The British Economist magazine in its July 2, 2011 edition reported that more than USD 20 billion were transferred from Syrian banks to Lebanese banks since last March. The magazine based its report on eyewitnesses and private cars drivers. The news provoked a number of reactions ranging between complete denial, confirmation that a transfer of only limited funds took place or total confirmation of the report. The current events troubling Syria for the past six months restirred the subject of Syrian deposits in Lebanese banks and the influence of these banks in Syria. Our Arab affairs seem to bewilder The Economist who referred to Zein Al-Abidine of Tunisia as a “durable president” in 2009 and adopted different criteria in its approach towards the economic affairs in Lebanon and the region while it put Berlusconi under fire. The Economist’s article reflects how lightly the western media appraches critical issues in our region.

Syrian deposits in Lebanese banks

Since the end of the 1940’s Lebanese banks formed a haven for Syrian deposits in search for stability and better investment opportunities following the turmoil and military coups which troubled Syria until 1970. These deposits were encouraged by the economic and banking liberalization in Lebanon compared to the state-led economy which dominated the economic life in Syria. Precise figures of the size of Syrian deposits in Lebanese banks were not available since many Syrian capital owners and major financiers had obtained the Lebanese nationality therefore some of the owners of these deposits can be described as both Syrian and Lebanese. However, estimates put these deposits (for Syrians residing in Syria and who are not entitled for the Lebanese nationality) at around USD 5-6 billion at the beginning of 2005 after USD 500 million migrated to private banks in Syria, which were allowed to operate as of 2003.

Syrian deposits estimated at USD 2.5 billion and finally settled at USD 3.53 billion also migrated from Lebanese banks following the assassination of Prime Minister Rafik Hariri on February 14, 2005, the complete withdrawal of Syrian forces from Lebanon in April 2005, the hostility displayed againt Syria in addition to facilitations provided by private banks in Syria – some are Syrian banks with Lebanese participation – and facilitations provided by banks in Jordan and Bahrain. The deposits belonged mostly to tycoons and magnates from Damascus, Aleppo, Latakia and Homs these deposits.

Lebanese banks in Syria

It is known that before 2001 six government banks monopolized the Syrian banking sector (the largest being the Syrian Trade Bank). Private banks were not permitted to operate but Law # 28 dated March 29, 2001 allowed these banks to work. By establishing banks in the form of joint-stock companies non-Syrians do not own more than 49% of the bank’s capital. The percentage was later increased to 60% of the bank’s capital. Based on this percentage the state authorized the establishment of 16 private banks (until September 2011) including six banks with the participation of Lebanese banks:

- Bank of Syria and Overseas (licensed on April 30, 2003)

- Byblos Bank Syria (licensed on March 10, 2005)

- Banque Bemo Saudi Fransi (licensed on April 30, 2003)

- Audi Bank Syria (licenses on June 1, 2005)

- Fransabank (licenses on May 7, 2007)

- Orient Bank (Banque Libano-Francaise group) (licenses on April 10, 2008)

The above-listed banks were able to occupy a distinguished place in the Syrian banking market acquiring 22% of deposits and loans while obtaining 70% of deposits and 57% of loans in the private banking sector turning them into the backbone of this sector.

The other private banks are:

- Syria Gulf Bank (licensed on April 13, 2006)

- The International Bank for Trade and Finance (licensed on April 30, 2003)

- Arab Bank-Syria (license on September 22, 2004)

- Jordan Bank-Syria (license on May 27, 2007)

- Baraka Bank-Syria (licensed on June 28, 2007)

- Syria International Islamic Bank (Islamic bank) (licensed on September 7, 2006)

- Cham Bank (Islamic bank) (licensed on September 7, 2006)

- Qatar National Bank-Syria (licensed on January 18, 2009)

In addition, there are two licensed banks that have not started operating yet: Al-Amman Bank (licensed on February 26, 2009) and Kuwait National Bank-Syria (licensed on February 2, 2011).

Development of deposits in Lebanese banks

Total deposits in Lebanese banks reached LBP 170,543 by the end of June 2011 compared to LBP 163,717 billion at the beginning of 2011 registering a LBP 6,826 billion increase or 4.17%. During the same period in 2010, bank deposits increased from LBP 146,302 billion to LBP 152,583 billion registering a LBP 6,281 billion increase or 4.29% as shown in Table 1. These figures refute what was reported of the inflow of USD 20 billion from Syrian banks to Lebanese banks because there is no trace of such funds in the movement of deposits and it is impossible for such substantial deposits to have entered Lebanon and then invested in real estate or trade. It is also impossible that they have been kept in homes and vaults in the banks.

However, if we examine deposits by non-residents over the first six months of 2011 we can see that they increased from an equivalent of USD 18,485 million as of the beginning of 2011 to USD 19,904 million at the end of June marking a USD 1,419 million increase or 7.67%. These figures also refute what is being said about the inflow of USD 20 billion from Syria to Lebanon. Further, some reports say that the Syrian’s share of these deposits equal 20%, which is the equivalent of around USD 4 billion.

Development of deposits in Syrian banks

Statistics published by the Syrian Central Bank show that the total of deposits in foreign currencies in Syrian banks reached SYP 185,756 million by the end of 2010 (equivalent of USD 3.9 billion) but the figure dropped in May to SYP 177,791 million (USD 3.7 billion) marking a drop by USD 200 million.

Therefore, there cannot be talk about the exit of USD 20 billion at the time when total foreign currency deposits do not exceed USD 3.9 billion. Noteworthy is that total deposits in the Syrian pounds and in foreign currencies in Syrian banks reached SYP 1,267 billion by the end of May 2011 or USD 26.2 billion compared to SYP 1,387 billion or USD 28.9 billion at the beginning of 2011 marking a USD 2.7 billion drop or 10.3%. Provided that the statistics are accurate then USD 2.7 billion mostly in the Syrian pounds (it is illegal to take out funds in the Syrian pounds from Syria but the fact of the matter is that large amounts of the Syrian pound do exit to Lebanon where they are exchanged for foreign currencies in case of shortage of foreign currencies in Syria and the flourishing of the black market as was the case before 2005 and as the case today) exited the Syrian banking sector since the outbreak of the Syrian crisis and until the end of May 2011 and not USD 20 billion.

In light of above-mentioned facts it can be assumed that the major part of the Syrian deposits which migrated from Lebanese banks following Hariri’s assassination has returned to the Lebanese banks in the aftermath of the crisis in Syria since March 2011 and are estimated at USD 2.52 billion as previously mentioned. Therefore, Lebanese banks saw the entry of no more than USD 2.52 billion in Syrian deposits at best and not USD 20 billion.