The struggle for a moral budget

Banks have done a lot for Lebanon, they deserve our trust

A potentially important step toward a new social contract

Banks have offered much to Lebanon. They have financed the country’s public and private sector needs for the entirety of the post-conflict years. They stood throughout the 1990s with a people scarred by violence and economic trauma. Through the 2000s, they stayed at the side of a state that was under constant financial pressures. In the 2010s, banks never ceased to respond positively and with vigor to the latest unconventional ideas that were sent their way by the central bank. As if this was not enough pressure, local banks all the while were subjected to the need to comply with ever-tougher international regulations on things like money laundering.

While this happened in this small country of ours, the world stumbled through overheating financial markets and over-risky banking behaviors in almost all economies into the Great Recession and its aftermath of imperfect recovery. Thus, it is well justified to regard it as miraculous that Lebanon, albeit always balancing on the financial edge, never went over this edge into the kind of receivership that exposed some other countries and bigger economies in the past three decades to the dictates of foreign rescues by the likes of the European Union and World Bank.

This does not mean that Lebanese banks are perfect, either as economic agents or as corporate citizens. They are profit-driven, just as banks have been at all times since the first money lenders set up their booths outside religious districts and centers of worship. And if the founders and revered parental figures of historic religions were cast into the roles of banking CEOs today, their first experiences would probably consist of being confronted with litigation by shareholders who challenge their lending policies for not generating enough returns.

So when asking what banks can do for Lebanon in the context of the reformist—but still fundamentally fuzzy and vulnerable-looking—budget of 2019 and, hopefully more robust, budgets of coming fiscal years, the first order of import is to understand that banks will remain profit-relying financial institutions. Lest they die, they will have to chase profits.

They also are mirrors of this society. In a country where six degrees of separation is about three degrees too many for any person, and where anyone with any decision-making influence is some sort of cousin of all other people in similar positions, it is not productive to decry the intermingling of those in political and banking power. Banks are furthermore tied to often divergent communal interests in fragmented Lebanon, whether they admit to it or pretend otherwise. How else could they exist in a country that in every practical regard is defined by sub-national and self-interested communities?

This essential business nature and Lebanese-ness of local banks are crucial factors to recognize and be aware of, so as to avoid plastering banks with unachievable expectations that no Lebanese citizen or community would accept to place on themselves. Operationally, Lebanese banks are furthermore imperfect human institutions, not superior entities. In this sense, the first thing that the Lebanese society might want to do, is humanize its banks, in a manner of speaking, and see them for the reality of their good and bad, strong and weak.

Making the behaviors in banking more holistically human and nudging lenders away from extreme homo economicus-type self-interest, will in many ways be coherent with trends in global thinking that, in one example, recently drove leading ESG (Environmental, Social, and Governance) experts at Paris-based consultancy Vigeo-Eiris to observe the essentiality of diversified banks’ strong ethical cultures in making them less vulnerable to misconduct. As impregnation with best ESG genes, resilient values and future-proof conduct is a longterm process that has to go viral in a bank’s entire organization, it is highly advisable that more banks in Lebanon embark on this path—and it is encouraging to see that several have taken the first or second step on this demanding journey.

As this route is time-consuming, arduous, and historically under-traveled, Lebanese banks in the medium or medium-long term should not be bombarded with demands and expectations for turning themselves into pure benefactors to society—as if bank A, B, or B+ were competing for the title “savior of the month.” They will continue to be banks with behaviors that are productive and profitable for their own interests but are not going to save Lebanon’s economy. Banks will also continue to operate, as they must, under restraints of financial interest logics and international regulatory dictates.

However, there is also no reason to expect that banks will do any less for this country and its people than they did in the decades that are behind us. In these past years, even as they made important profits via the easiest routes open to them, banks paid their taxes and expanded their social actions, arguably more so than any other Lebanese economic sector or societal grouping. Let the banks be taxed, certainly, but let them be taxed fairly and in ways that will not drive them into ruin or exodus. Executive also calls for banks to improve their ESG and avoid the herd behaviors that can aggregate pressure on the

people that depend on their good will, whether as household and retail borrowers or as debtors to the commercial and SME units of Lebanese banks.

Times of scarcity and intense economic obligations are not times to disrupt all that can be disrupted. They are times to trust and earn trust. Executive is calling on our banks to make every effort they can to be absolutely trustworthy. At the same time, we call on all our readers and all the people of this country to use the greatest possible care when examining the conduct of their bankers, and empower them with the trust they deserve, and that is consistent with their record of the post-conflict decades.