Out of the 14 private banks doing business in Syria, Lebanese banks comprise a third, with five helping to spearhead the establishment of this sector over the past decade. Those Lebanese banks operating next door are: Bank Audi Syria (BASY), Byblos Bank Syria (BBS), Bank of Syria and Overseas (BSO), Banque Bemo Saudi Fransi (BBSF), and Fransabank Syria (FSBS). Lebanese banks have been amongst the highest earners in the Syrian financial market, leading the sector in asset rankings since its inception. Since protests broke out in Syria, however, the double-digit year-on-year growth seen by the above banks has been curbed.
The initial reaction of the market was a withdrawal of assets by individuals and foreign businesses alike, to the extent that for a few days in early April there was a limit set on permitted withdrawals. Nonetheless, the financial market is stabilizing with the efforts of the Central Bank of Syria and some private sector businessmen connected to the regime, who have been compensating for the liquidity withdrawn from the market by foreign investors.
Chairman of the Union of Arab Banks, Adnan Yousif, said to the Syrian Arab News Agency in mid-April that the monitory conditions in Syria, along with the banks, were faring well, noting that major withdrawals had halted. He added that the financial market was not affected by the past few weeks of protests and that banks had confirmed their assets had not been affected.
Yousif said, “We saw some withdrawals from banks in Syrian pounds, which were later changed to dollars, yet this was a small [amount] that does not exceed 8 percent [of total consolidated assets].” He added that an injection of liquidity into the market by the Central Bank of Syria had mitigated the drop in the Syrian pound, which began the year at 46.8 to the United States dollar and stood at 47.5 as of May 25. Nonetheless, first quarter figures make Youssef’s comments appear selectively optimistic, showing that the financial sector was indeed affected, exemplified by a drop in the assets of the leading private banks — all Lebanese.
BBSF, the leading bank by assets, witnessed assets shrink over the last quarter of 2010 by 7.7 percent, from $2.44 billion to $2.25 billion, while BASY, the second leading bank in asset rankings suffered the most, with an 8.5 percent drop, from nearly $2 billion to $1.82 billion.
BSO, the third bank in rankings, which had earned a number of countrywide and regional awards in 2010, suffered a milder drop of 4 percent, from $1.96 billion to $1.88 billion.
It is notable that BBS, contrary to other banks, exhibited a 4.5 percent increase in assets, from $0.91 billion to $0.95 billion; bank sources wishing to remain anonymous alleged this was due to the personal consequence of one of the Syrian investors who has a substantial share in the bank.
Yet, this does not reflect the current day-to-day reality of the Lebanese banks, or private banks in general, operating in Syria. The protests gained momentum after March 25, only a week before these first quarter figures were released, so the full effect of the unrest was not reflected; second quarter results, however, will be much more telling of the damage done, and the direction of the Damascus Stock Exchange (DSE) is likely a good harbinger of what is to come.
The DSE weighted index suffered a 19 percent drop over the last three months, from 1721 to 1394 points, despite intervention and the halting of trade for several days. The shares of Lebanese banks suffered as well, with BBSF dropping 33.5 percent, BASY down 20 percent, BSO down 17 percent, and BBS dropping 14 percent, trading of its shares having been suspended from mid-March until early May. Conversely, FSBS shares increased by 83 percent, only because it was recently listed on the market, which automatically made it a viable investment in the eyes of the market, as nearly all newly enlisted bank shares are.
Damage to banks’ books will not be limited to direct business losses but will also stem from indirect effects rippling through the economy. The Organization for Economic Co-operation and Development downgraded Syria’s country risk rating from 6 to 7 in late March, making investors even more hesitant about the prospects of doing business in the country. Further, the tourism and travel economy in Syria, accounting for 12 percent of Syria’s GDP and employing 792,000 people, has also taken a major hit [see story page 50].
The Syrian regime is taking some steps to try to stabilize the financial market, from increasing interest rates, to allowing foreign currency accounts and decreasing the compulsory reserves private banks are required to keep in the Central Bank. In addition, the issuance of Law 29 in February allows companies to buy their own shares on the DSE.
But with no resolution to the protests in sight, the fragile economy of the country is bound to hit new lows. The newly found financial sector, a less than a decade old private banking sector and a two-year old stock market are bound to suffer. And with the Lebanese banks already well established and leading the market, there is no clear exit-strategy.
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