Court revokes writing off
BDL obligations to banks

Provision was key to government recovery plan

The State Council has annulled the decision of the Council of Ministers to write off a big chunk of the financial obligations in foreign currencies that the Central Bank (BDL) owes to the banks.

The decision was part of the government’s financial sector recovery strategy and aims to reduce the deficit in BDL’s equity and close its net open foreign exchange position. The State Council’s verdict came in response to a request submitted by the Association of Banks (ABL) to revoke the Cabinet’s decision.

The banks’ foreign currency placements with BDL such as deposits, certificates of deposit (CDs), and current accounts total nearly $82 billion, according to a top executive in one of largest banks. They represented 71 percent of their total assets at the end of 2023.

The ABL said earlier this year that the banks were waiting for the results of audits carried out by international experts about the financial hole in BDL’s balance sheet before litigating the government. It said the forensic audit of Alvarez & Marsal has shown that BDL’s financial statements were unsound and included fictitious profits while the cumulated deficit from 2015 to 2020 reached more than $51 billion. The debt owed by the State to the Central Bank totals $16.5 billion, as disclosed by BDL in early 2023. BDL’s Acting Governor Wassim Mansouri had stated that BDL has suffered losses that the State must cover according to the Code of Money and Credit which stipulates that 50 percent of BDL’s net profit must be transferred to the State’s Treasury but in the case of losses, they must be compensated by the Treasury if the balance of BDL’s General Reserve Fund is insufficient.

The banks’ foreign currency placements with BDL reveal the extent of their exposure to the Central Bank which negatively affects their solvency ratio due to BDL’s financial hole, the banking source said.

Samir Hammoud, former Chairman of BDL’s Banking Control Commission said that the banks’ placements with BDL, which represent more than 80 percent of their customers ‘deposits, are of lower quality than their real dollar deposits with correspondent banks abroad because they are risky lollars even if they are evaluated in lira at the market exchange rate. Despite all pressures, bankers must prioritize cash dollars in order to safeguard their banks and ensure their sustainability, he said. The banks’ real dollar deposits with correspondent banks stood at $4.5 billion at the end of 2023.