President Bashar Assad’s decision to authorize the opening of private banks in Syria is a turning point in the country’s economic life but it is not a surprising one.
While some were skeptical that such a move would ever materialize, a close observation of the chronology of events shows that private banking was inevitable. The writing had been on the wall since 1998.
In that year, the late President Hafez Assad allowed citizens to open accounts in foreign currency, with no questions on where the money came from. Prior to that, Syrians could only open accounts in local currency, and were often subject to interrogation on its origins.
In early 2000, Hafez Assad issued Law No. 8, authorizing the opening of private banks in the Free Trade Zone. Since then, four Lebanese banks have received permission to open: Banque du Liban et d’Outre-Mer (BLOM), Banque Europeenne pour le Moyen-Orient (BEMO), Fransabank, and Societe Generale Libano-Europeenne de Banque.
When Bashar Assad came to power in July 2000, he ordered that a committee begin transforming the Post Saving Fund, an agency that provides savings accounts for employees of both the private and public sectors, into a full-scale bank. Talk began to spread in official and public circles on the urgent need for banking reform.
Demands were made for more financial and commercial services, more efficiency, fewer bureaucratic regulations, lower commissions, extended credit facilities, and flexible interest rates. In November, Assad asked for a parliamentary committee on financial affairs to prepare a study for the implementation of private banking, exploring both the pros and cons of such an undertaking.
Adding momentum to the banking issue was the investment conference held in Damascus on Nov. 9-10, which was attended by investors and businessmen from the Arab world. After two days, the top priority became the establishment of a modern banking system.
Later that month, prime ministers Mustafa Miro and Rafik al-Hariri met in Damascus and agreed that a deal must be reached for Lebanese banks to expand into the Syrian market. This paid off on Dec. 2, when the Baath Party Regional Command ratified a decree establishing private, joint-stock, or jointly owed banks in Syria.
Although no further details were given on which banks would be granted licenses and when, the decision will help increase liquidity, create more confidence in the Syrian market, and restore confidence to the private sector.
By all accounts, Lebanese banks will receive top priority in the new banking system.
Syrian Economy Minister Mohammed Imadi said the minimum capital for the new banks would be 1.56 billion Syrian pounds ($30 million), and foreign investors could hold up to a 49 percent stake. The remaining 51 percent will be distributed among Syrian shareholders.
While Imadi said that private banks would complement rather than replace state banks, many wonder whether the majority of citizens will continue their transactions in the rigid, bureaucratic state banks if all the advantages and comforts of modern banking are available somewhere else.
The average citizen, who does not travel and uses a bank solely to deposit money and receive interest, will remain a customer of the state-run banks. Other citizens, however, will surely move their savings into the new banks.
State banks will now have to offer higher wages to employees, who will surely be attracted by the private sector. They also need to find modern ways to monitor the more advanced banks and find personnel with proper degrees in banking and finance.
Syria’s banking system is undergoing dramatic changes.
Following the Baath Party coup d’etat in 1963, the banking sector was nationalized by the socialist state. In 1966, all the local and foreign banks were merged into the Commercial Bank of Syria. Some 70 percent of Commercial’s capital went to the public sector, and all its funding came from citizens’ savings deposits.
As the Baath regime entered its fourth year, the banking system began to decay. Professional staff left, administration deteriorated, technology ceased to develop, and the modern qualifications needed for financial operations were no longer available.
Another slump came in the early 1980s, with delayed letters of credit, lack of convenient offices, strict currency and import regulations, low interest on saving accounts, and no loans for investment projects.
In 1986, the Syrian pound depreciated sharply from 4 to the dollar to 25. Meanwhile, three exchange rates were used; the “unofficial” rate of 46 pounds to the dollar (used in 75 percent of transactions), the “official” rate of 11.2 pounds to the dollar, and the “customs” rate of 23 pounds to the dollar. This led to the formation of an underground market for exchange rates, investment and business deals, with the risk of a 25-year prison sentence for those dealing in them.
This state of confusion and chaos continued until 1990, when the Syrian regime realized that the only way to meet regional challenges and survive in the post-Soviet era was to reform the state from within. Hafez Assad began by easing monetary regulations, and Bashar Assad picked up from where he left off.
All Syrians today want to forget their previous experience, the unbearable era of the 1980s, and start a new page.
Abdulsalam Haykal, a young Syrian businessman aid: “Syria today is breathing new air,” adding that the government was currently in the process of amending many laws, including the General Trade Law and the Customs Law.
“The preliminary decision (in reference to the banking authorization decree),” Haykal said, “is by far the most dramatic step toward economic reform, and a strong signal that change is coming to Syria’s decayed command economy.”
The Daily Star, 9 December 2000.