BEIRUT:  Lebanon's central bank said late on Sunday it was looking into a mechanism through which depositors, who have been locked out of their accounts since 2019, could have access to their funds.

The bank said it was in talks with local banks to come up with a system that could gradually grant depositors up to $25,000 of their money in instalments.

"These funds will be in instalments over a period of time that the central bank will decide soon," it said in a statement adding that payments were expected to start at the end of June, if "legal cover" was provided.

Lebanon's banks were once among the world's more profitable lenders, funnelling funds from a scattered diaspora into state coffers in return for high interest rates.

But as Lebanon's economic meltdown gathered pace and dollar remittances dried up, the financial system was starved of funding.

Banks froze customers out of their deposits and blocked them from transferring cash abroad since the financial crisis erupted in late 2019.

Depositors have mounted a legal challenge, accusing the banks of negligence and fraud amid fears the deposits have vanished. Lenders have denied any wrongdoing and have repeatedly said that customers' deposits are safe. 

The central bank said the new payment mechanism would be applicable for all deposits in all currencies dating to before Oct. 2019 and as they stood at end of March 2021.

(Reporting By Maha El Dahan; Editing by Muralikumar Anantharaman) ((Maha.Dahan@thomsonreuters.com; + 9712 4082101; Reuters Messaging: maha.dahan.thomsonreuters.com@reuters.net))