Lebanon's banks struggle to raise capital

Paralysed by financial crisis and riven with political risk, a number of Lebanon's banks are struggling to meet a central bank target to raise their capital defences by 20per cent by the end of this month.

Less than half of the country's dozen or so large banks are expected to meet the requirement, which the central bank set in August to reinforce the sector, according to four banking sources with direct knowledge of the situation. Those that are on track to meet central bank targets have largely tapped existing shareholders or depositors, converting local dollar deposits into equity instruments or sold overseas businesses.

The situation underscores the scale of the problem facing Lebanon's banks, heavily exposed to one of the world's most indebted states and starved of funding. Their customers have largely been frozen out of their dollar deposits and blocked from transferring cash abroad since late 2019.

Given the wall of losses facing the sector, some investors and economists say it's too little too late anyway.

The 20per cent target laid down by Riad Salameh, Lebanon's veteran central bank governor, is equivalent to around US$4 billion, he confirmed to Reuters. That is far short of the US$83 billion hole in banks' balance sheets estimated by the outgoing government last year as part of a financial rescue plan it had drawn up.

"They are all insolvent," said Mike Azar, a debt finance advisor and a former lecturer in international economics at John Hopkins

School of Advanced International Studies.

"There's no prospect for recovery as things stand, until there is a sector-wide bank resolution and restructuring and finally a fresh capital raise."

A central bank order for banks to request their largest depositors to repatriate up to 30per cent of their deposits also appears to have yielded little, the four banking sources say.

Salim Sfeir, the head of Lebanon's association of banks and the chief executive of Bank of Beirut, said most banks would "abide by the central bank guidelines".

"If we believe that there is no prospect for recovery we would be out of business by now. The challenges are difficult but we have a history of resilience and creativity and we will adapt to the new situation," Sfeir said in an statement.