The Central Bank has confirmed that its counterpart in Lebanon has decided to close the branches of Lebanese banks in Cyprus.
Sources confirmed to CNA that the Lebanese Central Bank had closed seven branches of Lebanese banks in Cyprus, while another two were closed in the previous period.
Lebanon has been in a deep economic crisis since 2019, and the World Bank ranks it as one of the three worst economic and financial crises since the mid-19th century.
In early 2020, Lebanon declared it was in default on its external debt obligations.
According to CNA, the Central Bank of Cyprus has been closely monitoring the situation since 2019, when the financial problems in the neighbouring country began to intensify.
CBC said it has been taking measures so the Cypriot banking system does not bear the cost through a possible activation of the Deposit Guarantee Scheme to safeguard depositors of these branches.
In November 2019, the CBC restricted deposits to Lebanese bank branches that fell under the scope of the Deposit Guarantee Scheme. The scheme covers deposits under €100,000.
In March 2020, CBC decided that branches transfer liquidity equal to the guaranteed deposit amount to the Central Bank of Cyprus so that cash was available to pay the guaranteed deposits in case of problems.
According to the financial statements, the liquidity of most of the deposits received by the branches was placed in the headquarters of the main banks in Lebanon.
As Lebanese banks faced an ever-increasing pressure as the country fell into turmoil, if Lebanon banks defaulted, the Cyprus DGS would have to cover losses.
According to reports, the total deposits in these branches were reduced from €650 mln in 2019 to €400 mln in 2020.
A possible collapse of the Lebanese banking system is not expected to harm Cyprus or its banking system, as most deposits and loans belong to people who do not reside on the island.
The Lebanese banks active in Cyprus were:
- Bank of Beirut
- Banque BEMO
- BLOM Bank
- Byblos Bank
- Credit Libanais
- IBL Bank
- LGB Bank