Deposits and certificates of deposit at BdL were 54 percent of commercial banks’ total assets and 6 times their core capital at the end of 2019, Fitch said.
by Georgi Azar -Source: Annahar
The requirement for banks to pay half of the interest on FC customer deposits in local currency meets Fitch’s definition of a restricted default, Fitch said
BEIRUT: The main risk to Lebanese banks’ solvency following Lebanon’s $1.2 billion Eurobond default is their exposure to the central bank, Banque du Liban (BdL), Fitch Ratings said in a report.
Deposits and certificates of deposit at BdL were 54 percent of commercial banks’ total assets and 6 times their core capital at the end of 2019, Fitch said.
The central bank’s ability to meet its foreign-currency (FC) obligations to banks was already weak due to increasing pressure on its FC reserves, it added.
Estimates differ on the central bank’s usable reserves, ranging from 5 to 15 billion dollars.
“Its FC assets, excluding $5.7 billion Eurobond holdings (and gold) at end-2019, were $32 billion, less than half of its FC liabilities to banks, which according to Fitch is at $70 billion,” Fitch said.
On March 7, Lebanon’s prime minister announced his government’s intention to default on a $1.2 billion bond payment due this month as the country’s debt reached 170 percent of GDP.
“We see an increasing risk that banks’ access to assets at BdL becomes restricted, especially as most deposits are long term. BdL’s circular in December 2019 stating that interest on banks’ US dollar deposits and certificates of deposit with the BdL would be paid 50% in local currency highlights the intensifying pressure on BdL’s FC assets. A 20% haircut on BdL’s liabilities to the banking sector would wipe out the sector’s equity,” it added.
Lebanon’s banks have implemented stringent capital controls to limit the outflow and withdrawals of dollars, causing a surge in black market rates. The local currency has lost more more than 50 percent of its value.