Financial Crime World

LIBYA’S FINANCIAL SECTOR IN CRISIS: SURGE IN CORRUPTION AND MILITIA LINKED TO BANKING WOES

Libya’s Banking Sector in Shambles

Libya’s banking sector is facing a crisis, with a surge in corruption and militia-linked activities threatening to destabilize the already fragile financial system. The country’s central bank, CBL, has been struggling to maintain stability, but experts warn that the situation could worsen unless drastic measures are taken.

Undercapitalized Banking Sector

According to a new report, the banking sector is undercapitalized, with many banks unable to assess risks and returns on investments due to a lack of reliable property ownership records. The dysfunctional land registry and weak legal system have also made it difficult for banks to seize collateral in case of defaults.

Questionable Asset Values

The report highlights the questionable asset values of state-owned banks, which have been financing struggling state-owned firms and social objectives with little hope of repayment. The absence of rigorous audits has meant that the true value of these assets remains unknown.

Stagnant Financial Development

Initiatives to develop other forms of finance, such as leasing and insurance, have stalled due to a lack of political and legal clarity. The stock exchange has also been dormant, with few public trading activities taking place.

Impact on MSMEs, Individuals, and Households

The report’s authors warn that the situation is dire for micro, small, and medium-sized enterprises (MSMEs), individuals, and households, who are struggling to access credit and other financial services.

Recommendations

To address this crisis, the establishment of a National Steering Committee, comprising main financial sector stakeholders, is recommended to spearhead implementation of reforms. In the short term, measures include:

  • International audit of CBL and its Eastern branch
  • Discussions between technical teams on clearing payments and addressing liquidity challenges faced by Eastern banks
  • Identification of key gaps in capacity to combat anti-money laundering/terrorist financing (AML/CFT) risks
  • Preparations for independent asset quality review (AQR) of leading banks

In the longer term, measures include:

  • Revisiting the role of the state in the financial sector and strengthening governance
  • Continuing to strengthen CBL capacity through an assisted Basel Core Principles assessment
  • Rebuilding the land registry

Conclusion

The report concludes that without immediate action, Libya’s financial system risks collapse, exacerbating the country’s economic and political crisis. The international community is urged to provide support and guidance to help stabilize the situation.

Call to Action

It is essential for policymakers to take swift and decisive action to address these issues and restore confidence in Libya’s financial sector. By working together with international partners and stakeholders, it is possible to develop a more stable and resilient financial system that benefits all Libyans.