Enab Baladi – Jana al-Issa
Last February, the European Union suspended a set of sanctions imposed on Syrian entities and institutions since 2011 due to the regime’s practices and violations committed after the outbreak of the Syrian revolution.
The temporary suspension of sanctions targeted key economic sectors in the country, including banking, energy, and transport.
Additionally, during a meeting of the foreign ministers of the 27 member states in Brussels on February 24, the European Union decided to lift sanctions on four Syrian banks, none of which included the Central Bank of Syria (CBS), along with lifting sanctions on Syrian Airlines.
The banks included in the decision are the Industrial Bank, Popular Credit Bank, Saving Bank, and Agricultural Cooperative Bank, which do not have significant foreign connections, indicating that this lifting will not effectively boost the economy.
Which banks were temporarily exempted from sanctions?
- Industrial Bank: Established in 1958, this bank has more than 25 branches in Syria and conducts all banking operations to serve both public and private industrial projects and investment projects. It is the only bank specialized in financing industrial activities, providing loans for various public and private industrial ventures and other investment projects to boost the national economy.
- Popular Credit Bank: Founded in 1966, it has over 64 branches in Syria and is a public institution specializing in granting loans to low-income individuals, various productive activities, small and medium-sized enterprises, as well as offering banking services to different productive sectors (traders, professionals, artisans, industrialists). It also provides non-credit banking services, transfers, certified networks, guarantees, payroll localization, and accepts deposits, issues, and markets investment certificates, car purchase loans, and financing for solar energy devices.
- Saving Bank: Established in 2000, it was previously known as the “General Institution for Postal Savings,” which was founded in 1963. The bank accepts, manages, and invests savings deposits and returns them to their owners, providing loans for tourism projects, financing universities, academies, colleges, higher and intermediate institutes, and private schools at all levels. It also finances and equips medical laboratories, clinics, hospitals, industrial projects, developmental loans, and microfinance.
- Agricultural Cooperative Bank in Syria: Established in 1988, this public financial institution is independent and linked to the Ministry of Finance. It specializes in banking services to support agricultural activities, both crop and livestock, and allied professions and industries. It offers various types of banking services and facilities to rural residents.
Central Bank of Syria excluded from suspension
The suspension of European sanctions did not include the Central Bank of Syria, which is the primary banking institution in the country expected to yield positive results in the banking sector if sanctions against it were lifted.
Regarding the reasons behind excluding the Central Bank from the suspension, economic researcher Abdul Azim al-Mugharbel believes that the European Union kept the bank under sanctions to maintain limited political pressure, focusing on humanitarian and limited economic exemptions.
Al-Mugharbel added in an interview with Enab Baladi that the United States continues to impose sanctions on the Central Bank, meaning that its removal from the European list would have a limited practical impact due to the continuation of US sanctions.
Economic researcher Zaki Mahshi also agrees with this viewpoint, emphasizing that the European Union relies on political conditionality in dealing with sanctions imposed on Syria. It is clear from the statements of its officials that it is ready to re-impose sanctions should there be no political progress regarding political transition, democracy, and including all societal segments in decision-making. This explains why sanctions were not lifted on the bank.
The researcher believes that lifting sanctions on the Central Bank would be a significant step awaited by the European Union before taking greater action from the authorities in Syria. However, he noted that lifting sanctions on the four banks, as well as on the energy and transport sectors, is a positive step that reflects the EU’s positive direction and good intentions.
Theoretically good … Practically: A preliminary step
Lifting sanctions on the four banks theoretically allows them to partially reconnect with the international financial system, which could assist in funding essential imports, reconstruction projects, and facilitate official financial transfers. These factors could help revive the economy and alleviate citizens’ suffering, according to economic researcher Abdul Azim al-Mugharbel.
However, practically, the impact of this remains limited in the short term, according to al-Mugharbel. These banks lack global banking links and do not conduct transactions in US dollars, and since the American sanctions are still in place, what has occurred can be viewed as a preliminary step with hope for continued lifting of sanctions in a comprehensive manner.
For his part, researcher Zaki Mahshi believes that the impact of lifting sanctions on these banks will not be significant, as these banks are not active enough, and some of them are sectoral banks.
There might be limited positive effects on financing certain sectoral projects, such as agricultural and industrial projects through the agricultural and industrial banks, via grants from the European Union or direct support from it, as Zaki Mahshi clarified.
The researcher does not expect a significant impact on the economy following the suspension of sanctions on these banks for two reasons: first, the incomplete lifting of European sanctions on all institutions will leave them facing “overcompliance” from European companies, which may lead many to prefer not to deal with Syrian institutions.
The second and most important reason that limits the impact of any partial lifting of sanctions is the ongoing US sanctions. No one will risk dealing with Syria under this condition, which will remain a primary obstacle, even for European companies and Gulf states. Partial lifting or granting humanitarian licenses won’t be sufficient in this context.
What is overcompliance?
Overcompliance is a term referring to excessive adherence to standards beyond what is required.
The United Nations defines overcompliance as a form of excessive risk avoidance, signaling banks and financial service providers’ overcommitment to imposing restrictions on financial transactions with individuals or entities (companies) or countries subject to unilateral sanctions imposed by certain states as a tool of foreign policy to avoid potential risks they may face if they violate these sanctions.
Recommendations for benefiting from exemption
The European Union aims to improve the performance of banks by exempting them from sanctions, but this improvement may face several obstacles.
The banking sector in Syria requires significant reform at various technical levels, including monetary policy, data, and compliance standards regarding money laundering and terrorism financing, according to researcher Zaki Mahshi.
In this context, he noted that it would be beneficial for the European Union and its missions to provide technical banking expertise to support comprehensive reforms in public banks and to attempt to connect Syrian public banks with the European banking sector on sound, robust, and modern foundations.
This could be achieved through long-term contracts with reliable and respected European banking experts and institutions as well as independent Syrian experts in the banking sector.
For his part, researcher Abdul Azim al-Mugharbel emphasized that Syrian banks should take advantage of the exemption period to improve transparency and governance through adopting strict anti-corruption measures, enhancing oversight, and ensuring compliance with international standards, which will restore trust and ensure that resources are directed towards economic recovery.
The European Union should monitor the implementation of exemptions to facilitate humanitarian aid access, support economic stability, and enhance the government’s capacity to continually deliver essential services to citizens, as recommended by al-Mugharbel.
The financial and banking sector in Syria consists of operating banks, microfinance banks, and exchange institutions, all of which are subject to oversight by the Central Bank of Syria.
There are six public banks, the most notable being the Commercial, Real Estate, Industrial, and Agricultural Cooperative Bank, in addition to 11 traditional private banks and three private Islamic banks.