Syria’s Private Banking Sector: Collapse, Consequences, and a Path Forward

As detailed in our forthcoming report funded by the Konrad-Adenauer-Stiftung, Syria’s banking sector has suffered a dramatic decline since 2011, driven by a combination of sanctions, the severing of international banking ties, and the decline in economic activity. Western sanctions, particularly those targeting financial institutions, severely restricted banks’ ability to engage with the global financial system. The Caesar Act escalated these restrictions, effectively deterring even regional banks from maintaining financial relationships with the country. However, from a series of interviews with private bank CEOs in Syria, we learned that it was the escalation of overcompliance and de-risking by foreign financial institutions between 2014 and 2015 that delivered the fatal blow to the banking system. This was fueled by the rise of terrorist activities and the imposition of hefty fines by the US Treasury’s Office of Foreign Assets Control (OFAC) on economic institutions. The result is a near-total loss of correspondent banking connections, which has made international transactions virtually impossible.

This isolation led to a near-collapse of the private banking sector, which was further exacerbated by a deepening economic contraction at home, driven by military operations and sanctions. Cut off from foreign markets and investors, most banks saw their revenue streams dry up. The Lebanese financial crisis of 2019 worsened conditions; numerous Syrians held substantial deposits in Lebanon, which became largely inaccessible when Lebanese banks imposed capital controls. Estimates suggest that Syrian deposits in Lebanon range between 20 and 40 billion USD. This is a massive sum—5 to 10 times larger than the 3.9 billion USD in assets held by Syria’s private sector banks in 2019, according to data from the Central Bank of Syria.

With no access to external funding, restricted lending capacity, and the inability to conduct international transactions, the sector’s decline seemed irreversible.

Most banks suffered heavy losses, though to varying degrees. Some institutions chose to engage with the Assad regime and its network of cronies; they suffered less, and even managed to increase their assets throughout the conflict. One such was Cham Bank (sanctioned by OFAC). Al-Baraka Bank Syria (the only other bank that increased its assets) and Syria International Islamic Bank (which, despite losses during the conflict, now holds the largest assets) were both involved with notable regime cronies, such as Samer Foz and Yassar Ibrahim.

Al-Baraka and three other private banks (Banque Bemo Saudi Fransi, Bank of Syria and Overseas, and Bank Al-Sharq) sustained operations by processing international humanitarian aid transactions, earning commissions under strict regulatory controls set by the Central Bank of Syria. Yet they were insufficient to counteract the broader sector contraction. 

According to Syrian bankers, private banks had to surrender their foreign currency commission earned from humanitarian transactions to the Central Bank. Additionally, any foreign currency was required to be exchanged at the official rate set by the Central Bank of Syria, which was significantly lower than the parallel market rate.

The Consequences of a Failing Banking System

The collapse of Syria’s banking sector has severely weakened its access to credit, fueled illicit financial activity, and stalled economic recovery.

With fewer assets and limited liquidity, private banks have lost their ability to extend credit, leaving businesses and individuals unable to secure loans. The credit crunch—already constrained by capital shortages—weakened the ability to finance trade and investment, leading to a sharp decline in economic activity.

The banking sector’s decline has also led individuals to rely almost exclusively on hawala networks to secure international transactions. This shift has further weakened financial transparency, making regulatory oversight nearly impossible and increasing the risk of illicit financial flows.

Finally, Syria’s exclusion from the global financial system reduced incentive to ensure compliance with international standards, such as those promoted by the Financial Action Task Force (FATF), which in turn delayed any progress toward modernization, according to Syrian bankers interviewed in Damascus. This was exacerbated by the loss of human capital, particularly Syria’s experienced labor force in the sector. 

The Path Forward

Reintegrating Syria’s banking sector into the global financial system will be a long and complex process, requiring regulatory reforms, financial transparency, and international engagement. Without a structured, multi-pronged approach—including clearer compliance assurances, structural modernization, and coordinated action by both external actors and Syrian stakeholders—economic recovery will remain out of reach.

A first step involves sanctioning countries addressing the overcompliance and risk perception that have deterred financial institutions from engaging with Syria. Exemptions and suspensions alone have proven insufficient in providing banks with the assurances they need. While letters of comfort could be issued, they are unlikely to override the broader concerns surrounding US secondary sanctions. A more effective approach would involve structured engagements between Western regulators and financial institutions to clarify legal exposure and outline the boundaries of permissible transactions. 

Further adjustments to sanctions relief are another critical element. The EU’s recent easing of sectoral sanctions on energy, transport, and select banking transactions is a step forward, but the continued listing of key institutions like the Commercial Bank of Syria by the EU and the US will limit its impact. 

Future efforts should focus on facilitating trade finance and controlled humanitarian transactions rather than on a blanket lifting of restrictions. Beyond sanctions, sanctioning states could play a constructive role by encouraging regulatory alignment in Syria’s banking sector. Institutions like the FATF could provide technical support to improve anti-money laundering and counterterrorism financing regulations, ensuring that Syria’s reintegration into the global financial system meets international standards. Such assistance will also help rectify the damage caused by blanket sanctions on the banking sector and Syria’s economy as a whole.

Led by the state, Syrian stakeholders must also take steps to restore the credibility of their banking sector. Syrian private banks need to demonstrate compliance with global financial norms by implementing stronger anti-money laundering measures, conducting independent audits, and improving corporate governance. 

Beyond these immediate steps, Syria’s reliance on informal financial networks remains a structural weakness. The near-total dependence on hawala networks for international transactions has entrenched opacity and illicit flows, making financial oversight nearly impossible. Without a gradual reintroduction of formal correspondent banking relationships—even on a limited basis—this reliance will persist, further complicating efforts to stabilize the sector.

Full reintegration into the global financial system remains a distant prospect. Yet incremental measures from both sanctioning countries and Syrian actors are necessary to stabilize what remains of the banking sector and prevent further economic deterioration.