Pain or Gain? The Impact of Sanctions on the Sustainability of Banks' Services

Abstract

This paper examines the impact of financial sanctions on the sustainability of Syrian private banks' services. It illustrates how Syrian private banks sustained and adjusted their operations and services to counteract these sanctions and how these adjustments are reflected in their revenues and commission distribution. We test the equality of means of interest and commission components revenues for the full population of Syrian private banks for the period from 2011 to 2020. We find that the majority of Syrian private banks tailored their operations towards risky activities in response to sanctions. This was manifested in a significant increase in revenues from risky activities, particularly from loans and facilities. Similar behavior was documented for both traditional and Islamic banks in terms of services orientation. Sanctions increased Syrian private banks' appetite to take risks and forced them to reprice their services towards more commissions on less risky activities such as opening new accounts or cash withdrawals. To enhance banks’ services sustainability, we recommend that Syrian private banks should provide innovative services and explore venues for diversifying their revenues, such as offering e-services and portfolio investing.