A. The Framework
The banking sector is one segment of the larger financial sector which includes non-banking financial institutions, such as insurance companies, equity and bond firms, a securities exchange, leasing, real estate, and venture capital finance institutions, in addition to pension funds, mutual funds, and other institutions.
Until fifteen years ago, the financial sector in Syria was limited to six public commercial banks and one public insurance company. The public commercial banks, wereThe Commercial Bank of Syria, The Agricultural Corporative Bank, The Real Estate Bank, The Popular Credit Bank, The Industrial Bank and The Savings Bank. Each was specialized by law in a specific economic sector. The one public insurance company, The Syrian Insurance Company, covered both life and non-life general insurance. The Commercial Bank of Syria was the only bank allowed to deal with foreign currency, hence allowed and able to finance foreign trade. The Real Estate Bank was given the privilege of dealing with foreign exchange in 2007, but has not used this privilege to finance trade.
The above banking/financial structure started to change as of 2001. Several legislations were introduced since then contributing to a significant deepening and broadening of the banking/financial sector. First, the private sector was invited to enter the banking market (both conventional and Islamic), breaking the monopoly of the public sector. Foreign ownership was allowed to join, but with a ceiling of 49% of share capital. This ceiling was later raised to 60%. Micro credit institutions were also brought into the market under a special law. Second, a new Basic Money law was introduced, reactivating the old Money and Credit Council and the Central Bank of Syria, giving them back their role as monetary policymakers and regulators. This role was denied during the Socialist era. Third, non-banking financial institutions were also allowed to enter the market, including private insurance companies, money brokerage firms, a stock exchange, and financial services intermediation companies. No ceiling was set on foreign ownership of insurance companies, but a ceiling of 49% was set on brokerage firms and on financial services intermediation companies. Fourth, several banking laws were introduced subsequently, including softening the legal specialization of the six public banks, and allowing theestablishment of investment banks, financial leasing and mortgage finance institutions, and an institution for covering SMEs credit risk. None of these four laws, however, have been activated yet. Fifth, bank secrecy and anti-money laundering laws were introduced. Sixth, during the conflict, laws were introduced regarding settlement of non-performing loans of public banks, and establishment of banking courts.
At the same time, new regulatory and supervisory authorities were established over the past fifteen years, in addition to the Money and Credit Council and the Central Bank of Syria. These included the Syrian Commission of Financial Markets and Securities, The Syrian Insurance Supervisory Commission and the Mortgage Finance Supervisory Commission.
B. The Situation on the Ground
The banking/financial sectorat present consists of 14 private commercial banks (3 of which are Islamic), 6 public commercial banks, 3 micro-credit institutions, 13 insurance companies, 7 financial intermediation companies, 44 money brokerage firms anda Damascus Securities Exchange. Companies listed in the Damascus Securities exchange are 23 in number, most of which are banks and insurance companies.
All 14 private banks has a foreign strategic partner mainly from Lebanon, but also from Jordan, Qatar, Saudi Arabia, Kuwait and Bahrain. There are no branches of foreign banks in Syria and no 100% owned private Syrian bank, although above laws allow both. No banks and no insurance companies left the market during the crisis and non-entered the market either, but 3 financial intermediation companies left the market.
There is also an absence of branches of Syrian banks abroad, except for one public bank incorporated in Lebanon in 1974and has a share capital of LBP 150 billion (US$ 100 million) at present. This is The Syrian- Lebanese Commercial Bank, owned 85% by the Commercial Bank of Syria, 10% by the Syrian Popular Credit Bank and 5% by the public sector Syrian Insurance Company.
Despite the entry of private banks to the market, public banks led by the Commercial Bank of Syria, together with the Agricultural Cooperative Bank and The Real Estate Bank, continue to dominate the banking sector in terms of assets, customers deposits and equity. At the end of 2010, assets of public banks represented 71% of total banks assets, but their share fell to 61% by the end of 2017. Assets of public and private banks increased during the above seven years period, but assets of private banks increased at a faster rate, mainly because of the impact of depreciation of the currency on their foreign currencies’ assets. The Commercial Bank of Syria accounts for the highest assets share in the banking sector, amounting to 37% of all bank assets at the end of 2017.
Last, it is important to note that the banking sector is not integrated in the regional and global economic and financial system. This is because of several factors, including government restrictions on capital movements, absence of convertibility of the currency, limitedforeign direct investments (FDI), and limited external borrowing by the government as well as by existing banks and by the private sector.Syria’s external debt was relatively low before the conflict following debt rescheduling and debt relief deals with bilateral and multinational donors during the Nineties which were made possible by the inflow of oil money as of the late Eighties. The country’s external debt stood at $6 billion or 11% of GDP in 2010, but has increased during the conflict with new indebtedness to Iran, Russia and China.