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A government debt restructuring in Lebanon involving write-downs of its bonds could trigger a sovereign doom loop that would prove costly to the Lebanese banks holding these assets, S&P Global Ratings warned.
Although the true extent of banks losses will only materialise once the government restructures its liabilities, the cost of a default could surpass 100 per cent of the country s gross domestic product, the ratings agency warned in a report titled
Calculating The Cost of Lebanon s Bank-Sovereign Doom-Loop.
Under its most pessimistic scenario, lenders face asset write-downs equating to 134 per cent of the country s GDP. Without a resolution, Lebanese banks could find it difficult to sustain their operations as deposit outflows continue and foreign correspondent banks sever relationships, S&P Global Ratings credit analyst Zahabia Gupta, said. Failure to restructure the financial system could leave Lebanon with banks unfit to support an economic recovery.