Saturday, 26 Sep 2020

UPDATE 2-Lebanon c. bank urges banks to recapitalise, repatriate funds

* Big depositors urged to repatriate funds

* Lebanese banks hit by country’s financial crisis

* Banks to provision for losses on Eurobond holdings (Adds details)

BEIRUT, Aug 27 (Reuters) – Lebanon’s central bank has told the country’s banks to recapitalize through new means, urge big depositors to move funds back to the country and provision for a 45% loss on their Eurobond holdings, according to circulars published on Thursday.

The central bank did not spell out what incentives could be given by banks to encourage depositors to return funds to the banking system, which is paralysed 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.

The financial crisis has been compounded by the explosion at Beirut’s port on Aug. 4 which killed at least 180 people and wrecked swathes of the city.

As part of the recapitalisation efforts, one of Thursday’s central bank circulars asked banks to take the necessary measures “to enable the consensual capability of depositors to convert their deposits into shares in (the bank’s) capital and/or into redeemable, tradeable and convertible perpetual bonds”.

A financial recovery plan approved in May by the now-caretaker government, had included a section stating that large bank depositors could be voluntarily offered a conversion of part of their deposits into their bank’s capital, among other options.

The plan, which was undermined by differences between the government, the banking sector and politicians, projected aggregated losses of 241 trillion Lebanese pounds, or $69.9 billion at the exchange rate used in the plan, in Lebanese entities. ($1 = 1,505.5000 Lebanese pounds) (Reporting by Tom Perry and Raya Jalabi; additional reporting by Nadia El Goweily; Editing by Hugh Lawson and Susan Fenton)

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