Private banking system

The private banking law was promulgated in 2001, allowing the establishment of private banks for the first time after 40 years of a state-controlled banking system. Six private banks were established: Bank of Syria and Overseas (BSO), Bank BEMO, Bank Audi, the International Bank of Trade and Finance, Arab Bank, and Byblos Bank. Their combined deposits were estimated at USD 30-50 million at the time of privatisation, which then increased to USD three billion in 2007 (Moubayed,

2007). Initially, there was a restriction on foreign ownership of bank shares. Syrian nationals and companies were required to own 51 per cent of shares in any of these banks. The ruling elites and the commercial bourgeoisie, such as Rami Makhluf, Nader Qalai, Issam Anbouba, and Samir Hassan - rather than competitive market bidders - turned out to be the main shareholders (The Syria Report, 17 January 2010). This 51 per cent ceiling was later relaxed and an increase in the share of foreign ownership was allowed. During the Bashar regime, more than 20 private banks operated alongside the specialised public banks (the Real Estate Bank, the Agricultural Cooperative Bank, and the Industrial Bank).

The activation of private banking was crucial for the state bourgeoisie. It enabled them to manage their bank accounts and easily transfer their money deposits outside the country. Previously, they had to smuggle or transfer their wealth into the dollar and store it in the Lebanese private banks. (IMF, 1975: 102).

Bank loans provided by private financiers remained very limited. Table 6.1 shows that the average credit given out by the commercial private banks during 2008-10 amounted to only 16 per cent out of total local bank credit; whereas that of the public banks amounted to 82 per cent of the total. During the Bashar regime, the private bank credit was limited to usury-like transactions and did not finance industrial and developmental projects.7 Loans were given out on the basis of collateral against a new investment project rather than based on the achievements of the project. Because they failed to finance long-term investment, the Syrian private banks proved to be similar to the shallow financial institutions of most Arab countries in the sense that not only are lending operations conducted on a short-term basis, but they require huge collateral and guarantees. Table 6.2 shows that the average of total local bank credit given out to agriculture and industry accounted for

Table 6.1 Distribution of local bank credit according to type of credit in millions of Syrian pounds, 2008-10

2008

2009

2010

Average

2008-10

Average

share

Public Banks

745,224

857,599

945,689

849,504

82%

Commercial Private Banks

110,895

149,285

224,306

161,495

16%

Islamic Banks

14,176

21,331

43,210

26,239

3%

Total Credit

870,295

1,028,215

1,213,205

1,037,238

100%

Source: Central Bureau of Statistics, 2011.

Table 6.2 Distribution of local bank credit according to type of economic activity in millions of Syrian pounds, 2008-10

2008

2009

2010

Average

2008-10

Average

share

Agriculture

96,286

140,026

149,092

128,468

12%

Industry

45,090

78,100

101,980

75,057

7%

Building and construction

113,260

142,724

176,986

144,323

14%

Commerce

490,901

515,129

575,386

527,139

51%

Other activities

124,759

152,237

209,761

162,252

16%

Total

870,295

1,028,216

1,213,205

1,037,239

100%

Source: Central Bureau of Statistics, 2011.

only 12 per cent and 7 per cent respectively during 2008-10. In contrast, 51 per cent was given out to the commercial sector.

The neglect of productive sectors in state policy in the 1990s and 2000s was accompanied by a shift in state banks' lending operations from development investments to short-term commercial activities (Kanaan, 2000: 128). While the Industrial Bank was literally frozen during 1991-98, the amount of loans provided by the Commercial Bank of Syria to both public and private sectors doubled (Haddad, 2004: 59). The state banking sector was then criticised for its weak banking tools and its inability to finance developmental projects,8 while in fact the blame should fall on state policies that were supportive of commercial sectors instead of the productive ones.

 
Source
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