Banking Sector Reforms Unlikely
BMI View: Reforms to Libya's banking sector are unlikely to materialise anytime soon, as the government continues to focus on improving the security situation. Limited access to credit will continue to thwart growth in the private commercial sector, hindering the expansion of the non-oil economy.
Libya's General National Congress passed a law banning interest on financial transactions in January. If the law comes into effect, banks will no longer be allowed to pay interest to, or receive interest from individuals. The move will likely paralyze financial intermediation, and exacerbate pre-existing problems in the financial industry. Financial intermediation remains shallow compared to the standards of the Middle East and North Africa (MENA) region, particularly with lack of adequate lending opportunities in the non-hydrocarbon sector. Moreover, elevated risks to financial stability are worsened by the presence of several entities providing financial products and services outside of the formal banking system, especially currency exchange and transfers and short-term lending. Although the Central Bank of Libya (CBL) has adopted procedures with respect to foreign exchange transfers abroad through the announcement of licensing requirements for exchange operators, we believe that the size of the informal sector will remain significant. Regulatory and supervisory capacity remains limited, with measures to strengthen balance sheet resilience and prevent the build-up of excessive sectoral exposures appearing necessary to improve structural risks.
Lack Of Reforms Will Hit The Non-Oil Economy
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