Lebanon Opportunities

Circulars issued are met with resistance and questions

The Central Bank (BDL) has issued a series of circulars to strengthen banks’ capitalization and boost their liquidity. BDL called on banks to complete by the end of February 2021 the required 20 percent capital increase otherwise it will take over their equity. The banks are also asked to allow voluntary conversion of depositors’ money into the banks’ equity. The Central Bank has also urged the banks to offer incentives to depositors to encourage them to repatriate funds. The measures also include setting up a restructuring committee that will propose amendments to prudential regulations of the banks’ activities. These decisions come at a time when the banks are facing very tough circumstances. According to Bank Audi’s ‘Lebanon Economic Report’ for the second quarter of 2020, the banks continue to experience challenging conditions, amid the acute economic and financial crisis, depositor concerns and the spillovers of the Covid-19 pandemic which are disrupting business operations.

Capitalize or exit market

Banks should complete the 20 percent capital increase by the end of February 2021 or risk exiting the market, said , Governor, Treasurer of the Association of Banks, most medium-sized banks have secured the required capital, but they do not, and will not, dare to increase it for fear that the State will force a ‘haircut’ on capital. “It would be fraudulent to the new investors to undertake the capital increase before the ‘haircut’ specifics are disclosed by the government. Therefore, banks are waiting to find out what is the next government’s plan and what is the percentage of a potential ‘haircut’ on bank capital,” he said in a media report. Sabbah said: “The banks’ current capital has been totally wiped out. It would be a miracle for a bank to have 25 percent left of its current capital.”

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