BANKING & FINANCE: Paying off

The imposing faade of the Central Bank of Syria dominates the view of Place du 17 Avril the square in central Damascus named after the date of independence from the French mandate in 1946. In a nearby side street are the new offices of two of the latest private banks. Although small in size, they are set to play a vital role in the country's economic development.

Private banks disappeared in the 1960s, when the government nationalised the banking sector. They began to make a return in March 2001, under law 28. Since then, six private banks have received licences to set up operations in the country and six more licences are under study, according to Central Bank of Syria governor Adib Mayaleh (see tables). The decision has paid off, Mayaleh says: 'After two years of private banking we can see the results profitable balance sheets and an expansion of bank branches across the country.'

Demand looks set to increase. A glance at the central bank's balance sheets shows that although the total number of deposits in state banks remains high compared to the new arrivals, private banks have begun to make inroads since starting operations in 2004. The total number of deposits in private banks increased by about 230 per cent from £Syr 20,000 million in December 2004 to £Syr 66,500 million a year later.

Further development of the banking sector depends on the establishment of a capital market authority, and over the past year the government has been moving in this direction. In June, it issued a decree establishing the Securities & Exchange Commission, which will be charged with preparing the rules and regulations for creating a bourse.

The seven-member commission is headed by former economy and foreign trade minister Mohammad Imadi. The other members are: Vice-President Mohammad Jleilati; deputy economy and trade minister Ghassan al-Habash; deputy finance minister Mohammad Hamandosh; Hisham Moutwalli, deputy governor of the Central Bank of Syria; Elias Haddad, professor of law at the University of Damascus; and Yousr Barnieh, a private businessman. A Turkish company identified as RBF Financial Group has offered to administer the future stock market.

The creation of a treasury bills (t-bills) market, planned for late 2006, has also been welcomed by bankers. At present there is no outlet for private bank liquidity, with most of it placed as cash in a vault at zero interest. Bankers argue that the development of a securities market in tandem with a t-bills market would give private banks the opportunity to invest their liquidity in interest-bearing instruments.

Other demands include the lifting of the 49:51 per cent ceiling foreign ownership in private banks is set at 49 per cent, while a 51 per cent stake in a new bank must be offered to local investors and the removal of the $30 million capitalisation limit. Both points have been taken on board by the central bank.

Although efforts to develop the sector are acknowledged, there is a growing sense of impatience among some bankers at the speed of change. 'The central bank is taking steps to establish a money market but we need credit bureaus, an association of public and private banks and a t-bills market,' says a Damascus-based banker.

A credit bureau that would contain and provide information on the performance of borrowers is regarded as a crucial safeguard for the new banks and a confidence-building measure.

There are also some who complain that the government's approach lacks cohesion. 'The strategy is too reactive the central bank or the Finance Ministry say they need reforms and then just go ahead,' says the banker.

Indeed, both the ministry and the central bank are in the difficult position of being asked to reform the sector while they are in the process of being restructured themselves. In February, a consortium of the Netherlands' ING Advisory Servi