AMMAN/DUBAI Now that rebels have carried Syria's civil war from remote villages to the capital and the commercial hub, a banking system that survived 16 months of unrest will face its biggest test.
In most of the country, banks have been managing to stay open, thanks to strenuous efforts by their managers and the needs of desperate customers who continue to deposit money because they can find no safer place.
But the spread of major fighting to Damascus last month, and then to Aleppo, Syria's biggest city and top commercial centre, marks a new, more destructive period for the economy, putting banks under fresh pressure.
"Aleppo will hurt the real economy - the disruption of production, inputs reaching plants. How long it will last - a few days, a week, two weeks - no one knows," said Nabil Sukr, a Damascus economist who previously worked at the World Bank.
Like Syria's economy as a whole, its banking industry is severely damaged and some parts of it have almost stopped functioning. There is little corporate lending or trade finance, but deposits and withdrawals continue.
The banking sector, which is dominated by four state-owned banks but includes 14 privately owned institutions, mostly subsidiaries of banks in Lebanon and other Arab countries, has largely been cut off from the global financial system by international sanctions against Assad's regime.
Deposits at the banks, which had total assets of 2 trillion Syrian pounds ($29 billion) before the revolt, shrank by roughly a third in the uprising's first year as panicky companies and individuals sent money abroad, much to Beirut, bankers said.
But thanks mainly to a windfall from their foreign currency holdings as the Syrian pound's exchange rate plunged, the banks posted strong profits last year. Net profit at Chambank, one of three Islamic banks in Syria and 32 percent owned by Commercial Bank of Kuwait, soared 553 percent last year.
In the last several months, the banks have been hit harder as the fighting has become more intense. For example, the Syrian subsidiary of Jordan's Arab Bank suffered a net loss of 141 million pounds in the second quarter of this year, after a profit of 825 million pounds in the first quarter.
"There is no lending and demand for money itself is low. Operations and decisions are being made on a day-to-day basis," said a Damascus-based banker, who asked not to be identified because of the political sensitivity of the issue.
A senior Gulf Arab banker who operates in Syria said banks there were still extending credit lines to some of the wealthiest companies and merchants, but that otherwise "banking has been reduced to the bare minimum".
"There are no banking operations such as letters of credit for imports...and that applies to collection of debts," said a banker working in the Syrian subsidiary of a Lebanese bank.
Nevertheless, the outflow of deposits from banks appears to have slowed greatly or even stopped in the last few months, perhaps because most people who want to transfer money overseas have now already done so, several bankers said.
For example, deposits at the unit of Arab Bank rose 5.5 percent between end-2011 and June 30, while the Syrian unit of Lebanon's Byblos Bank saw its deposits climb 15.1 percent, according to its earnings statements.
The Damascus banker said many bank branches in the city stayed open at their discretion during last month's fighting in the capital, and deposits even rose on some days.
"One explanation is that small depositors were afraid to keep cash at home because of fear of looting after homes were broken into by the army," he said.
WHERE SHOULD I TAKE IT?
Syrians say they have few options left but to trust banks. Mohammed, a travel agent in his late 30s from the city of Homs, withdrew 100,000 Syrian pounds (about $1,450) from his bank in June to keep in a safe at home, but deposited it back a week later before fleeing for refuge in the coastal city of Latakia.
"I had no other choice but to leave the money at the bank. Where should I take it to? Keep it at home? It would be stolen while I wasn't there," he said by telephone. "Take it with me in a suitcase? They'll kill me on the road. Transfer it outside the country - to whom?"
The Gulf Arab banker agreed that huge amounts were no longer being withdrawn from Syrian banks. One reason is the central bank's success in keeping the pound's exchange rate stable in the last several months after last year's plunge, he said. This has allowed depositors to retain some faith in the currency.
Nassib Ghobril, chief economist at Byblos Bank in Lebanon, said that so far, the Syrian affiliates of Lebanese banks had not needed capital injections to survive.
"They've been drawing on Lebanese banks' experience in surviving long years of war. I don't believe the Syrian banking system will collapse," he said.
The danger remains, though, that further damage to the economy from the fighting - perhaps hyperinflation or a fresh plunge of the currency - could trigger full-fledged bank runs, causing banks to go bust or the government to close them.
Sukr, the Damascus economist, said most Syrians retained some confidence in the economy because they could still buy daily necessities. "When you go to the markets, products are available, fruits and vegetables. Food is available," he said.
The Damascus banker said the country was experiencing "panic pricing" - temporary price surges in response to specific events in the conflict, such as bouts of fighting in the capital - rather than very high, sustained inflation which would put daily necessities out of the reach of most people.
"Last week people were buying bread at 60 pounds a packet and usually you take it at 35 pounds. This is 100 percent inflation, but it was for five days and then the bread crisis eased," he said.
Inflation could jump, however, if the fighting in Aleppo is prolonged and does widespread damage to factories and firms. The city accounts for over 50 percent of the country's manufacturing employment, according to the city government.
Another uncertainty is how long the central bank can keep supporting the pound by supplying its foreign currency reserves to meet demand.
The pound has tumbled from an official rate of 47 to the U.S. dollar when pro-democracy protests began in March last year to around 69 now, but it has been almost stable since mid-May.
The Damascus banker said ordinary Syrians were still able to buy some dollars at the official rate, while the black market rate of roughly 70 was not far away.
Syria's foreign reserves were $18.2 billion at the end of 2010, shortly before the unrest began, according to the latest figures from the International Monetary Fund.
Like other Syrian economic data, up-to-date figures for the reserves are not available. But private economists estimated reserves shrank by at least several billion dollars last year, and they may have dropped by a similar amount so far this year.
If reserves eventually run out or Syrians come to believe they are about to do so, expectations for uncontrolled depreciation of the pound could prompt mass flight from bank deposits denominated in the local currency.
(Writing by Andrew Torchia; Editing by Peter Graff)