Lebanon to start reviewing banking sector amid economic crisis

Lebanon to start reviewing banking sector amid economic crisis
3 min read
Lebanon's central bank was to start reviewing the country's banks as it faces international pressure for banking sector reform amid its worst economic crisis in decades.

More than half the population in Lebanon is now in poverty (Getty)

Lebanon's central bank was to start reviewing the country's banks Monday as it faces international pressure for banking sector reform amid its worst economic crisis in decades.

Lebanese banks had been given until Sunday to increase their capital by 20 percent, among a series of demands from the central bank.

On Monday, a central bank committee "agreed on a roadmap with deadlines for the Bank of Lebanon to take appropriate measures" if these requirements were not met, it said in a statement.

Lebanon is in the grips of its worst financial crunch since the 1975-1990 civil war.

The Lebanese pound has lost more than 80 percent of its value to the dollar on the black market and more than half the population is now in poverty.

Read also: In bankrupt Lebanon, thieves go for manhole covers

For more than a year, banks have largely prevented ordinary depositors from transferring any funds abroad and all but blocked access to their dollar savings.

But reports have emerged of mass capital flight during this same period, sparking popular outcry.

Under the requirements to be met by February 28, banks were also to place three percent of their foreign currency deposits with corresponding banks abroad.

They were supposed to ensure depositors who had transferred more than half a million dollars abroad since July 2017 returned at least 15 percent of that to a special account to be frozen for five years.

A central bank official said that, after the audit, results would be transmitted to the central bank chief, and non-complying institutions referred to the higher banking commission.

The head of the central bank, Riad Salameh, in December said those found not to have met requirements would see their assets taken over by the central bank as part of "restructuring of the banking sector".

They would not go bankrupt, he said, but the Bank of Lebanon would work on "reorganising and selling" the banks.

Under an austerity plan last year, the government had hoped to reduce the number of banks in Lebanon's oversized financial sector from 49 to half that number.

The international community has repeatedly demanded a banking sector overhaul as part of broad reforms to lift the country out of crisis.

Critics from across the political spectrum have charged that Salameh's financial policies led to Lebanon's ballooning sovereign debt and its first default in March last year.

But Salameh has defended himself, saying the central bank "has funded the state, but did not spend the money".

Lebanon's government resigned after a massive port blast in Beirut last summer, but a deeply divided political class has since failed to agree on one to replace it.

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