Unraveling Lebanon’s financial crisis: the path from promise to peril, delving into a risk strategist’s own experience

Mohammad Ibrahim Fheili

Abstract

This paper meticulously examines the path leading to Lebanon’s ongoing financial crisis, which began (or at least became evident) in 2019, analyzing pivotal risk factors that led to the disintegration of its once-prosperous banking sector. It offers a thorough review of the crisis, delving into its origins and presenting actionable recommendations to rebuild trust and stability. Key issues include banks’ heavy reliance on Lebanese government debt, governance failures eroding public trust and inherent weaknesses in the banking model, such as deposit dependence and inadequate risk diversification. This paper advocates for Lebanon’s banks to adopt modern practices, critiquing the false perception of banking sector health, regulatory failures and operational risks due to poor governance. The role of regulatory bodies such as the central bank and the financial intelligence unit in perpetuating risky behavior is discussed. A shift toward responsible lending practices, emphasizing the asset life cycle over the credit approval process, is proposed as vital for navigating the crisis and securing long-term stability.