Libya's banks may no longer be able to process payments or issue letters of credit (L/Cs) to import the essential goods on which the country is highly dependent if the current political and military conflict continues between the Tripoli-based government and east-based military forces.

As forces loyal to east-based military commander Khalifa Haftar battle armed groups in western Libya nominally loyal to the Tripoli-based government, fears are growing that an explosive banking crisis may be ignited.

Banks restricted

In April, the Tripoli-based Central Bank of Libya (CBL) started enforcing restrictions on several eastern state-owned commercial banks, which together write 30 per cent of Libya's commercial banking needs.

Further CBL restrictions could compromise the east-based government's ability to pay employees and Haftar's forces. This in turn could prompt Haftar to cut oil exports from areas he controls and ignite an economic war.

Cause and effect

A shortage of cash and credit at the commercial banks could then severely impact on key state companies and private firms, which hold accounts with these banks.

Those banks may then no longer be able to process payments or issue L/Cs to import the essential goods on which Libya is highly dependent.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.