The modernization of Syrian banking system

Dr. Makram Sader

Real growth in Arab world is not sufficient to face the demographic growth. Generally, Arab world suffers from the weakness of savings. Banks are necessary to collect and allocate resources to different economic activities. Having a developed banking structure is not enough to ensure a sustainable growth. This may provoke a deformation in the resources allocation, and direct them towards short term and liquid uses. Shrinking Syrian banks can not be integrated easily with oversized Lebanese ones because each of the two countries has its own causes of structural deformation. Developing banking sector stipulates the existence of a central bank having integrity and enough independence to administrate money and ensure banking security. Banks development requires financial, monetary and economic reforms.

Current changes in international environment oblige most monetary authorities and banking sectors to readapt and make radical mutations. In addition to classic activities, banks expand their operations to include corporate finance, leasing, private banking, investment banking, Islamic banking, brokerage, and factoring. Knowing the relatively small market size and the rarity of experts, Arab banks should be involved in all former activities. But this stipulates strengthening of control and supervision.

Ownership must be separated from management. And banks have to respect the prudential ratios: minimum capital of new banks, capital adequacy ratio, main risk prudential ratios (25% of core capital for a single agent and a limit to the whole main risks), lending to related parties, liquidity ratio, accountability standards (IAS32) and foreign exchange exposure.

Currently, agents can obtain financial services via banks and financial markets. Information technology and the Internet make it possible to have these services faster and cheaper from local markets and abroad.

Building safe communication networks and their updating and maintenance are very expensive. This needs cooperation among banks including central bank as a provider. Monetary authorities have to control the adequacy of banking choices with international standards, and should verify the compatibility among networks. The article mentions that this does not mean abolishing competition.

In 16/1/2001, Basle committee issued a draft concerning the banking solvency. After being ratified at the end of this year, banks will have to apply it within three years (until 2004). The new treaty has three pillars:

¨ Minimum capital requirements: Rules had been radically modified. Weights no more depend on borrower identity. They became related to debts classification given by international organizations.

¨ Supervisory review process: This includes required capitalization assessment systems, preventing capital decreasing etc.

¨ Disclosure and market discipline.

Concerning the money laundering, the lecturer emphasizes the importance of taking part in international efforts to encounter this phenomenon. According to him, 600-1500 billion dollars are laundered annually (80% of these sums are coming from the G7 countries, in addition to Russia, China, Romania, Spain, and Hong Kong).

Money laundering is achieved in the relevant countries (origin) as well as in fiscal paradises and offshore centers. Most of these funds are recycled toward developed countries because they need good opportunities, modern financial instruments, big and organized financial markets, and competent financial intermediation. The concept of dirty money expands to include not only drugs money, but tax evasion as well.

Countries concerned in this phenomenon focus on achieving national legislation and coordination among them, spreading information, serious and efficient cooperation among relevant administrations, periodical regular disclosure issued by banks and financial organizations.

Relevant international organizations such as GAFI and FATF annually classify cooperative and non-cooperative countries through four criteria: gaps in financial legislation, obstacles in non-financial legislation, obstacles hampering international cooperation, and lack of allocated resources to prevent money laundering.