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How will Lebanese banks compensate their losses?

Lebanon Economy

01-02-2023 | 08:05

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How will Lebanese banks compensate their losses?

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Despite the financial crisis that started in October 2019, which was primarily represented by a drop in the value of the Lebanese lira against the US dollar, banks converted their customers' lira deposits into US dollars at the time at the official rate of 1,507 LBP.

As the new official rate of the dollar, which is 15 thousand LBP started to be implemented, the Central Bank considered that there were losses incurred by banks as a result of these converting operations, which directly affect their capitals.

It asked banks to compensate these losses in dollars over a period of 5 years at a rate of 20% every year, that is, until 2027.

In this process of compensating for losses and increasing capital, the Central Bank allowed banks to re-evaluate their real estate assets in Lebanon and re-evaluate their shares and assets abroad, in addition to the possibility for banks to calculate 50% of the profits of re-evaluation at home and abroad in the process of increasing capital and covering losses.

All of the aforementioned is regarded as a road map created by the Central Bank for banks to enhance their capital, along with the potential for these institutions to bring in new shareholders who contribute to the capital increase.

However, given the current state of the financial industry, this prospect is nonexistent due to the absence of a crucial component—the element of trust.

Therefore, pending a solution to the problem and a restructuring of the industry, the Lebanese banks have no choice but to grow capital through the current shareholders.

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