Syria has one of the most undeveloped banking systems in the Middle East and one that is in desperate need of reform. In his inaugural speech, Bashar called for the removal of obstacles standing in the way of internal and external investment Xows and the “activation of the private sector, granting it better opportunities to work”. Syrian offcials seem to agree and have targeted growth of Wnancial institutions. Prime minister Mohammed Mustafa Miro recently declared: “The development of the banking sector is an urgent matter.”
Ibrahim Wardeh, director of investments for Syria’s free zones, has said that international banks will be allowed to set up operations in Syria’s free zones but that the banks will have to be “Wrst rank” with a minimum capitalization of $11 million in foreign exchange. The banks will only, however, be able to operate within the conWnes of these specially designated areas; servicing business outside of the respective zone will not be allowed.
Free zones were established by the regime in 1972 in an attempt to lure private foreign business into the country but have proved to be unpopular with foreign corporates.
Because of the restrictions that will be placed on them, the large international banks are unlikely to be rushing in. One banker based in the Middle East said: “Bashar is not strong enough to introduce anything too radical. I think change will be very slow. Countries that have a reputation of being less cautious than Syria have been very hesitant to let the banks out of their grip.And Syria hates to loosen its grip on anything. It still has a long way to go.”
A ratings agency analyst who did not wish to be named said: “I’m not sure who came up with this statement for allowing international banks into the country or for what purpose, but I would discount it heavily. Syria is the nearest thing the Middle East has to North Korea.” He added: “For an area not famed for its transparency, Syria takes the biscuit; it’s a closed command economy. We don’t know what the country has got and we don’t know what the market potential is. Don’t expect anything to happen there any time soon.”
However, with several Lebanese banks monitoring the situation closely and Arab Bank oYcials holding talks with the Syrian government in July to discuss tighter links between Syria and the Jordanian bank, the Middle Eastern banks it would seem are more optimistic about possible reform. A research analyst at Banque du Liban et d’Outre Mer (Blom) said that Lebanese banks were very interested in Syria but the banks were still awaiting a number of details of Syrian law.
“We are unsure of the precise requirements for entry and we are unsure of what we would be allowed to do. We would prefer to go in by ourselves, but we might need a Syrian partner. It shouldn’t be too long before we know the full details.” The analyst did admit, however, that Syria was an unknown quantity. “We don’t know the exact Wgures on the economy since everything is very vague.”
Syria’s banking sector was nationalized in 1963. Six government-owned institutions were created, the largest being Commercial Bank of Syria, which controls 85% of the sector’s combined balance sheets. But, in the opinion of one Middle East economist, the state has exerted such a tight grip over the banking sector that it has “literally withered and died”.
Syria’s strict foreign exchange controls and rigid rules governing transfer of money abroad have been detrimental to Syrian banks. Many businesses cross into Lebanon to do their banking there.
Until April anybody caught holding foreign currency was liable to 10 years’ imprisonment, and yet the government itself uses overseas banks for its Wnancial transactions, further slowing any impetus for meaningful change.
Of course, Lebanese bankers are more than happy to help their Syrian neighbours. In Chtoura, a small Lebanese town close to the Syrian border, 16 bank branches are in operation. Although it is diYcult to determine exactly how much money leaks out of Syria’s back door into foreign bank accounts each year it is believed to amount to several billion dollars.
So is Syria serious about opening up? Perhaps, but with government ministers stating that “the priority of the Ba’ath party is to maintain social order and economic security”, and that these “won’t be sacriWced for the sake of liberalization”, international banks such as Citibank and HSBC may need a little more persuasion to enter Syria’s market.
In a month of government promises and decrees, ministers also announced that the Syrian banks were to become more open and receptive to journalists and the media. OYcials at Commercial Bank of Syria declined to comment.
