Bank depositors in Lebanon are likely going to lose money for banks to ultimately survive the country’s debt restructuring, according to S&P Global.
In a recent report, S&P Global, a U.S.-based firm that specializes in financial information and analytics, said that the cost for Lebanese banks to restructure debts could range from 30% to 134% of Lebanon’s GDP for 2021 ($23 billion to $102 billion).
“The main stumbling block to restructuring appears to be that Lebanon is currently functioning with a caretaker government without authority to agree terms with creditors,” the report said.
For the Lebanese economy to recover with the support of the banking sector, the crisis-hit country’s financial system would have to be restructured, according to the report.
However, S&P Global indicated, shareholder or external funding alone would likely be insufficient to bear the restructuring cost.
Therefore, “at this stage, bailing in depositors – for example by paying them below-market exchange rates, or converting deposits into equity – seems highly likely.”
According to the firm, the full extent of losses incurred by banks in Lebanon will only materialize after the debt restructuring process had taken place. This process would require a functioning government capable of implementing reforms.
The formation of such a government has been hindered for months by the internal disputes between Lebanon’s parties.
In addition to the prevailing political one, Lebanon is going through a crippling economic crisis that has locked people out of their bank deposits amid accelerating inflation.