The Syrian Central Bank sends directives obligating banks operating in Syria with Lebanese ownership shares

Last week, the Central Bank of Syria issued directives obligating banks to cover their full exposure to the Lebanese financial sector within six months, amounting to $1.6 billion, according to a statement by the Governor of the Central Bank of Syria, Abdul Qader Hasriya.

This measure, and the short timeframe given to banks to secure this amount, implied that Syrian banks, including five with significant Lebanese shareholders, would now have to inject new capital to offset their losses, either from their own funds or through new investors.

The timing, duration, and form of the decision, implemented without any coordination with the Central Bank of Lebanon, all raise suspicions that the aim is to force Lebanese, and even Syrian, investors to sell all or part of their holdings in banks operating in Syria.

Exposure to Lebanon means that Syrian banks have funds deposited or invested in the Lebanese financial sector, as full coverage of this exposure implies acknowledging that these funds have been transformed from deposits and investments into realized losses, requiring Syrian banks to cover them with provisions.

Given that the exposure, according to Governor of the Central Bank of Syria, amounts to $1.6 billion, this means that Syrian banks are obligated to cover 100% of the sum.

This figure represents significant pressure on banks operating in Lebanon, including those owned by Lebanese banks.

According to available information, the exposure of Syrian banks largely owned by Lebanese banks doesn’t exceed $500 million, or about 31% of the total exposure.

Most of this amount is concentrated in two banks, and the remaining amount that needs to be covered is losses incurred by other Syrian banks that are required to cover them.

According to sources familiar with the Syrian financial sector, the exposure to the Lebanese financial sector stems from two main issues.

First, the sanctions imposed on Syria in previous decades forced these banks to deal with Lebanese banks to cover import operations and other financial transfers, as they lacked correspondent banks abroad and faced difficulties opening accounts in European countries.

Then, the war in Syria erupted and the sanctions intensified, prompting many to turn to Lebanese banks to deposit their money or use them as an intermediary for transferring funds abroad.

Lebanese banks had expanded into Syria in the years before the outbreak of the civil war there, as Law No. 28 was issued in 2001, which allowed the establishment of private banks.

Then came the openness plan under the slogan of the social market economy, which was officially adopted in 2005, to form a clear translation of Syria’s transition from a directed economy to a market economy, which necessitated opening the banking market to the private sector instead of relying solely on government banks.

Thus, Lebanese banks rushed into Syria, driven by the saturation of the local market and the ballooning of their assets in Lebanon to more than three times the GDP.

Their decision to expand abroad reflected these developments, finding in the historical and geographical realities between the two countries an outlet for their growing stagnation.

The Syrian market is deeply structured, vast, and rich in oil and gas, with a population that once numbered 20 million and a significant number of tourists. It suffers from a chronic thirst for financing for both institutions and individuals.

As a result of this situation, seven Lebanese banks established subsidiaries in Syria, six with a 49% stake and one with a 29% stake.

The names of these banks combined their existing Lebanese brand names with their new market identity.

Before the outbreak of war in Syria, a decision was issued allowing banks to increase their foreign ownership to more than 49%, so the banks planned to exceed these limits, which they did.

According to disclosures by banks with Lebanese shareholders to the Damascus Securities Exchange, the ownership percentages became as follows:

• Bank of Syria and the Diaspora: 49% owned by Bank of Lebanon and the Diaspora.
• Bemo Saudi Fransi Bank: 22% owned by Bemo Lebanese Bank and approximately 27% by Saudi Fransi Bank.
• Shahba Bank: which was 59% owned by Byblos Bank in 2023, but became 35% owned by Bemo Saudi Fransi Bank and 24% owned by National Credit Bank in 2024.
• Fransabank Syria: 55.6% owned by Fransabank Lebanon.
• Bank of the East: 49% owned by the Lebanese French Bank.
• In addition, one Lebanese bank owns 7% of a Syrian bank.

In fact, the interconnectedness between Syrian and Lebanese banks meant that Syrian banks with Lebanese shareholders acted as conduits for Syrian funds flowing into the Lebanese banking sector.

Consequently, they became more vulnerable to losses from the collapse of Lebanese banks, given that a significant portion of their assets were invested there.

According to estimates indicating that Lebanese banks are required to cover $500 million of Syrian exposure to Lebanese banks, Syrian banks with Lebanese contributions may be in a difficult position after this amount became equal to 11% of the total declared capital of banks in Lebanon, contrary to the bankruptcy facts which indicate that the majority of banks in Lebanon have negative capital.

Regardless of the size of the exposure, whether small or large, what is noteworthy is the Syrian decision to cover the losses within a period of only six months.

This decision was made by Governor of the Central Bank of Syria, who had worked for Ernst & Young’s office in Syria and participated in some of the audits the firm conducted for a number of Lebanese banks.

He is also aware that during the Assad regime, the Monetary and Credit Council issued a decision attempting to address these losses in a different and gradual manner, aiming to regulate and manage the credit exposures of Syrian banks to Lebanese banks following the financial crisis in Lebanon.

The decision stipulated that these exposures be classified as non-performing as of the end of 2021, and that Syrian banks be obligated to gradually estimate impairment losses until the end of 2022 at a rate of no less than 30%, in accordance with international and Islamic accounting standards.

The decision also requires banks to provide the government commission with plans to cover the financial gap, and to refrain from distributing profits before forming the required provisions, and exempts them from previous penalties if they comply with implementation, stressing that full responsibility lies with Syrian banks for their exposures in Lebanon, with the need to take preventive measures to reduce future risks.

In fact, this approach spared Syrian banks an immediate admission of heavy losses, yet, it did, however, address part of the problem, as all banks adhered to it, setting aside provisions of 30% of their exposure to Lebanese banks; some even went so far as to set aside provisions of 60% of their exposure.

Today, nearly six years after the collapse of Lebanese banks, Syrian monetary authorities have decided to classify funds held in Lebanon as actual losses that must be fully covered.

This decision was made without any coordination between the governors of the Central Bank of Syria and the Central Bank of Lebanon—the two authorities responsible for this matter in two countries suffering from a massive and devastating collapse.

Trade relations between Lebanon and Syria have fluctuated over the past decade, going through various phases. Overall, Lebanon has remained a net exporter to Syria, if we consider net trade.

Exports to Syria declined after the Caesar Act was passed in 2020, which subjected the Syrian economy to sanctions.

This contributed to a decrease in exports from an average of $210 million annually to about $107 million in 2020 and $91 million in 2021.

However, fuel subsidies in Lebanon, which coincided with fuel shortages in Syria at that time, contributed to an increase in the volume of exports from Lebanon to Syria to about $356 million in 2022.

Exports then declined again to below $100 million annually due to the lifting of subsidies in Lebanon.

However, smuggling into Syria continued, especially given the relatively high price difference between the two countries even after the subsidies were removed in Lebanon.

Smuggling was not limited to fuel; it extended to many other goods that Syria was unable to import due to sanctions.

In 2025, following the fall of the regime and the partial lifting of sanctions, exports from Lebanon to Syria rebounded, reaching approximately $103 million in the first eight months of the year.

Meanwhile, imports from Syria declined to around $70 million, down from approximately $133 million in 2024, indicating a decrease in Syrian production after the regime change due to the prevailing economic and security conditions.

The return of Lebanese exports to Syria also coincided with the Syrian opening up to foreign goods, which the state had previously restricted importing for various reasons, including supporting local goods.