IMF insists on 15% capital adequacy for Lebanese banks — Asharq Al-Awsat
In Paris, France, representatives of the International Monetary Fund, according to Asharq Al-Awsat, insist that Lebanese banks seeking to continue operating after restructuring achieve a capital adequacy ratio of 15% within five to seven years. Meetings involving Lebanon’s central bank, the Banking Control Commission and bank representatives showed that differences remain between the parties over sector reform and the distribution of losses.
Conditions for banks to operate
The negotiations took place with the assistance of Rothschild, the international adviser to Lebanon’s central bank. Their goal was to align approaches to the provisions of the draft law on financial settlement and the return of deposits, which the government submitted to parliament at the end of last year.
According to the publication, the IMF delegation did not change its position on limiting the use of public funds and observing the order in which losses are absorbed. Under this principle, losses must first be borne by banks’ capital, shareholders and holders of equity instruments. The Fund considers the higher capital adequacy requirement necessary to restore international confidence in Lebanon’s financial sector after the crisis.
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Need for new capital
To meet the condition, banks will need significant cash injections, capital contributions or new investors. According to preliminary estimates cited by Asharq Al-Awsat, the amount of funds required may reach up to twice the current capital of the banks. Their capital has shrunk sharply from a level exceeding $20 billion due to the fall of the Lebanese pound.
Bank shareholders are in no rush to provide new capital until negotiations with the IMF are completed, the government carries out structural reforms in the public sector, adopts a medium-term fiscal plan and clarifies the outcome of the restructuring of Lebanese eurobonds. Lebanon’s government estimates the country’s financial gap at approximately $70 billion.
Representatives of the banking sector believe that the proposed approach does not sufficiently take into account the role and responsibility of the state in raising financing from the central bank’s balance sheet. They also note that the government’s decision to suspend payments on all eurobond obligations deprived commercial banks and the central bank of access to important financial assets.
