American financial services company Moody’s has warned that Lebanon’s economic decline would accelerate if it lost its relationships with correspondent banks.
In a memo sent via email, according to Al-Jadeed, Moody’s said that 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.”
This would, in turn, endanger the remaining correspondent banking relationships of Lebanon and further undermine “the availability of cross-border payment services for transfers, trade, and tourism, which are among the main pillars of the economy.”
Losing these relationships would increase Lebanon’s dependence on official external financing, as cross-border payments and clearing services would remain paralyzed, even after a comprehensive debt restructuring, the memo said.
Citing data from the central bank and Haver Analytics, Moody’s noted that Lebanon’s available reserves for use had fallen to $1 billion by the end of February 2021.
Back in July 2020, as Lebanon was speeding toward economic collapse after having defaulted on Eurobond payments, Moody’s Investors Service downgraded the country’s issuer rating – the Lebanese government’s creditworthiness – to “C,” the lowest possible level.