BEIRUT: The conduct of Lebanese banks amid the country’s worsening economic crisis has been defended by Salim Sfeir, head of the Association of Banks of Lebanon, who responded on Tuesday to criticism by MPs from the Hezbollah and Free Patriotic Movement blocs.

The condemnation of the country’s banks came during Monday’s vote of confidence.

In a response statement, Sfeir said: “Banks invested their surplus of liquidity in the Lebanese Central Bank. Banks demanded the adoption of a law that establishes capital controls while the multiple formulas offered by others aim to legislate cash withdrawals and international transfers.”

Lebanon was hit by an unprecedented economic crisis in 2019, leading to the collapse of its currency and an inability to pay its debts. The country’s political class was accused of looting the country’s local treasury, siphoning off middle-class wealth and exercising authority without responsibility.

In its statement, the ABL urged the Lebanese Parliament “to speed up the reforms required by the international community,” and called on the new government to “start serious work” to launch international aid packages and put the country back on the international map “by enhancing communication with Lebanon’s friends from Arab and foreign states.”

It said: “There is a pressing need to stop the collapse. Therefore, the government must immediately commit to its obligations in accordance with its ministerial statement that noted a prompt resumption of talks with the International Monetary Fund to address the negative impacts of previous policies.”

It added that the government must begin talks with debtors, reform the banking sector and approve a budget — “all of which are clauses that the ABL has demanded since the start of the crisis.”

There are 63 banks operating in Lebanon with more than 1,000 branches and 25,000 employees.

According to Sfeir, the banking sector constituted “an engine of growth in the country through loans that outgrew the size of the economy.” He added: “The formal banking sector’s taxes are some of the major public treasury income items.”

A group of Lebanon’s bondholders — that include some of the largest investment funds in the world — also urged the new government “to start talks to restructure the country’s debts as early as possible to help deal with the crushing economic crisis in the country.”

Lebanon defaulted on its external debt in March 2020, leaving it unable to service a debt burden that was then worth more than 170 percent of its gross domestic product.

The group said it “hopes and expects the new government to promote a speedy, transparent and equitable debt restructuring process. Such a process will need the government to engage meaningfully with the IMF as well as Lebanon’s international creditors.”

At the end of the vote of confidence, Prime Minister Najib Mikati said: “Discussions with the IMF have begun. The talks are not a picnic and the fund is not a charity. This issue is not an option but a mandatory passageway that must succeed in order to serve as the first foundation toward salvation and the right way for Lebanon’s revival.”

He urged Lebanon’s Parliament to act quickly to approve a capital control law as early as possible, and promised to carry out “a forensic audit of all institutions and ministries without any exceptions.”

Mikati was quick to note the importance of the banking sector in any economic recovery: “I wish there were any banks left in Lebanon to help them. Do you know the reality of the banking sector? There is no economic recovery without banks.”

However, the prime minister added: “More than $10 billion was spent in the past on subsidies for banks — money that could have been used to build power plants, treat waste and construct roads.”