(Bloomberg) -- Lebanon-based Bank Audi SAL said the World Bank’s private investment arm is suing it in the UK for $234 million of loans and interest payments, even as the nation’s lenders continue to grapple with one of the world’s worst financial crises.
The International Finance Corp. and an affiliated fund are seeking full repayment of Tier 2 subordinated debt that matured in April, according to a statement from Lebanon’s second-largest lender. Bank Audi said it paid more than $66 million in interest, before stopping in 2020 due to the lack of free profits — a condition for repayments.
The IFC filed proceedings before a London court on July 31, according to court records. A representative for IFC said it does not typically comment on ongoing legal matters.
Lebanon’s central bank owes at least $70 billion to local banks. That’s the result of the so-called financial engineering introduced by former Governor Riad Salameh to keep the currency peg afloat and continue financing the government’s deficit, moves the International Monetary Fund has described as “unconventional.”
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The IFC is acting like “everything is normal,” Bank Audi Chief Executive Officer Khalil Debs said. “An international institution is asking for money, knowing we can’t pay depositors before a restructuring plan and they’re asking us to pay them first.”
Lebanon’s economy has been in a downward spiral since a financial crisis in 2019. The country defaulted on $30 billion of international bonds in 2020 and banks imposed defacto capital controls that remain in effect to this day.
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Local banks have turned down a proposal to repay depositors from their own capital, arguing that the onus falls on the sovereign. The IMF has asked the government to restructure the sector to better understand the losses.
Bank Audi will continue to engage with IFC, which is a shareholder in the lender and its Turkish subsidiary Odea Bank, its CEO Debs said. He added, however, that the central bank has prohibited it from repaying the subordinated debt pending a banking restructuring law.
Subordinated debt holders are typically repaid only after senior debtors in a credit event.
Bank Audi, like its peers, has been forced to pay back some clients who filed lawsuits abroad. However, within the country, desperate depositors have turned to bank heists to reclaim their savings.
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