DAMASCUS, 8 January 2004 — Syria’s archaic banking sector this week ended nearly half a century of state monopoly as two private banks opened for business in Damascus. The creation of private banks in Syria, made possible under a reform law passed in 2001, is part of a plan to improve banking services and encourage private sector investment.
The Syria and Overseas Bank (BSOM) was officially inaugurated yesterday by Finance Minister Muhammad Hussein and bank board chairman Rateb Shallah. The European Bank of the Middle East-Saudi-Fransi opened its doors to clients Sunday, a branch official told AFP.
Each of the two banks has 1.5 billion Syrian pounds (nearly $30 million) in capital. BSOM’s parent company is the Lebanon and Overseas Bank (BLOM), Lebanon’s largest in assets. It launched a 38 percent public offering of BSOM’s capital in October with the International Finance Corporation, a World Bank subsidiary, and Syrian investors.
Another Lebanese bank, the medium-sized European Bank of the Middle East (BEMO), in association with Saudi French Bank invited public subscriptions for 48 percent of the capital in BEMO-Saudi-Fransi, also in October.
Syrian private investors would own 51 percent of the capital of each of these banks, and a foreign bank 49 percent. Syria nationalized its banks in 1963, after the Baath Party took power. Since then, neighboring Lebanon, which is dominated both politically and militarily by Syria, has filled the private banking role for Syrians.
Syrian economist Samir Seifan told AFP the new banks would contribute to an improvement “in banking services and increase the capacity for the financing of trade and investment.” He said he believed the banks would be “prudent” in their first two years. “They will essentially serve to carry out commercial operations,” he said. He urged the government to quickly pass a new commercial law to complement the banking reform and start a “gradual liberalization of the monetary system.”
A BEMO Saudi-Fransi official also said the new banks would play a minimal role in the short term. “It would be normal (for the banks) to start with classic operations,” said the official who requested he not be named, listing low-risk transactions such as collecting deposits and checks, distributing cash and financing imports and exports.
He said the banks would follow current Syrian laws until the government followed through on pledges to pass more economic reforms which would allow them to expand their services.
However, one businessman with operations in both Beirut and Damascus who welcomed the creation of the new banks also sounded a note of caution. “No one will risk depositing millions of dollars (in the new banks) before all the restrictions of the Syrian banking system are lifted,” he said.
Meanwhile, a poor working relationship at the top has “all but paralysed” Lebanon’s political process and is jeopardizing the implementation of economic reforms, according to a report by the Economist Intelligence Unit.
The London-based group, in its 2004-2005 outlook received in Beirut, says the situation appears likely to deteriorate in the coming months as President Emile Lahoud seeks to extend his term beyond its constitutionally mandated end in late 2004.
At the center of the tug of war are Lahoud and Prime Minister Rafik Hariri. And as they jockey, the EUI says the new government appointed last April “has proved even weaker and more divided that its predecessor, lacking clear leadership and enjoying no consensus over economic policy issues.”
The EIU says that if Syria allows Lahoud to extend his term, “it is likely that Hariri will resign or be removed from office.” But speculating that the decision will not be made until the 11th hour, the EIU says “Lebanon faces a year of political uncertainty and growing hostility within the elite as the two men jockey for power.”