The corner stone of a healthy economy is a sound banking sector. Banks multiply money supply and spur economic growth. The greater the proportion of bank deposits to money supply is, the greater the capacity of the sector to contribute to economic growth. 

Syria, a cash society

Syria’s banking sector consists of six government owned specialized banks and 15 private sector owned banks. The government banks are: Commercial Bank of Syria, Industrial Bank, Agricultural Cooperative Bank, Real Estate Bank, Savings Bank, and Popular Credit Bank (for low-income individuals and small businesses).

A sizeable proportion of the population in Syria avoids dealing with banks. They see them as bureaucratic, overcrowded, risky, with the un-Islamic interest at the core of their trade. Consequently, much of people’s saving is kept under mattresses, in real estate, gold, or with unscrupulous intermediaries. It is not surprising, therefore, that the ratio of bank deposits to money supply is a low ~38%, making Syria basically a cash-based society. Syria should aim to at least double this ratio. The government should take the lead.

Pay salaries in bank accounts

The number of government employees in Syria is 1.25 million and the number of its pensioners is 475,000. It is safe to say that the great majority do not have a bank account.

The government should pay the salaries of its employees and pensioners and require large private sector businesses into bank accounts. Challenging? May be. But, through cash awards for opening accounts and concerted media campaigns in the national discourse to promote the benefits of a robust banking system to the country and the individual, habits can change.

A prerequisite is to develop a modern banking infrastructure, particularly a resilient interbank ATM network with constant availability. For Syria’s ~25 million people, the number of ATMs should rise to 10,000, from the current inefficient 700. With a constantly functioning ATM on every street corner, an individual would withdraw small amounts from an uncrowded machine as often during the pay period as needed.

Privatize government owned banks

Due to the years of revolution against the Asad dictatorship (2011-2024), government owned banks have not published financial statement for several years and their net worth might be negative. To prepare these banks for privatization:

1. Regional head offices, branches, and other properties the banks own should be professionally appraised to reflect their current market values.

2. All non-performing loans should be provided for in full and removed from the balance sheets to collection agencies.

Hopefully, the gain in (1) will outweigh the loss in (2).

Encourage the establishment of Islamic banks

Islamic banking is important in Syria. To be acceptable, capital must generate profit, from trading (buying and selling of goods); rent, from leasing real estate, equipment, or other assets; and dividends or capital gains from owning halal assets.

Under trading, called Murabaha, the difference between the purchase and sale prices of the goods represents trading profit, not interest. While a bank loan has a lender and a borrower, Murabaha has three parties: A seller, the Islamic bank, and a buyer. Prohibited is trading alcohol, pork products, tobacco, and weapons. Also, prohibited is forward dealing in currencies and precious metals—the difference between their spot and forward prices represents interest.

An Islamic lease is like a fixed-rate conventional lease. For a floating-rate lease to be Islamic, the lessee must retain the right to break the lease without penalty on rate-renewal date.

Allow branches of foreign banks and 100%-owned subsidiaries

For a robust banking sector, foreign investors, individuals and institutions, should be allowed to establish branches and wholly owned subsidiaries in Syria, including the acquisition of existing banks partially or fully.

To attract foreign investors, the minimum paid-up capital should be set at a reasonable level, say, $50 million. Also, they should be allowed to repatriate their capital at the historic foreign exchange rate when the investment was originally made and allow the transfer of annual profits at the prevailing rates at the time of the transfer.

Regulate the money changers

Currency exchangers and money transfer businesses should be regulated. They must be prohibited from taking deposits. Owners must be fit and proper to be licensed. They must maintain detailed records of daily business transactions. They must adhere strictly to Know Your Customer and Anti-Money Laundering rules.  

Rejoin the global banking system

Now that the sanctions have been lifted and Syria rejoined the SWIFT communications network, re-establishing correspondent banking relationships with Syria’s trading partners must follow.

It goes without saying that the Central Bank of Syria will enforce the Basel III regulations vigorously to strengthen bank capital, decrease leverage, and increase liquidity, in addition to the Know Your Customer (KYC) rules to prevent money laundering.

Above all, bankers must not be gamblers. Dealing rooms must not become casinos. Taking society’s saving is a privilege and a responsibility given by the legislator to commercial banks alone under strict controls.

Principles of banking prudence

In December 1863, H. McCulloch, U.S. Comptroller of the Currency and later Secretary of the Treasury, wrote to all national banks his principles of banking prudence. Here are some of the paragraphs:

Let no loans be made that are not secured beyond a reasonable contingency.

Do nothing to encourage speculation. Give facilities only to legitimate and prudent transactions.

Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank.

If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it.

If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you.

Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.

The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.

Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.

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