Banking system reform

Dr.Rateb AL SHALLAH

Syria has a high population growth rate. This aggravates the unemployment rate (every year, 200-300 thousand people increase labor supply) in addition to the disguised unemployment.

Syria needs to invest 24-36% of GDP to realize a growth rate of 4-8%. Currently, Investment rate approximates 18% of GDP. SHALLAH treated banking reforms beginning with a general diagnosis on current banks role and performance. He forwarded some comparative statistics between some Arabian countries (including Syria). These statistics concern assets, deposits, credits and currency in circulation ratios. He demonstrated through statistics that Syria has the last grade, emphasizing the deficiency of Syrian banks.

Banking system in Syria did not update basic banking procedures to satisfy the requirements of the economic development. The lecturer thinks that most reasons of Syrian banking regression are external to the banking system itself.

Syrian banks could not attract national savings because of bad services and high costs. These banks contributed to the high liquidity outside banks. They encouraged Hoarding of money (leading to the phenomenon of money collectors).

Banks neglected attracting deposits in foreign currencies. Despite last encouraging decisions to increase these deposits, results remain limited and insufficient. Potential depositors still hesitate when dealing with syrian banks. They need a vehement awareness campaign to restore confidence.

In Syria, financing import is related to the foreign currencies incoming from export. This practice created some problems. Export financing policy remains conservator and restricted. Exporter must have the adequate solvency. Commercial bank credits remain mediocre. Indeed, current credits reflect the upper limit of what can be exported in counterpart of a commitment to get back the related foreign currencies. The bank does not offer sufficient credits to finance import operations. SHALLAH mentioned also the complexity and the slowness of syrian banking procedures.

Internal credits to the private sector are very limited, and can not be compared to credits accorded to the public sector who enjoys 98% of the commercial bank credits.

Credits interest rates remain unchanged since 1981. The lecturer mentioned that certain specialized banks (agricultural bank and industrial bank) are suffering from bad debts and have difficulties in debt recovery. These banks need governmental subsidies to make new credits.

During more than 35 years of total monopoly, syrian public banking system has not developed sufficient experience. Currently, Syria seeks best strategies to reform its banking system.

Some specialists confirm that governmental banks are more secure than private banks. They pretend that public banks can overcome current difficulties (by reactivating the Counsel of Money and Credit and implementing radical changes in wages policy…).

Another group of specialists pretends that current banking system has failed and can not achieve the urgent global reform.

Last group supposes that a mixed banking system is the best way to sustain the economic development. Existence of private banks creates the competitiveness (indispensable to perceive a new economic dynamism). Private banks contribute to improve syrian banking system through increasing resources, introducing new services and technologies… On the other hand, public banks are expected to remain more powerful, more secure (because of the government guarantee).

The last opinion seems to be largely adopted. Furthermore, the mixed and private banks law project is now under discussion in the Parliament.

The lecturer emphasized the importance of restructuring public banks and improving their efficiency. The mission of the Counsel of Money and Credit must be clarified.

Banking system must not be restrained to the classic missions. It must take in consideration new missions in many areas like pension funds, leasing, electronic transfer system, private banking, hedging, and networking...

Finally, lecturer thinks that the law N24 must be abolished because the circumstances are changed, the new decisions (as the decree N6) make no sense to apply it, the syrian pound power depends on syrian economic power and not on severe punishment laws….