Lebanese banks committed to Syria despite tumult

By:
Dominic O’NeillNathan CollinsKanika Saigal
Published on:

Lebanon’s leading banks remain steadfast in their commitment to do business in Syria, despite the civil war lifting operational risk to new highs and ravaging the country’s economic-growth prospects.

By maintaining a banking business in Syria, Lebanese bankers are playing the long game in making sure they are well-positioned to benefit when stability is restored, even though that appears to be far-off.

“We Lebanese survived a long civil war; we’ve learned that when things get bad you can’t just pull out – you have to stay and make the best of it,” says Fadi Osseiran, general manager of Blominvest, the investment banking arm of Blom Bank.

Even so, Lebanese operations in Syria have been widely affected. For example, the value of Blom Bank’s Syrian assets are around 40% of what they were a year ago, and retail lending is down. And Bank Audi, Lebanon’s largest bank by deposits and assets, has seen non-performing loans in Syria rise from $10 million to $50 million during the same period.

“While we can’t grow our Syrian business at the moment, we won’t close it,” says Osseiran.

The most serious challenge to Lebanese banks is complying with the international sanctions imposed on Syria. Sanctions came to the fore in August, as it emerged the Assad regime planned to use Russian banks to try to avoid sanctions on oil exports and financial transactions.

While Russia and China have vetoed three UN Security Council attempts to exert more pressure on Syria, the European Union stated on Saturday it would consider imposing more sanctions on Syria in a bid to end its civil war.

“The biggest headache for us has been compliance with sanctions,” says a Lebanese banker. “Sanctions are constantly changing and often unclear, so we have to be very careful not to breach them by mistake. All of us are in compliance these days.”

Despite being a necessary but awkward barrier to transacting new business, other bankers in the region emphasize that complying with international sanctions is of utmost importance.

Michel Accad, the CEO of Gulf Bank, says: “Anti-terrorism finance, in particular, is an issue that concerns everyone, and there can be no compromises. We have seen a bank in the region disappear days after it was formally accused by the US Treasury of financing terrorism. The lesson should be crystal clear for everyone.

"I would also add it is foolish to try to outsmart the system just to make a quick buck, such as dealing through intermediaries or settling in less-common currencies. The potential costs cannot be worth it. Bottom line is: good compliance is good business.”

It is an issue that banks, and particularly UK banks, are contending with all over the world. In August, Standard Chartered was accused of scheming with Iran to launder as much as $250 billion in 60,000 separate deals, while HSBC was accused of laundering billions of dollars for drug cartels, terrorists and pariah states, including Mexico, Iran and Syria.