Lebanon c. bank to form committee to restructure bloated banking sector: Reuters

Lebanon’s central bank will set up a committee to restructure commercial banks, according to a memo from the central bank seen by Reuters on Thursday.

Lebanon’s commercial banking sector is currently bloated and reforming the sector is seen as a key structural reform the country must undertake to save its sinking economy as it has approached the International Monetary Fund for a $10 billion package.

Talks between the government and the IMF had previously hit a wall as debates emerged over the size of actual losses, but resumed last week where the main focus was said to be reforms to the electricity sector.

The memo said the new committee will assess the performance of the Lebanese banks and propose measures to preserve the banking sector.

Debt-saddled Lebanon has around 40 banks serving a population of around 6 million. The sector has swelled to four times the size of the economy thanks to decades of taking in billions of dollars every year from Lebanon’s widely scattered diaspora to help fund the government.

Previously Al Arabiya English had reported that any bank restructuring would have a significant effect on deposits, the Lebanese economy at large, and on the balance sheet of the country’s central bank. One expert said that even if mergers and acquisitions take place, the central issue, which is a lack of trust in Lebanon’s financial sector, will remain unresolved.

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Since October 2019, Lebanon's economic downfall has rapidly sped up, with inflation, food prices, and unemployment reaching new highs. Power cuts, while a facet of daily life in Lebanon for years, have spiked, and many now only have a few hours of power a day.

Earlier this week, a former top finance official said that Lebanese banks have smuggled out close to $6 billion since October. Meanwhile, depositors transfers abroad have been blocked, and many in the country have been unable to access dollars in their bank account due to ad hoc capital controls put in place to keep dollars in the country.

The country relies on dollars to pay for imports, as the country produces locally, but since mid-2019, dollars in the country have steadily dried up.

-With Reuters