the consultations concerned matters falling exclusively within the remit of BDL and commercial banks.

It stressed that banks are full partners in the process of returning deposits, alongside the Lebanese state and the central bank. They are also essential to the country's future economic recovery, BDL said, arguing that sustainable growth cannot be achieved without a functioning credit system that allows businesses and individuals to secure financing for investment, production and other economic activities.

Governor holds separate meetings with French and U.S. officials

BDL Governor Karim Souaid, who attended part of the Paris discussions, also held a series of high-level meetings during his visit.

His meetings included the governor of the Banque de France and U.S. Treasury officials responsible for combating money laundering and terrorist financing.

Souaid also met with several law firms representing BDL in legal proceedings in France and other countries against former central bank officials and their associates. The cases concern allegations of embezzlement of central bank funds, fraud and illicit enrichment.

A banking crisis and a stalled recovery framework

The Paris consultations come as Lebanon continues to grapple with the consequences of the financial collapse that began in 2019, when banks imposed informal capital controls, restricted access to deposits and largely halted lending. The Lebanese pound subsequently lost more than 90% of its value, while the banking system accumulated enormous losses.

The central bank's obligations to banks and depositors were estimated at around $79 billion in September, according to figures cited by Governor Souaid. An audit identified approximately $24 billion in irregular claims, leaving an estimated $55 billion to be repaid through a mechanism that remains to be established under the proposed financial gap law.

The draft Financial Stabilization and Depositor Recovery Law, commonly known as the financial gap law, is intended to determine the scale of the losses, establish how they should be distributed among the state, BDL and commercial banks, and set out a mechanism for returning deposits that have been inaccessible since the collapse.

The legislation has faced disagreements over the allocation of losses and the respective responsibilities of the state, the central bank and commercial lenders. The International Monetary Fund has called for the framework to respect the hierarchy of claims, under which shareholders and other creditors must absorb losses before depositors, and to ensure that repayment commitments are consistent with the liquidity actually available in the financial system.

The IMF has also stressed that Lebanon needs an effective bank restructuring framework and an appropriate financial gap law aligned with international standards before it can secure a new financial program.

The legislative process has faced further complications. In October, Lebanon's Constitutional Council annulled Article 3 of the amended bank recovery and restructuring law, as well as specific provisions concerning travel bans on bank officials and legal immunity for employees. The ruling did not invalidate the entire law but left unresolved questions over the central bank's powers and the governance of the banking sector.

Separately, Asharq Al-Awsat reported on Saturday that recent Paris discussions had exposed continuing differences over bank restructuring and the distribution of losses. Citing information obtained by the newspaper, the report said the IMF was maintaining its position that banks seeking to remain operational should meet a 15% capital adequacy ratio within five to seven years.

The report also said the discussions had produced new proposals intended to reconcile differing approaches to the draft financial recovery legislation, although the IMF had not softened its position on limiting the use of public funds and maintaining the hierarchy of loss absorption.