Jean Riachchi: Weathering the (l

Jean Riachi, CEO of I&C Bank in Lebanon and FFA Private Bank in Dubai, discussed the protracted crisis of the Lebanese banking sector, the impact of the current war in Lebanon, and the challenges ahead.

Global Finance: How is the current conflict affecting the region’s financial sector?

Jean Riachchi: This conflict will damage the economies of Lebanon and the Gulf Cooperation Council (GCC). In the GCC, this is being mitigated by the fact that oil prices are high. But the effect would not be short-lived, as there was some loss of confidence. This is another blow for Lebanon. We’re going to cause more destruction, cost the economy more. We already have more than a million displaced people, many of whom have lost their homes, and no money to rebuild.

GF: In 2019, Lebanon fell into one of the worst financial crises in contemporary history. Where do you stand now?

Riyachi: Before the war began in March, Lebanon was on track to implement some reforms requested by the international community: the Restructuring Law and the Interregnum Law.

GF: Financial gap legislation aims to restructure the industry by distributing the sector’s losses among different stakeholders. Damage estimates range from $70 billion to $80 billion. What’s holding it back?

Riyachi: There were a lot of issues with the gap law. Many stakeholders were not happy with this. The depositors said they were not getting adequate compensation. The banks said they couldn’t afford it. Lebanon’s Central Bank was also concerned about the cost. There was also much discussion that the state should contribute, but this meant higher taxes. So, it’s kind of a Catch-22 situation. We weren’t going anywhere even before the war.

GF: Is there any way?

Riyachi: In my opinion, the key is the central bank’s $50 billion gold reserves. There is no solution if we do not use gold in any way, but it is prohibited in the country. Some people believe that this will be a Pandora’s box of sorts, opening up the country’s appetite to meet other needs.

GF: Given the circumstances, how are Lebanese banks performing?

Riyachi: Lebanese banks are performing very well. If you don’t ask them to pay their depositors, there is no reason why they won’t perform well! It’s crazy, but it’s a truth. Today, banks do not have to pay their depositors. It is as if you have converted deposits, which are short-term liabilities, into perpetual zero-interest liabilities.

GF: How do you see the future of the Lebanese banking system?

Riyachi: To me, the Lebanese economy does not sustain 50 or 60 banks. There should be some big banks and some specialized banks. The business model before the crisis was that 70% of banks’ revenues would come from interest on state-issued Eurobonds, or central bank CDs. So obviously, this business model will no longer work and the number of banks should be reduced.

The new gap law should ensure that only those banks that have the right business models and the ability to raise new capital will survive. Some Lebanese banks have real value; They have goodwill, they have customers, they have good systems, they will be able to survive in the future.

GF: How is I&C Bank adapting to the situation?

Riyachi: Our bank was historically focused on investments and private banking, so our balance sheet exposure was relatively limited. However, as a deposit taking institution, we were still exposed to the Lebanese market.

Starting in 2016, we began to realize that something was not right, and gradually our balance sheet was reduced, deposits were withdrawn and positions in the Central Bank and Eurobonds were liquidated. As a result, when the crisis struck in 2019, our exposure to Lebanon was limited. We had no exposure to the state or the central bank, giving us positive equity: unlike most banks in the country. This situation prompted us to adjust our business model last year. While maintaining our core activities in private banking, capital markets and investment banking, we expanded into commercial banking by launching what we call personal and business banking, targeting individuals and businesses, particularly premium clients, rather than mass retail.

GF: Let’s talk a little about post-war Syria. Is this an interesting market for Arab banks?

Riyachi: We are seeing a number of Arab banks showing interest in entering the market. Syria, politically, is now very close to the Gulf countries, and I think they have a bright future in terms of economy. Arab banks will be welcomed there.

GF: What are your next projects?

Riyachi: Trying to avoid this landmine of trouble! In Lebanon, we are improving our core banking systems. We are working with fintechs to offer digital banking to a wider range of customers. This will be under our bank license, but through a platform that we do not operate.