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Tue 1 May 2007 12:00 AM

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Syria takes fast track to reform

President Al Assad is already starting to deliver on plans to overhaul the country’s financial sector.

Few countries in the Middle East can have such ambitious, and rapid, plans for financial sector reform as Syria. Under plans outlined by President Bashar Al Assad, the country will establish a stock exchange, anti-money laundering unit, national clearing house, credit bureau, and electronic payment infrastructure.

Although some may have doubted whether the Central Bank could deliver on these aims, the results are already becoming evident.

Deposits held by Syrian banks doubled last year to US$2.5 bn, but there is rumoured to be around $80 bn of Syrian money kept offshore.

If even a portion of those funds were to be brought back into the country, it would make an enormous difference to the banking sector.

In March, Syria joined the ranks of the few countries in the Middle East to allow foreign majority ownership of banks.

Andrew Jeffreys, editor-in-chief of Oxford Business Group, which provides country analysis, said: "In many areas, finance being an example, there has been significant reform over the last three or four years."

He added: "Foreigners can now own the majority stake of a bank in Syria. This is a huge step."

Cham Bank, backed by Kuwaiti investors, was the first Islamic bank licensed in the country, while Syrian International Islamic Bank, backed by investors in Qatar, held a heavily oversubscribed IPO ahead of its launch.

Islamic finance looks like it could now be a huge growth sector for Syria.

"This is a relatively nascent market," explained Jeffreys. "Islamic banks weren't legislated until May 2005." Banks will also operate in an environment that is more supportive of their business needs.

"One of the problems is that there are restrictions on where Syrian banks can invest," said Jeffreys. "They are starting to introduce treasury bills by the end of the year, which will be a significant step for the financial sector. These are major steps forward."

Lenders will also be able to manage their risk more effectively when the national credit bureau is established.

"So many emerging markets, even countries that have had private sector banking for at least 10 years, had never really sorted out a very good credit bureau," said Jeffreys.

"It remains one of the key weaknesses of so many emerging markets."

Banks will also have a new revenue stream when Syria's stock market goes live, through IPO issues. "The first two intermediary firms were licensed [in March], which will be allowed to conduct brokerage operations and launch IPOs once a stock market is established," Jeffreys added. "In 2000 these things would have seemed miles away and they actually exist now."

Despite the rapid pace of reform, banks are still hindered by some existing regulations. "I think the banks feel as though the restrictions on their ability to loan money are over-restrictive," said Jeffreys.

"I think the banking sector itself would like to have more freedom to develop more financial products and that's what they would expect to do in the future.

"The most important thing for the government to do is to continue to establish credibility and consistency in the development of their financial legislation, which I think they're doing slowly and they need to carry on.

"The most important thing for the financial community is predictability."

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