Under Law 23 of 2002, which was passed by the People's Assembly in December last year and approved by President Asad on 31 March, private banks will be able to operate in the country 'as private or joint venture companies with shareholdings'. New banks are required to have minimum subscribed capital of £Syr 1,500 million ($28.5 million), and a maximum threshold of 49 per cent foreign ownership. An earlier law passed in April 2001 provisionally allowed private banks to obtain permits to operate in Syria, but did not provide a framework for their establishment. Under the directives of the new legislation, the Economy & Foreign Trade Ministry will issue executive guidelines for the licensing of new banks (MEED 28:12:01).

Law 23 also sets up a regulator for the sector, the Monetary & Credit Council, which will be chaired by the governor of the central bank, Hisham Mutawalli. One of the ultimate objectives of the council will be introduce a floating exchange rate system. The existing prohibition on buying and selling foreign currency will be one of the major obstacles to foreign investors. However, Damascus has already introduced a 'non-commercial' rate for currency conversions, which is reviewed daily, to woo dealers away from the black market and back into local banks. There are at least three exchange rates in use in Syria, including an official rate of $1=£Syr 11.2, a customs rate of $1=£Syr 23, and a commercial or 'neighbouring countries' rate of $1=£Syr 46.5.

Investment in the Syrian banking sector is likely to be most attractive to institutions in neighbouring Lebanon. A significant proportion of the $41,000 million deposited in Lebanese banks comes from Syria. Six Lebanese institutions, including Banque du Liban & d'Outre Mer (BLOM)and Fransabank, have already obtained licences to operate in Syrian free zones. However, most bankers believe it will be some time before there is any noticeable influx of foreign investment into the sector.

'Although the law has been passed, the main problem is that the rest of the infrastructure to support a modern banking system is not in place,' says the representative of an international bank in Beirut. 'It is rather like China opening up - it is a slow process and a long time before you have everything operating in a predictable manner.'