The Syrian banking sector appears to be in rude health, reporting record figures at a time when many banks in the region are still absorbing the impact of the global financial crisis.
In July 2010, the Central Bank of Syria released figures showing that bank assets in the country have topped $40bn for the first time.
With banking expanding across a number of business lines, growth levels have outstripped neighbours in the region. Both state-owned and private banks have been performing strongly this year. While the former still dominate the sector, accounting for 74.5% of banking assets ($31.5bn), the most impressive growth has been witnessed among the latter. Indeed, year-on-year (y-o-y) asset growth increased by 29.04% among private banks, with an impressive expansion rate of 5% for the first quarter of 2010 alone. This compares to state-owned bank asset growth of 9.5% and 1.3% for annual and quarterly increase, respectively.
The uptick in private sector banking is welcome news as the government looks to encourage further competition in the sector and broaden the scope of private financing, for both government projects and private enterprise. The central bank signalled its intent in this regard in January 2010 when it increased the ceiling for foreign ownership stakes in local banks from 49% to 60%. The 14 existing private banks in Syria all have foreign participation, although none of this comes from outside the Arab world.
It is expected that the central bank’s new regulation will encourage additional foreign participation in the sector. A number of companies have already expressed an interest in the Syrian market, with particular and persistent attention from Turkish financial institutions. Türkiye İş Bankası, Ziraat Bank, and two state-owned Turkish banks, Halkbank and Vakıfbank, have all been eyeing the Syrian market this year.
However, the high cost of opening a Syrian affiliate is proving to be an obstacle for many foreign entities. Alongside the foreign ownership reform in January, the central bank also introduced a measure raising the minimum capital requirements of affiliates from S£1.5bn ($32.15m) to S£10bn ($214.4m) for conventional banks and from S£5bn ($107.2m) to S£15bn ($321.5m) for Islamic financial institutions.
The move, ostensibly aimed at making local institutions more robust, has made potential investors somewhat wary. Türkiye İş Bankası and Vakıfbank have said that the high capital requirements mean that they are only likely to open representative offices rather than full affiliates. Furthermore, in mid-July the general manager of Halkbank, Hussein Aydin, told the Turkish press that “Damascus was too expensive to invest in,” and that the bank would rather focus on the Balkans.
However, most private sector banks seem to be making healthy profits and all the indicators point to a thriving sector. Indeed, the banking industry has become increasingly aggressive and ambitious, helping to drive the whole Syrian economy forward. The total loan portfolio of the sector, excluding loans made to the central government, increased 14.7% y-o-y to $22.1bn, according to the central bank’s latest statistics.
The majority of this growth was recorded in the private sector, with private conventional banks’ loan portfolios increasing by 33% and private Islamic banks by 64%. This growth has impacted all sectors of the economy. With the exception of wholesale and retail trade, bank financing has increased across all economic activities, with agriculture recording the biggest jump in lending of 59.2% in the first quarter of 2010 compared to the same period of the previous year. Mining and manufacturing and building and construction also recorded double-digit growth in bank financing.
Such figures illustrate the growing confidence and ambition of the sector. They are also a reflection of government incentives and regulations to encourage banks to support economic development. For example, in May 2009, the central bank took a decision to encourage lending to the manufacturing sector by reducing banks’ reserve requirements based on increased lending.
Following the success of this measure, a similar regulation governing lending to small and medium-sized enterprises (SMEs) went into force from July 2010. Under the decision, banks will be offered a discount in their reserve requirements on a sliding scale dependent on increased lending to SMEs up to a discount level of 5% of reserves for a lending ration of more than 45% to SMEs.
Through this combination of government oversight and private sector involvement, the Syrian banking sector is building momentum. With deposits to the sector also increasing dramatically, the financial industry is buoyant. All indicators are moving in the right direction, and while the record peak in assets is currently seen as something of a landmark, it is likely to be soon forgotten as it is surpassed and new heights are reached.
Global Arab Network
This article is published in partnership with Oxford Business Group