REVEALED: Turkey’s Central Bank Cancels All Letters of Guarantee Issued to Libyan Banks; Banking Bankruptcy Looms – Al Marsad

The Central Bank of the Republic of Turkey (CBRT) has taken a new economic measure against Libya and canceled bank letters of guarantee issued in favour of Libyan banks in violation of all relevant international and domestic laws and regulations.

(Libya, 9 June 2020) – Al Marsad has obtained a copy of some letters addressed to Libya’s Organization for Development of Administrative Centers (ODAC) from a Turkish company implementing the University of Tripoli project in 2009 of which it has done nothing. The said company stated the cancellation of the Turkish bank letters of guarantee to the Arab Turkish Bank in Istanbul. This company’s contract price was US$29 million.

Another letter from a Libyan bank (whose name Al Marsad shall not disclose), issued inearly June, referred to Turkish measures on the cancellation of letters of guarantee warning of the consequences and illegality of such actions.

The third correspondence was from the Arab Turkish Bank addressed to the Libyan commercial banks stating that the CBRT had instructed the cancelation of all letters of guarantee issued to the Libyan banks.

BANKING CRIME

A source from the Central Bank of Libya (CBL) spoke to Al Marsad on condition of anonymity, and described the measure as a financial crime committed by the CBRT against the Libyan banks. Canceling all bank letters of guarantee issued in their favor, making them pay their value, and escaping their binding commitment was flagrantly illegal, the source asserted.

He added that this action contravened international public and private law, the Libyan law that governs these letters, as well as Article (46) of the Turkish Constitution. “The Association of Turkish Banks also confirmed the illegality of such measure,” claimed the source.

Regarding the consequences of this decision, the CBL source said, “This simply means the bankruptcy of the Libyan banks because the value of these letters are in the billions. The banks have received notices stating the cancellation of the letters of guarantee issued in their favour.”

The source revealed that after receiving the said notice from the CBRT, the Libyan banks notified the CBL and the Government of National Accord (GNA) of Fayez al-Sarraj. However, both have not taken any action to date although it has now been six months ago since the measure was first taken.

The same source called on all banking experts and those concerned with these punitive measures , even if only at the media level, to save Libyan banks from imminent bankruptcy due to these unjust unilateral measures adopted by the CBRT in flagrant violation of the international and local laws and resolutions.

A letter of guarantee is a pledge from a bank to pay the beneficiary of the guarantee an agreed sum upon request if the client fails to honor his obligations under the terms and conditions of the contract or agreement concluded with the beneficiary or delays such fulfilment.

This case means that the Libyan banks are now obligated on their own to pay the value of the letters of guarantee to several Libyan parties, including the Libyan Housing Authority and others for the Turkish projects stalled since 2011 due to force majeure conditions due to the continued conflict in the country. These conditions resulted from an international resolution that threw the country into turmoil and conflict for which it is not liable.

The value of these Turkish-Libyan projects total approximately US$120 billion, while the value of the letters of guarantee is 30% of this amount. In other words, the Libyan banks must now pay approximately US$33 billion, which exceeds the capital of these banks and will render them bankrupt.

Some Libyan authorities have claimed the value of these letters of guarantee and obtained judicial rulings from Libyan courts that order banks to pay them. In this way, Turkish banks have circumvented legal issues leaving Libyan banks in a very serious predicament.

© Al Marsad English (2020)