Financial Crime World

Libyan Banking Sector in Crisis: Corruption, Militias, and Dysfunctional Land Registry Contribute to Undercapitalization

Tripoli, Libya - The Libyan banking sector is on the brink of collapse due to corruption, militias, and a dysfunctional land registry system.

The Central Bank of Libya (CBL) has been conservative in requiring banks to maintain high levels of capital, creating a greater cushion to protect against losses but also squeezing bank profitability. A recent report highlights that the CBL’s inability to conduct rigorous reviews and the poor information management within banks, particularly state-owned banks, have led to unrealistic estimates of bank capital.

Challenges Facing the Banking Sector

  • The financial sector has come to a standstill due to political and legal uncertainty.
  • Initiatives and progress are frozen, with very little public trading on the stock exchange.
  • Private placements are stifled by the lack of clarity.
  • Leasing and insurance remain embryonic, and specialized credit institutions are temporarily suspended.

Impact on MSMEs, Individuals, and Households

  • Micro, small, and medium-sized enterprises (MSMEs), individuals, and households are underserved due to the inability of banks to assess risks and provide financing.
  • The land registry system is critical for expanding any type of financing in Libya, but it remains dysfunctional, making it difficult to expand lending.

Recommendations

Short-term Measures

  • Conduct an international audit of the CBL and its Eastern branch.
  • Discuss clearing payments and addressing liquidity challenges with technical teams.
  • Identify gaps in capacity to combat anti-money laundering/terrorist financing risks.
  • Prepare for independent asset quality reviews.

Longer-term Measures

  • Revisit the role of the state in the financial sector.
  • Strengthen financial sector governance.
  • Continue strengthening CBL capacity.
  • Rebuild the land registry.
  • Implement measures to increase transparency and accountability.

Conclusion

The report emphasizes that there is no entity responsible for overall financial sector development in Libya, recommending the establishment of a National Steering Committee composed of main financial sector stakeholders to spearhead implementation of reforms. Addressing these challenges will require a comprehensive approach to revitalize the Libyan banking sector and promote economic growth.