ERASE, Bank Restructuring, Banking Crisis, Economic Update

Lebanon’s New Central Bank Governor Faces Complex Road Ahead

10:23 | 31 March 2025LIMS output
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Central Bank

On March 27, Lebanon’s Council of Ministers appointed Karim Souaid as the new Governor of the Central Bank of Lebanon (BDL), nearly two years after the end of Riad Salameh’s 30-year term and following Wassim Mansouri’s tenure as acting governor. The appointment was preceded by an intense national debate throughout the month over the new governor’s intentions and plans.

LIMS highlighted the entrenched polarisation obstructing efforts to resolve Lebanon’s protracted banking crisis. The debate has crystallised around two opposing camps. One faction lays the blame squarely on the country’s commercial banks, acknowledges the scale of financial sector losses, and advocates for the closure of insolvent financial institutions and the imposition of deposit haircuts. The other points to the government and the Banque du Liban (BdL), contending that banks could restore depositors’ funds if the central bank were to repay its obligations to banks. This argument supports selling national assets to help the public sector repay its debt to financial institutions.

While LIMS concedes that each perspective carries a measure of truth, it argues that neither approach, in isolation, offers a viable solution. The deadlock between these camps—each unwilling to concede ground—has resulted in the inability to resolve the banking cries for the past five years. The cost of inaction has been severe with staggering losses for depositors, a halt in bank lending, a collapse in economic activity, and the near-total erosion of the Lebanese pound’s value—now down by 98 per cent.

In light of the impasse, LIMS has put forward a series of interim measures designed to mitigate further economic deterioration while political actors remain at odds over a comprehensive restructuring plan. These proposals include decoupling monetary policy from the banking crisis to safeguard exchange rate stability, permitting banks to resume lending in US dollars with guarantees to ensure repayment in the same currency, and maintaining a fiscal surplus to facilitate higher levels of debt repayment.

Despite the fierce political battle over the central bank governorship, banking restructuring will not happen quickly, and Lebanon risks wasting more precious time without addressing the fundamental issues.

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