Gulf banks plan entry into Syria as policy relaxes

Three major Gulf banks plan to enter the liberalised Syrian market and interest from Western banks is rising despite US sanctions, central bank governor Adib Mayaleh said on Tuesday.

National Bank of Abu Dhabi (NBAD), Samba and the National Commercial Bank of Saudi Arabia, have contacted the authorities to apply for licences this year, which could raise the number of private banks in Syria to 16, Mayaleh told Reuters before flying to Paris for meetings with French bankers.

Syria has been under US sanctions since 2004 for its support of militant groups. But relations between Damascus and Washington improved last year, following better ties with former colonial power France, which occupied Syria from 1920 to 1946.

The Syrian state relinquished its monopoly on the banking sector seven years ago as part of economic openness following failed Soviet-style policies and bans on private enterprise under the Baath Party, which has ruled Syria since 1963.

"International banks have become convinced that Syria is a promising market. Diplomatic ties with France are clearer and there is a desire to cooperate with Syrian banks," Mayaleh said.

Asked if Western banks could open in Syria, Mayaleh said: "This could be difficult initially but it does not prevent them from thinking about it."

The Syrian delegation will meet representatives from five French banks that include BNP Paribas, which Mayaleh said had reversed a policy of not dealing with Syria that was influenced by the American sanctions.

"They are now interested in Syria. This is something new on the table," Mayaleh said in an interview.

The French-educated governor said decisions by the monetary authorities in January that allowed foreign shareholders to own a majority stake in local banks were a main factor behind the rising interest. Capital requirements were also raised sharply.

Another important reform, he said, allowed Syrian to borrow in foreign currency from banks abroad and repay from their Syrian bank accounts.

"This is a major step toward freeing up capital accounts," Mayaleh said.

Lebanese and Jordanian banks were the first to establish in Syria after private banks were allowed in. Gulf investors followed and licences were issued to Qatar National Bank, Bahrain-based Dallah Albaraka, and the National Bank of Kuwait.

Among Western bankers who came to explore opportunities in Syria was Morgan Stanley's chairman John Mack, who met Mayaleh in Damascus earlier this month.

"Mack saw the horizons of investing in Syria," Mayaleh said.

The government, Mayaleh said, has started to encourage banks based in Syria to finance service and infrastructure needs, pointing to an auction several days ago to finance a $45 million purchase of two French ATR turboprop planes on behalf of state owned Syrianair.

The auction was won by the Syrian Commercial Bank, which is under specific US sanctions.

"We are also looking at a total of $150m in borrowing to rehabilitate and buy other aircraft," Mayaleh said.

He said the aircraft include spare parts for two grounded Syrianair Boeing 747s whose overhaul has become possible with US cooperation.

The sanctions do not specifically prohibit US investment in Syria, but they include export licence requirements and bans on dealing with certain Syrian individuals and entities.