Moody's warned, in a memo published by it, that Lebanon's loss of relationships with correspondent banks will accelerate its economic downturn.
According to Moody's, the encroachment on the obligatory reserves of banks at the Central Bank of Lebanon in light of the continuing government impasse will increase the risks to the banks, thus endangering Lebanon's remaining relationships with correspondent banks, and further undermining the availability of cross-border payment services for transfers, trade and tourism, which are a main pillar of the economy.
The agency announced that the permanent loss of the relationships with correspondent banks will increase Lebanon's dependence on official external financing, as cross-border payments and clearing services will remain in a state of paralysis even after a comprehensive debt restructuring, which will reduce any potential recovery.
Moody's revealed that Lebanon’s reserves available for use had fallen to $1 billion by the end of February 2021, according to data from the Central Bank and Haver Analytics.
The Central Bank of Lebanon had called on the caretaker government to expedite the development of a plan to reduce spending on subsidies in order to maintain the remaining foreign exchange reserves. Lebaonon’s Central Bank Governor Riad Salameh confirmed that the majority of banks had complied with the requirement to increase the capital.
Source (Al-Arabiya.net, Edited)
