- IMF Says Lebanon’s Bank Restructuring Plan Still Needs Key Decisions
Lebanon has made progress in discussions on restructuring its banking sector, but the International Monetary Fund says more work is needed before the country can agree on a strategy that is effective, durable and capable of restoring financial stability.
At the heart of the negotiations is a difficult balance: how to recover as much as possible for depositors while ensuring that repayment commitments are consistent with the financial capacity of Banque du Liban, the banking sector and the state.
The outcome will also depend on how losses are allocated among claimants a decision that could determine how much protection depositors ultimately receive.
An IMF team led by Ernesto Ramirez Rigo visited Beirut from November 10 to 13 for further discussions with the authorities.
The mission said it had made progress in clarifying approaches under consideration by the Government and Banque du Liban, but did not announce an agreement. Engagement is expected to continue in the coming weeks.
“Further work is needed to reach an agreement on a strategy for an effective and durable restructuring of Lebanon’s banking sector,” Mr Ramirez Rigo said. The goal, he added, is a system that is “sound and resilient”.
The statement puts two proposed laws at the centre of the reform effort. The Bank Resolution Law (BRL) is intended to support a transparent and predictable process for resolving or liquidating banks. The Financial Stabilization and Deposits Recovery Law (FSDR), currently before Parliament, is expected to set out how financial claims and deposit repayments will be handled.
The IMF says the BRL should be applied in all cases. That insistence is significant because a restructuring framework requires clear rules for determining when a bank can continue operating, when it must be restructured and when liquidation is necessary.
If those decisions are made inconsistently, uncertainty can persist for depositors, banks and public institutions.
A resolution law can provide a process, but it cannot by itself determine who ultimately absorbs the system’s losses.
That question is tied to the FSDR and the hierarchy of claims: the order in which different creditors and other claimants bear losses or receive repayment. The IMF says the FSDR must uphold that hierarchy to maximise protection for depositors.
The phrase “maximizing protection” matters, but it does not mean every depositor will necessarily be repaid in full or on the same timetable. The mission’s statement gives no repayment schedule, recovery amount or final allocation of losses.
Instead, it identifies the criteria that must be settled before a strategy can be considered sound: repayment must be consistent with available liquidity, public debt sustainability and the restoration of Banque du Liban’s solvency.
That is the central constraint. A promise to repay deposits is only credible if the institutions responsible for making payments can meet them without creating further instability.
The IMF says the criteria must reflect the liquidity positions of both the central bank and the banking sector, while also considering the sustainability of public debt and the recovery of the central bank’s solvency.
This creates a set of competing demands. Faster or larger repayments could offer relief to depositors, but the strategy must be supported by actual financial capacity. A plan that promises more than the system can deliver could undermine confidence further.
Conversely, a cautious repayment approach could be seen as inadequate unless its rules are transparent and the distribution of losses is seen as fair.
Parliament’s role will therefore be crucial. The FSDR is still before lawmakers, and the IMF has made alignment with international standards a focus of its discussions.
The mission did not specify what amendments are required, but it made clear that adoption alone will not be enough: the law must work alongside the BRL and preserve the hierarchy of claims.
Nor does the IMF statement represent a final endorsement of the proposed strategy. The mission’s findings are preliminary, the discussions remain open and the staff said further engagement is planned.
The release also states that the visit will not result in a Board discussion. That distinction is important: progress in talks should not be mistaken for an approved reform plan or a settlement of depositor claims.
For depositors, uncertainty about the rules can be as consequential as the amounts ultimately recovered. A transparent process would need to explain how claims are assessed, how losses are distributed, what criteria determine repayment and how decisions can be reviewed.
Predictability could help rebuild trust even before the full recovery process is complete; unclear or uneven treatment could make an already complex restructuring harder to implement.
The IMF says it remains committed to supporting Lebanon as it designs and implements a comprehensive economic reform programme.
But the immediate test is domestic: whether the authorities can align the laws, agree on a credible allocation of losses and establish repayment criteria that the financial system and public finances can sustain.
The mission has brought the key questions into sharper focus, but the hardest decisions remain unresolved.
Lebanon must design a process that protects depositors as far as possible without relying on resources the system does not have, and that applies resolution rules consistently rather than selectively.
Until those choices are made and translated into enforceable law, progress in discussions will remain only a step towards the durable restructuring the country needs.
