The Sudanese Banking Sector Faces Specter of Bankruptcy

Report – Rehab Abdullah

*The Sudanese banking sector was exposed to obvious destruction as a result of the war between the Rapid Support Militia (RSF) and the Sudanese army in mid-April last year 2023. The process of theft, looting and burning affected more than 100 bank branches belonging to 37 government and private banks. War caused 70% of the banks in the combat areas to stop. According to the Central Bank of Sudan, confirmed information indicates that the percentage of funds looted from banks is estimated at about 38% within Khartoum State. After the war extended, the Central Bank of Sudan issued a package of measures to ensure the continuation of banking transactions.
Warnings of bankruptcy
Observers have warned that some banks may be exposed to bankruptcy or liquidation, as economic expert Onour said that in every three banks there are two that are at risk of bankruptcy.
However, the former Chairman of the Board of Directors of the Neelain Bank, the economic expert, Dr. Babakir Mohamed, refuted the expectations of some that the banks would go bankrupt or be liquidated, and he said in his statement to (Sudan Events) that no bank will go bankrupt, stressing that the compensation that comes after the war includes supporting banks, the origin of which is the funds of individuals.
He pointed out that the Central Bank of Sudan plays a major role in directing the banking sector to hedge risks and proper procedures in dealing with the assets of banks, in addition to obligating banks to provide a reserve of not less than 20% to guard against risks and exposure to bankruptcy.
Al-Tom acknowledged that what happened in Sudan and the effects of the accursed war require an understanding that the entire economy needs a closer look, rearranging the papers, and a comprehensive reconstruction plan that will put the entire economy back on track. He stressed that the Bank of Sudan must study the matter carefully and develop a vision that will reconcile the conditions of the banks as part of the national reconstruction (not for bankruptcy) plan.
Deficit in the final accounts of banks
However, the Director General of the National Export Finance and Insurance Agency, Ahmed Babiker Hammour, confirmed that the banks are facing various difficulties, including the loss of the stolen cash funds, including the destruction of assets, the cessation of debt collection from customers, in addition to the cessation of new financing. He confirmed in his statement to (Sudan Events) that all of this largely leads to financial losses for Sudanese banks without exception, and it is expected that the final accounts of banks for the year 2023 will witness a large deficit for most banks.
He expected that if this situation continued, some banks would fail to continue, and this might lead to liquidation or merger.
However, Ahmed Hammour stressed that the Deposit Guarantee Fund can play a role in reducing this possibility, unless the size and number of banks that need support are so large that the Fund is unable to provide sufficient assistance.
Public and customer confidence
Banking expert Abu Obaida Ahmed Saeed confirmed that the banks’ business was affected by the war because the bank is a financial intermediary between depositors and investors, in that many of the banks’ investments in the form of investment operations will falter as a result of the war that broke out almost a year ago, pointing to a significant decrease in bank deposits in banks – pointing out that the monetary mass of the public before the war represented more than 90% of the monetary mass in the economic system, stressing that the process of bank bankruptcy is linked to the confidence of the public and customers in the banking system. When confidence in the banking system is shaken, deposits are withdrawn from the banking system, adding that the banking system is now paralyzed in terms of the movement of deposits and withdrawals as a result of the ongoing war, and this was increased by the interruption of the communications network, which limited the movement of bank transfers via mobile transfer technology. Despite this, we find that the transfer process via mobile phone in light of the lack of security helped in the movement of funds via mobile transfers because from a security standpoint, this is better than moving with cash because of the risks involved.
Erosion of bank capital
Ahmed Saeed confirmed that the essence of the risks of war is the weakness and erosion of the capital of weak Sudanese banks in light of the increasing risk of non-performing debts due to the war. He explained that the role of the Bank of Sudan is working to protect the banking system from collapse as a lender of last resort to any bank exposed to a financial shock, but the question remains whether under the conditions of war, is the Bank of Sudan able to provide support to banks as a lender of last lender?! Sudanese banks are weak in terms of capital, and this makes their role weak in the development process, and even in commercial operations. He noted that in light of the decline in the value of the Sudanese pound, we find that opening a credit in the amount of one million US dollars requires the approval of the Bank of Sudan because the amount of credit represents a high percentage of the capital of most Sudanese banks and thus limits their role in the foreign trade process. He stressed the necessity of merging banks in the post-war period so that these banks can compete and contribute to economic development as well. Encouraging international banks to open branches in Sudan to contribute to the economic development process and inject capital into the Sudanese economy.
Positives of the war on banks
At a time when the economic expert, Dr. Mohamedd Al-Nayer, explained that Sudanese banks were suffering from problems even before the war, suffering from weak capital, and he added, “We have repeatedly called for the Bank of Sudan to accelerate the steps in raising banks’ capital to become at good rates that will enable them to confront the challenges in the coming period.” But the Bank of Sudan did not implement the bank structuring procedures, and therefore there are banks whose capital is very weak, and the war came and its complications, stressing its impact on the banks, but Al-Nayer stressed the inability to confirm that the banks are vulnerable to collapse or bankruptcy, given that the banks are now working well. Perhaps the conditions of the war led to some positive results, as it changed the concepts of keeping money and gold in homes after being robbed.
Rather, in banks, considering that customer deposits are guaranteed by the central bank, and this is the case in all the world, indicating that this will make the mass flows increase after the end of the war, and what was said previously that 90% of the monetary mass is outside the banking system will be reversed and the matter will only be reversed. It needs to activate electronic systems, and this matter has achieved very great success in light of the current war conditions, such as “Bankak, Okash and Fawry” which played a role in reducing the burden on the citizen and activating the role of banking work in a large way. He believed that a decision was supposed to be issued not to accept the thousand-pound note. In commercial activity, but rather in banks, it would have greatly reduced the deterioration of the national currency and made the banks have sufficient liquidity, and as an alternative to currency exchange, which is an inevitable issue that must occur when the state prepares well for this step, while reconsidering the categorical composition of the currencies themselves, which is a fundamental issue.
Bankruptcy Guarantees
It is evident that the obligations of the Banking Deposit Guarantee Fund (BDGF) are that when any bank is dissolved or liquidated, BDGF must pay each depositor in that bank an amount equal to the limit guaranteed under the provisions of Article 18, provided that what the BDGF pays to the depositor does not exceed the total of his deposits present with the bank on the date of issuance of the dissolution order or Liquidation.
In the case of any guaranteed bank for which a settlement, restructuring or merger project was drawn up and that project was approved by the competent authority, such that the project stipulates that each depositor on the effective date of the project will receive an amount less than the guaranteed amount in accordance with the provisions of Article 18, the BDGF shall pay an amount equal to the difference between the amount determined by the project is the principal of the deposit or the difference between the guaranteed amount and the amount specified by the project. For the purposes of this article, the deposit amount is determined after deducting any amount to which the guaranteed bank is legally entitled, and the bank must deduct those amounts from the depositor’s account through clearing.
The question remains, if banks go bankrupt, will this law be implemented, or will war be considered a force majeure in implementing the provisions of the law?