Turkish Banks Set to Enter Syria: A Viable Project Facing Structural Hurdles

A Preliminary Agreement Takes Shape

Turkish Trade Minister Omer Bolat announced a mutual understanding to open Turkish bank branches in Syria, noting that legal and legislative work is underway to establish the necessary regulatory framework. The announcement came during an expanded working session held in Gaziantep, Turkey, under the title "New Horizons in Turkey-Syria Trade," attended by Syrian Minister of Economy and Industry Mohammad Nidal al-Shaar. The session focused on drafting a joint economic roadmap serving both countries' interests.

Reuters reported that officials at state-owned Ziraat Bank and private Aktif Bank confirmed both institutions are working to establish a presence in Syria, with licensing applications already submitted and operations expected to begin in the near term.

Assessing Feasibility

Malham Jazmaati, a researcher at Karam Shaar Advisory, considers the project genuinely feasible rather than a vague aspiration, given the official announcement of a preliminary agreement and ongoing legislative amendments. He cautions, however, that the initiative remains in its legal and regulatory preparation phase and has not yet become a fully operational decision.

Jazmaati expects the entry to be measured and selective, likely beginning with a small number of branches in Damascus and Aleppo or in areas with strong commercial ties to Turkey. Simpler steps may precede branch openings, including expanding correspondent banking relationships between Syrian and Turkish banks, trade finance arrangements, and bilateral payment settlements. The project's viability is underpinned by a genuine need: bilateral trade has grown considerably while payment and transfer operations still rely heavily on cash, money transfer companies, and indirect mechanisms.

Potential Gains for Syria's Banking Sector

Economist Dr. Abdul Hakim al-Masri argues that obtaining approval from the Central Bank of Syria should be straightforward, given the bank's stated interest in strengthening and revitalising the banking sector. He adds that the gains for Syria would be substantial if Turkish branches open without major obstacles, as neighbouring countries possess extensive banking expertise that Syria can draw upon. Syria's banking network, he notes, requires a full rebuilding of its infrastructure in line with modern standards. A successful entry by the first Turkish bank would also set a legal and practical precedent that could encourage other Arab and regional banks to study the Syrian market and eventually enter it.

Key Challenges and Obstacles

Jazmaati identifies several obstacles that could limit the project's impact:

• Regulatory framework: Syria's banking system was not originally designed to accommodate large foreign bank branches operating under current international standards. Licensing conditions, capital requirements, supervisory mechanisms, and limits on fund transfers all need to be defined.
• Banking compliance: Even with a significant portion of sanctions lifted, Turkish banks will remain cautious about verifying the sources of funds, beneficial ownership of companies, and anti-money-laundering obligations. Weaknesses in customer identification records or commercial registries will prompt banks to impose stricter conditions or decline certain transactions.
• Trust and liquidity: Syria's economy operates largely outside the formal banking system, with many individuals and businesses holding assets in cash due to past experiences with withdrawal restrictions and exchange rate instability. A foreign bank cannot play a meaningful financing role if it cannot attract genuine deposits or if funds entering the bank cannot be freely transferred or deployed.
• Commercial viability: Borrowing capacity and repayment ability are limited, credit risks are elevated, and corporate financial statements are often weak or unaudited.

The Real Measure of Success

Jazmaati concludes that success cannot be measured by the issuance of a licence or the opening of a branch bearing a Turkish name. The true test lies in the bank's ability to execute international transfers, open letters of credit, and finance trade and investment. If operations remain confined to domestic services without genuine connectivity to the international financial system, the project's impact will remain limited.