Syrias civil war takes its toll on financial sector
Profits for Syrian banks have slumped as a result of the civil war waging in the country and a huge increase in non-performing loans.
Financial statements for the countrys 12 listed banks released on the Damascus Securities Exchange showed a 28 per cent decline in aggregate loans and a 29 per cent decline in deposits. The banks are owned by shareholders that include banks from Qatar, Saudi Arabia, Lebanon and Jordan,
Reliable figures for the banking system are hard to find, but it is fair to assume the Syrian banking system as a whole is undercapitalised, with the state-owned banks being massively insolvent, says Andrew Cunningham, founder of financial markets research firm Darien Analytics. The state-owned banks continue to operate because the central bank allows them to despite their insolvency. Foreign banks are reducing the level of activity as fast as they can and remain sound as a result of support from their parents.
He adds that non-performing loans (NPLs) at least doubled at the 12 listed banks, in some cases more than tripling. NPLs are now in the 20-30 per cent range for many banks. That means anyone wanting to borrow will have to go to the state-owned banks, as the private banks, for whom capital ratios are still important, do not have the funds to lend.
NPLs have increased dramatically during 2012, after banks put off accounting for bad loans during 2011 in the hope that the situation in Syria would improve. With the destruction continuing, NPLs are expected to increase further. The physical destruction of a clients businesses can render loans that were performing yesterday uncollectable today, says Cunningham. He adds that the physical destruction of banking assets, such as branches and ATMs, is also one of the main threats to the continuation of the banking system.
Assets held by the 12 private banks have also dropped significantly over the past years as the conflict in Syria has worsened. Sources indicate the situation for the Syrian banks has deteriorated further since the end of 2012.
Although state-owned banks dominate the Syrian economy, current financial statements are not yet available. The state-owned banks are under a continuing delusion about their true state, says one banking industry source. Cunningham adds: The state-owned banks will continue to support local industries, providing loans and not calling in bad debts. They will be able to do this because the Central Bank of Syria will not enforce its own regulations.
As banks try to shore up their liquidity situation and avoid funds being hit by international sanctions, foreign currency transactions have been repatriated. According to the Bank of International Settlements, which monitors overseas exposure of banks, Syrian banks, including the central bank, had $16bn of placements in other economies at the end of 2009. By the end of 2012, that had dropped to just $2.3bn. Foreign bank exposure to Syria had dropped from $264m at the end of 2009 to just $42m at the end of 2012.