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The International Finance Corporation (IFC) is suing Lebanon’s Bank Audi in a bid to force repayment of a loan package provided to boost trade and investment in the Middle East and North Africa.

In a July 31 filing to the UK courts, the IFC and a debt fund it manages – the IFC Capitalisation Fund – say they are together owed US$234mn for loans provided to Bank Audi, Lebanon’s largest bank, a decade ago.

When the deal was first signed, an IFC official said the loan would help increase “critical trade flows and investment” in the region.

The loans were intended to support Bank Audi’s expansion both in the Lebanese market and abroad, helping scale up lending operations in neighbouring countries, such as Turkey and Egypt, the IFC said upon signing.

The majority of the funding was provided by the IFC-managed debt fund, a US$3bn initiative launched in 2009 by the IFC and the Japan Bank for International Cooperation (JBIC) to help emerging market banks weather the global financial crash.

In a London High Court claim, the IFC alleges Bank Audi has not made interest payments on either of the loans for the past four years, and when they reached maturity in April 2024, the lender failed to settle the debt.

The IFC and the fund are owed US$58mn and nearly US$176mn in principal and interest, respectively, they claim.

The IFC’s legal action against Bank Audi comes at a difficult time for Lebanon’s banking sector, which has been mired in an economic and financial crisis since 2019. During this time, the Lebanese pound has lost more than 98% of its value and Lebanese depositors have struggled to withdraw dollars.

Bank Audi has not yet filed a defence to the IFC’s claim, but in a public statement issued this week, the lender says it has “no choice but to vigorously defend itself”.

According to Bank Audi, depositors at Lebanese banks who are struggling to withdraw US dollars are “senior” to the IFC debt.

“IFC is fully aware that, since October 2019, Lebanon has been experiencing an unprecedented financial and economic crisis, which the World Bank, IFC’s parent organisation, described as ‘one of the world’s top ten, possibly top three, most severe economic collapses since the 1850s’,” Bank Audi says.

Lebanon’s Central Bank has also blocked repayments on the IFC loan agreement until a bank restructuring law is passed, the bank says.

The International Monetary Fund (IMF) called for such legislation in late 2023 to fix the “collapsed” banking sector, but a law is yet to be introduced. Lebanese depositors still cannot access their funds, and local banks remain insolvent, having accumulated losses exceeding US$70bn.

“IFC is now insisting on repayment in full (with interest) of the entire principal amount of the subordinated loans, disregarding their subordinated status, the hierarchy of claims, the Central Bank of Lebanon’s expressed restrictions and indeed, IFC’s mission and values, including the following ‘Integrity – We do what is right,’” Bank Audi says.

The IFC remains a minority shareholder in Bank Audi and, as of last year, had a 3.4% stake in the lender’s Turkish subsidiary, Odea Bank.

Bank Audi says it has honoured all of its other financial commitments to the IFC – except for the subordinated loans – and claims it paid significant interest fees until Lebanon was plunged into a financial crisis.

“To date, IFC and its affiliated fund have received in excess of US$66mn interest payments under the subordinated loans. Bank Audi only stopped paying interest on the subordinated loans in 2020 due to the lack of free profits, a condition for the payment of interest. IFC also received significant dividend payments on its shareholding in Bank Audi over the past years,” it says.

Bank Audi had hoped to use the 2014 loan to solidify its position in the local market, while expanding regionally.

In 2022, Bank Audi opted to sell its Egyptian subsidiary to First Abu Dhabi Bank (FAB) for an undisclosed sum.

Earlier this month, Bloomberg reported that Abu Dhabi wealth fund ADQ is in talks with Bank Audi over an acquisition of its Turkish subsidiary Odea Bank, citing sources close to the discussions.

The IFC Capitalisation Fund was launched with backing of US$1bn from the IFC and a JBIC contribution of US$2bn, before making a spree of investments in developing countries, including Cambodia, Peru, Guatemala, South Africa and Vietnam.

The fund has exited the vast majority of these deals, though a few are still active involving banks in Sri Lanka and Colombia, as well as Bank Audi in Lebanon, the IFC Asset Management Company website shows.

The IFC and Bank Audi declined to comment on ongoing legal proceedings. JBIC was not immediately available for comment.