Banks not increasing capital
will be seized by Central Bank

Financial institutions are waiting for haircut decision

Banks should increase their capital by 20 percent by the end of February 2021 or risk exiting the market, said Riad Salameh, Governor of the Central Bank (BDL), in an interview with Reuters.

The capital increase of the banks involves an overall cash infusion of around $2 billion during the second stage of the increase (ten percent).

BDL would take over ownership of exiting banks. “We hope all the banks will meet the criteria,” Salameh said. “Deposits will be preserved because the seized bank will not be put into a bankruptcy situation,” he said.

BDL wants banks to boost liquidity at their correspondent banks abroad, with which they do not have sufficient funds.

Tanal Sabah, Treasurer of the Association of Banks, said in a press interview: “Most of the medium-sized banks have prepared the required capital, but they do not, and will not, dare to increase it for fear that the State will force a ‘haircut’ on capital. It would be fraudulent to the new investors to undertake the capital increase before ‘haircut’ specifics are disclosed by the government. Therefore, banks are waiting to find out what is the next government’s plan and what is the percentage of a potential ‘haircut’ on bank capital.”

Sabah said: “The banks’ current capital has been totally wiped out. It would be a miracle for a bank to have 25 percent left of its current capital.”

“We are not about to float the currency and therefore for the time being we are living with these two exchange rates,” the Governor said. “This decision also lies with the government,” he said.