'We can’t afford to stand still': Syria’s banks brace for competition for post-sanctions boom

From reconstruction to trade, an end to sanctions has invigorated sector but challenges remain

The US and Europe have agreed to lift sanctions on Syria, ending years of isolation for its banking sector. AFP

The end of sanctions on Syria could not have been more cinematic. With US President Donald Trump as director and Saudi Arabia and Turkey as co-producers, what could have been a press release resembled a big budget Hollywood release.

“They could have just signed a document and issued a statement,” said a senior banker at a leading private Syrian bank, speaking on condition of anonymity. “But they decided to put on a show, which, I think, will attract more and more investors.”

Now, with sanctions over, the banker said the institution expects revenue to grow by 30 per cent in the next year. The bank has already begun rebuilding and reopening branches, many of which were destroyed during the civil war.

“We have a plan for rapid growth,” the senior banker added. “We expect a wave of investors over the next two years, each trying to claim their share before the others. We can’t afford to stand still, we have to grow quickly.”

Four executives at Syrian banks expressed similar upbeat sentiment in interviews with The National. Long cut off from the global financial system, and confined to domestic services in Syrian pounds, the banking sector is daring to dream big for the first time in 14 years.

Paying for reconstruction

Reconstruction efforts will need substantial funding, and bankers say they hope to help fill that gap. They are looking at plans for infrastructure and real estate projects.

Investment ideas in Syria’s economy seem endless, including a 45-storey Trump Tower proposed for Damascus. “We’re ready to finance it,” the banker said.

Syria's President Ahmad Al Shara has won key backing from Donald Trump in his bid to re-open the Syria economy. AFP

As international trade reopens to Syria, banks are also poised to play a key role as intermediaries. “Banks will be able to access the global financial system, reviving foreign trade; that’s a very positive development. It’ll make imports easier and facilitate export,” a Damascus banking executive affiliated with a foreign financial group told The National.

“This is very promising: Syria now offers many opportunities for the banking sector, which thrives on financing projects,” said Thaer Laham, deputy chairman of Fransabank Syria.

But significant challenges remain. “Syrian banks must also be mindful of competition from international institutions,” he added.

Once pariahs in the system, Syria’s banks must now modernise and meet international compliance standards if they hope to compete with foreign lenders, including some from Turkey and Europe, that have already expressed interest in the market.

De-risking dilemma

The first step for Syrian banks is to re-establish ties with correspondent banks, which are intermediaries that allow local institutions to connect with the global system – a critical move towards reintegrating into international trade.

The lifting of sanctions also means Syrian banks will regain access to funds they had deposited with foreign correspondent banks, which had been frozen abroad.

Syrian bankers told The National they have been engaging with foreign lenders for the first time in 14 years, with some responding positively while others remain cautious.

“I think one of the main challenges is the issue of de-risking. Private capital always tries to avoid risk, as you know. That’s why we need official positions from foreign governments to encourage banks to do business with Syria,” the senior banker said.

For Benjamin Feve, a senior researcher at Karam Shaar Advisory, confidence might not immediately return.

“Yes, sanctions have been lifted, but after more than a decade of disconnection, Syrian banks are likely far behind on key issues like anti-money laundering and compliance. Some bankers may claim they’re up to date, but no international body has been able to visit Syria and confirm whether these standards are actually being implemented,” he said.

“So, for foreign banks, re-establishing correspondent relationships might take time, they need to assess whether Syrian banks truly meet compliance standards,” he added.

The Damascus stock exchange resumed trading on Monday after a six-month closure. AFP

A race to catch up

Syrian banks will also have to catch up on a technology level, beginning with the reintroduction of basic services like Visa and MasterCard.

“We’ve had 15 years of sanctions, and during that time, there was no opportunity to introduce modern financial technology into the country,” the Damascus executive said.

Syrian banks are now trying to make up for 14 years of isolation, retraining staff for services and transactions that were halted under sanctions.

“Most banks haven’t issued letters of credit in over a decade and need to retrain staff to reacclimatise,” Mr Laham said.

“Even the IT infrastructure – the backbone used to manage client accounts – was limited by sanctions, because we had to hide the fact that the end user was in Syria,” he added.

Syria's central bank governor told The National that regional banks from Saudi Arabia, Turkey, and the UAE have expressed early interest in investing once sanctions are effectively lifted.

Some US restrictions imposed under the Caesar Act, a US sanctions law adopted in 2019 to punish the regime of Bashar Al Assad, have been lifted only temporarily under a six-month waiver, which could prevent long-term investment needed for major infrastructure projects.

“There’s strong interest in Syria’s banking sector,” a third executive, from a private lender, told The National. “The demand for financing is enormous – but the current banking system isn’t yet equipped to meet the scale of the country’s needs”.

“Syria is a big whirlwind – everyone is watching Syria, everyone is coming, everyone is preparing – but for now, few investments have actually materialised,” the third executive added.

For Mr Laham, if they do not quickly adapt, local banks might be at risk when these investments materialise. “Local lenders need to consider what could happen if a major Turkish, European bank, or a lender from a Gulf country, set up operations in Syria; they could easily dominate the Syrian market, and might not stand the competition,” he said.