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EXCLUSIVE-Lebanese banks that can't raise capital must leave market - c.bank governor to Reuters

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BEIRUT, Aug 27 (Reuters) - 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, Salameh added but said he could not speculate how many banks would exit the market.

“We hope all the banks will meet the criteria,” he said in a phone interview. “But after February, those who do not will have to get out of the market...The deposits will be preserved because the bank will not be put into a bankruptcy situation.”

The central bank’s foreign currency reserves stand at $19.5 billion and obligatory reserve at $17.5 billion, he said.

Lebanon’s cash-strapped banks have frozen savers out of their dollar deposits and largely blocked transfers abroad since late last year as the country sank into a financial meltdown on a scale it has never seen.

The state, one of the world’s most indebted, defaulted on its foreign currency debt in March, citing critically low reserves. Inflation and poverty have soared as the crisis wiped out the value of the local currency on the informal market.

With the country running out of dollars, an official peg of 1,507.5 Lebanese pounds to the dollar has remained available for imports of fuel, wheat and medicine.

Salameh told Reuters he could not say how long the central bank could keep subsidising essential imports which is “depleting reserves”.

“We are not about to float the currency and therefore for the time being we are living with these two exchange rates,” he added.

A devastating explosion at Beirut port this month, which killed at least 180 people and wrecked swathes of the city, on top of a COVID-19 outbreak, has compounded woes.

Talks with the IMF, which Lebanon entered in May, had stalled in the absence of reforms and as a row emerged between the government, the banking sector and politicians over the scale of the country’s vast financial losses.

Salameh said it was in Lebanon’s interest to press ahead with negotiations to try to secure an IMF programme.

The central bank wants domestic banks to recapitalise and boost their liquidity at their correspondent banks abroad, with which they do not have sufficient funds, he said. (Reporting by Tom Perry, Samia Nakhoul, Laila Bassam and Ellen Francis Writing by Ellen Francis and Raya Jalabi Editing by Chizu Nomiyama and Angus MacSwan)

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