Syria's central bank has ordered commercial lenders to fully provision for losses tied to Lebanon's financial collapse and submit credible restructuring plans within six months, a move that could reshape the country's battered banking sector.
The directive issued on September 22 requires banks to recognize 100% of their exposure to Lebanon's financial system, where Syrian lenders parked funds during the country’s civil war.
Syrian officials say the decision is part of a wider effort to clean up a banking sector crushed by 14 years of war and Western sanctions and help address a liquidity crisis that has stifled economic activity.
The order has prompted some banks to seek new investors or explore foreign acquisitions, three Syrian bankers told Reuters.
"They will need to provide us with a credible plan for restructuring, and now the countdown has started," Syrian Central Bank governor Abdelkader Husriyeh told Reuters.
"They can find various ways to do this, including via their sister banks in Lebanon or by partnering with other international institutions," he said.
SYRIAN BANKS FACE SIGNIFICANT EXPOSURE
Syrian commercial banks have more than $1.6 billion in exposure to Lebanon, Husriyeh said.
That represents a significant proportion of the $4.9 billion in total deposits in the Syrian commercial banking sector, according to a Reuters calculation based on the 2024 financial reports of all 14 commercial banks in Syria, published by the Damascus Stock Exchange.
The banks most affected include Bank Al-Sharq, Fransabank, Bank of Syria and Overseas, and Banque Bemo Saudi Faransi, Shahba Bank and Ahli Trust Bank, all originally Lebanese banks that opened branches in Syria in the 2000s. None of the banks immediately responded to requests for comment.
Bankers say they turned to Lebanon during Syria's civil war, with few other options due to Western sanctions that have gradually been rolled back since former leader Bashar al-Assad was ousted last year.
But those deposits were trapped when Lebanon's banking system imploded in 2019, following years of fiscal mismanagement and political paralysis.
Lebanon has yet to adopt a plan to resolve the crisis, although Lebanese officials say they have made significant progress towards a "financial gap law" to determine how to prioritize compensating people for their losses.
BANKS CHALLENGE SHORT DEADLINE
Some Syrian bankers have criticized the short timeline to comply with the directive to fully provision for losses related to Lebanon.
"The decision in and of itself is justified, but the time given isn't," one banker said. "It’s preemptive, premature — pre-whatever you want. Political."
Syrian officials deny any political motives.
Husriyeh said the move was part of a broader effort to adhere to regulations neglected by the previous government.
"We don't want any bank to face issues, but denial is also not a solution," he said. "We are moving from the denial of the old regime to acknowledgement and treatment of the problem."
Some of the affected banks are in the early stages of talks with Arab financial institutions, including banks based in Jordan, Saudi Arabia and Qatar, over possible acquisitions, three Syrian bankers said.
Husriyeh said the government aims to double the number of commercial banks operating in Syria by 2030 and said some foreign banks were already in the process of getting licensed. He declined to provide details, citing the confidentiality of the process.
