Lebanon Recovery Plan Includes Central Bank Debt Write-Off, Haircuts to Depositors

Lebanon Recovery Plan Includes Central Bank Debt Write-Off, Haircuts to Depositors

Lebanon's government foresees cancelling "a large part" of the Central Bank's foreign currency obligations to commercial banks and dissolving non-viable banks by November, according to a financial recovery plan passed by the cabinet on Friday.

The document, seen by Reuters and verified as accurate by a minister, was passed by cabinet in its final session hours before losing decision-making powers, following the election of a new parliament on May 15.

It includes several measures that are prerequisites to unlock funds from a preliminary deal with the International Monetary Fund agreed in April that could help pull the country out of a three-year financial meltdown.

The plan foresees a full audit of the Central Bank's forex financial standing by July. Then, the government "will cancel, at the outset, a large part of the Central Bank's foreign currency obligations to banks in order to reduce the deficit in BDL's capital," the document said.

The largest 14 commercial banks, representing 83% of total assets, would also be audited. Viable banks would be recapitalized with "significant contributions" from bank shareholders and large depositors.

The plan said it would protect small depositors "to the maximum extent possible" in each viable bank, but did not lay out a minimum amount to