Lebanese banks that cannot increase their capital by 20% by the end of February 2021 will have to get out of the market, Central Bank Governor Riad Salameh told Reuters on Thursday.
Those leaving would do so by giving their shares to the central bank and deposits would be preserved because there would be no "bankruptcy situation," Salameh said. He said he could not speculate how many banks would exit the market.
The central bank's foreign currency reserves stand at $19.5 billion and obligatory reserve at $17.5 billion, he said.
Salameh added that he could not say how long the central bank could keep subsidizing essential imports and that Lebanon was "not about to float the currency."
The central bank told the country's banks to recapitalize through new means and urge big depositors to move funds back to the country, according to circulars published on Thursday.
It did not spell out what incentives could be given by banks to encourage depositors to return funds to the banking system, which is paralyzed by the worst financial crisis in Lebanon's history.
It also told banks to provision for a 1.89% loss on their hard currency deposits with the central bank, but no losses on their holdings of Lebanese pound certificates of deposit, on top of a provision for a 45% loss on Eurobond holdings.
The provisions should be in place within five years, but extendable to 10 years with the approval of the central bank.
One of the options given to the banks to increase their capital allows shareholders to transfer ownership of property to their bank on condition that it is liquidated within five years.
Banks should also urge depositors who had transferred more than $500,000 abroad as of July 1, 2017, to deposit funds in a special account in Lebanon that will be frozen for five years and equivalent to 15% of the transferred amount in order to boost liquidity.
The directive applies to bank chiefs and large stakeholders. The equivalent deposit amount is raised to 30% for "politically exposed persons".
The central bank issued several separate circulars, one relating to extraordinary measures to reactivate banks operating in Lebanon and another about amendments to existing banking rules.
Lebanese banks have frozen savers out of their dollar deposits and largely blocked transfers abroad since late last year due to an economic and financial crisis, which culminated in Lebanon defaulting on its huge foreign currency debt in March, and has ravaged the currency, spread poverty and mass unemployment.
