Enab Baladi – Jana al-Issa

The Central Bank of Syria issued on April 5 a decision allowing banks licensed to deal in foreign currencies to grant loans in foreign currencies to finance development investment projects, but according to specific conditions.

The decision stipulated that the investment projects under which loans are granted should have export or service economic activities and services that lead to the collection of cash flows in foreign currency.

The decision also required that the bank have evidence that the expected cash flows in foreign currency for the project are not less than the value of the installments and benefits of the credit facilities granted.

The bank grants the loan in foreign currency gradually within a specific timetable linked to the completion statements that the bank should ensure its authenticity.

The bank collects interest and commissions in foreign currencies according to its regulations, provided that payment is made in the same currency in which the facilities were granted or by means of payment issued in foreign currencies.

This loan must be matched by the assets of the investment project, and it must also be used to finance the needs of the investment project by importing machinery, materials, equipment, service means of transportation, or raw materials.

To encourage investment

The Central Bank of Syria attributed the reason for its decision to allow lending in foreign currencies to providing suitable conditions and environment for work in the banking sector, given its importance in all economic fields.

The importance of the decision comes from securing access to credit facilities in foreign exchange at the current and next stage within the resources available to banks.

In addition to encouraging investment and providing appropriate banking services to investors, especially those who have dealings in foreign exchange to equip or develop their facilities, whether in the import of machinery, equipment, means of service transport, or the supply of materials and goods necessary for production.

According to the bank, the decision contributes to creating suitable investment opportunities locally for banks to exercise their role in economic development in accordance with the roles assigned to operating banking financial institutions.

Move dollar block

The economic researcher at the Omran Center for Strategic Studies, Mohammed al-Abdullah, told Enab Baladi about three goals of this decision that the Syrian regime is pursuing.

The first is to move the bulk of foreign exchange with Syrian banks and invest them in the local economy, as private banks are mainly targeted by this decision, given that the coffers of government banks are limited in terms of foreign exchange.

The second goal, according to al-Abdullah, is to move the wheel of domestic production by injecting foreign exchange through development investment projects in various economic sectors with economic activities and services, as they are supposed to generate cash flows in foreign exchange.

Behind the decision, the regime is also trying to supply foreign exchange from abroad by allowing the payment of installments and interest from the foreign accounts of borrowers and relying on this part under the pretext that these supplies are for development projects and are not directed to the regime directly.

Thus, it is an attempt to ease the restrictions imposed by international sanctions targeting some of the activities of government entities related to the regime, al-Abdullah confirms to Enab Baladi.

Chasing inflation

Jusoor Center for Studies attributed the decision to lend in foreign currencies to several reasons, most notably removing the banks’ arguments for reluctance to grant loans due to the high inflation that occurred in Syria.

The research center said in an analysis released on April 6 that most of the borrowers who obtained loans in the local currency in 2011 and before decreased the value of their loans by double due to the depreciation of the Syrian pound, which caused huge losses to the banking sector.

The decision was previously supported by businessmen in the Syrian Chambers of Commerce and Industry with the aim of financing the import of machinery and equipment for new projects which cannot be imported in Syrian pounds.

The Monetary and Credit Council also seeks to activate investment operations and bring more foreign currency to the Syrian banking sector by setting conditions on the need to ensure that project resources must be in foreign currency and not be less than the value of the installments and benefits of the credit facilities granted, according to Jusoor Center.

While the timing of the decision indicates that the Monetary and Credit Council is looking to gain the greatest possible benefit from the regime’s exemption from US sanctions by allowing funds to be transferred to and from Syria, which was issued against the background of the Feb.6 earthquake, Jusoor’s analysis explains.

However, this license is limited to a relatively short period of 180 days, while the Syrian regime seeks, through the Monetary and Credit Council, to mix papers with the investment of foreign funds that are in banks and belong to humanitarian organizations, or those that are sent on a humanitarian basis in stimulating investment operations, Jusoor center concluded.

Conditionally feasible

The Chairman of the Board of Commissioners of the Syrian Commission on Financial Markets and Securities, Abed Fadila, considered that the Central Bank’s decision is a positive and bold development for the monetary and financial policy, although it came late, according to his opinion.

Fadila added, in an interview with the local al-Watan newspaper, that it would expand the stage of banking and investment dealings and also confirms that the possession of foreign exchange and dealing with it legally and duly are a solution to a reality crisis that contributes to the development and financing of the economic sector in general, especially the industrial sector.

The Chairman of the Board of Commissioners believes that the decision showed a state of development and improvement in the ability of the banking sector to deal and finance in foreign exchange, indicating that creating an investment environment and a climate capable of attracting foreign investments also requires decisions and procedures related to granting clarifications and facilities in the process of entering and exiting investors’ funds.

For his part, economic researcher Mohammed al-Abdullah believes that the decision could be good for Syrian investors if the interest rates are appropriate and the credit conditions are facilitating it.

However, its success rate may be very limited due to private banks’ fear of initiating foreign exchange lending operations in light of a deteriorating economic and productive reality, and amid fear of the failure of many projects funded by these loans, in addition to the attempt of some internal regime networks to invest this decision to obtain these loans and projects for their own good, according to al-Abdullah.

Investment climate needs more

The investment climate is defined by the economic, financial, social, and political conditions in a country, which affect the willingness of individuals, banks, and institutions to lend to their own operating companies.

The investment climate is affected by several indirect factors, including poverty level, crime rate, infrastructure, labor force participation, national security considerations, political stability, taxation, liquidity, financial market stability, the rule of law, property rights, regulatory environment, and government transparency and accountability.

A report prepared by Enab Baladi in July 2022 discussed the readiness of the economic environment in the regime-controlled areas to start foreign investments and the various security and economic factors that prevent this from being achieved.

From a practical point of view, stimulating new investment, development, and asset-building processes in Syria needs to go beyond the decision to lend in foreign currencies, according to the Jusoor Center for Studies, as stability is the first condition for any large investments.

Likewise, the domination exercised by the security branches and government institutions over merchants and owners of establishments cannot encourage any businessman to build a factory or a large economic facility unless he is part of the system that runs the country.

Although the owners of capital and investors in banks supported this idea in theory after it was put forward by employees discussing purely technical issues, the high risks of granting such loans will make them refrain from offering any amounts in addition to what they currently have as capital in banks, and it is not expected that the banks will be able to bring in any amounts from foreign shareholders or foreign financial institutions for the same reasons, according to Jusoor’s analysis.