Bank Restructuring Law
finally approved by Parliament

Following months of deliberations

and modifications demanded by the IMF

Parliament has passed major amendments to the Bank Restructuring Law (BRL), the primary statute governing bank reform and reorganization. The updated legislation creates a legal framework to evaluate failing commercial lenders, restructure troubled financial institutions, execute forced debt-to-equity conversions, and handle orderly liquidations.

Implementation of the new framework remains suspended, pending the passage of the Financial Restoring and Deposit Recovery Law, a.k.a. the ‘Gap Law’, still under consideration in Parliament. That upcoming statute is designed to determine state liabilities, establish the broader financial framework, and allocate system-wide losses.

Two chambers
To prevent past conflicts of interest, the law overhaul reshapes internal governance at the Central Bank (BDL), dividing the Higher Banking Council into two separate bodies with clear divisions of authority. The First Chamber focuses on disciplinary enforcement and standard administrative oversight. It includes the BDL Governor, the First Vice-Governor, the Director General of Finance, a senior financial judge, the Chairman of the Banking Control Commission (BCC), and the Chairman of the National Deposit Guarantee Institution. The Second Chamber holds sole authority over bank resolutions and liquidations. This body consists of the BDL Governor, two Vice-Governors, two independent restructuring experts appointed by the Cabinet, a senior judge, and the Director General of Finance. Strict independence rules apply to all members, prohibiting anyone who served in executive roles or held major financial stakes in a target bank over the prior five years from participating in decisions regarding that institution.

Hierarchy of losses
Under the revised statute, the BCC can trigger formal resolution proceedings if a bank defaults on capital requirements, breaches liquidity rules, fails to meet obligations as they fall due, or faces sustained non-profitability.

Independent international valuation firms must assess the failing entity’s true asset quality before regulators step in. For institutions entering resolution, regulators can mandate recapitalizations, transfer assets to bridge lenders, facilitate structural mergers, or enforce bail-ins.

Loss absorption follows a strict statutory hierarchy that overrides existing contractual terms. Equity shareholders absorb losses first, followed by holders of Tier 1 and Tier 2 capital instruments. Next in line are unsecured liabilities, including non-regulatory subordinated debt, bank-issued bonds, interbank liabilities, and deposits belonging to major shareholders or senior executives. Uninsured customer deposits absorb losses before insured deposits covered by the National Deposit Guarantee Institution.

Exempted from loss absorption are (Fresh) foreign currency deposited after October 17, 2019, tax liabilities, and deposits in lira.

Tough enforcement
The legislation introduces aggressive enforcement powers targeting bank executives suspected of civil or criminal misconduct over the preceding decade. Authorities must impose six-month travel bans, freeze local bank accounts and real estate, and file for international precautionary attachments. Targets must disclose their global assets within ten business days or face a three-month prison sentence.

Liquidators and administrators are empowered to annul unjustified transactions executed prior to a bank’s failure. They can claw back related-party deals made within 36 months of liquidation, third-party deals made within 18 months, excessive executive compensation paid over the previous ten years, and discriminatory outbound money transfers executed after October 17, 2019. Appeals against Council decisions can be submitted to a Special Court within ten days, though appeals will not stay execution, and regulators maintain legal immunity for actions taken in good faith.

Long overdue
The passage of this law has been delayed for over four years, facing legislative hurdles since its inclusion in the initial April 2022 staff-level agreement with the International Monetary Fund (IMF). Originally drafted as an emergency resolution framework to address a financial gap exceeding $70 billion, the bill languished through repeated parliamentary postponements, political squabbling, and intense pushback from various stakeholders, including the Association of Banks, which aggressively lobbied against absorbing losses before the State resolved its own debts. Over its multi-year evolution, the draft underwent countless rewrites and institutional battles to satisfy competing demands from the IMF, BDL, BCC, and cabinet ministers.

International lenders repeatedly demanded strict alignment with global resolution standards, forcing lawmakers to fix loopholes in banking secrecy laws, clarify decision-making authority between overlapping central bank bodies, and enforce a strict loss-absorption hierarchy that protects small depositors over bank equity holders and executive management. Even as Parliament finally passed the amended law following fierce floor debates over contentious provisions, and resulted in political compromises.


Summary of law

Amendments to Law 23: Full text in Arabic