Enab Baladi – Jana al-Issa

The Union of Arab Banks is planning to launch its project related to the restructuring and rehabilitation of the banking sector in Syria, in partnership with Europe, under a defined work program that extends for about three years.

The program, which has not yet been announced to begin, will include the development of the banking sector’s infrastructure and training and qualifying banking staff in cooperation with the German Central Bank, according to what was announced by the Secretary-General of the Union of Arab Banks, Wissam Fattouh, on February 15.

Fattouh indicated in a statement to the Saudi Aleqtisadiah newspaper at that time that the project faces numerous challenges, the most notable of which are the Western sanctions still imposed on the Central Bank of Syria (CBS), while stressing that there are serious plans for the project’s implementation and ongoing communication with officials at the Syrian Central Bank to discuss means of execution.

To clarify the nature of the European partnership mentioned by the Secretary-General of the Union of Arab Banks, what it will offer in this context, and which European countries will be involved in this project, Enab Baladi reached out via email to the Union of Arab Banks but did not receive a response by the time of publishing this report.

The Union of Arab Banks (UAB) is an organization responsible for promoting cooperation among Arab banks, developing Arab financial businesses, and enhancing the financing role of Arab banks in the Arab world. Its headquarters is located in Beirut, and it has three main regional offices in Egypt, Sudan, and Jordan.

Restructuring and merging

Regarding the nature of what the project adopted by the Union of Arab Banks in partnership with Europe might offer, Dr. Firas Shaboo, a specialist in financial and banking sciences, stated that it could take the form of assistance in restructuring Syrian banks, given the significant imbalance in the entire banking system.

Shaboo added to Enab Baladi that there are many commercial, agricultural, and industrial banks in Syria, but most of them are inactive, necessitating their restructuring and merging into a single bank.

Currently, these banks are providing small loans, while the devastated country today requires investment loans that cover infrastructure projects and initiatives that enhance economic recovery.

According to Shaboo’s vision, this project can include enlarging the capital base of private banks, a project that requires significant support, in addition to completing some banking training for personnel, which would bolster the confidentiality of banking operations and risk management.

Professor and lecturer at Gaziantep University’s Faculty of Economics, Salah al-Din al-Jassim, considered that this partnership could be a strategy based on the exchange of expertise, technology, and financial support and should include several areas such as:

• Technical and technological support, through the transfer of the latest banking technologies, such as artificial intelligence in risk management and blockchain technologies to ensure the security and transparency of banking transactions.
• Updating governance and compliance systems to combat money laundering and financing terrorism in accordance with European standards.
• Providing intensive training programs for Syrian banking staff, covering financial technology, risk management, financial compliance, and digital banking marketing, and sending European experts to provide technical and administrative support within Syrian banks.

Regarding investment and financial support, according to Shaboo, the project must ensure the provision of guarantees or credit facilities to encourage investments in the Syrian banking sector, as well as enhance partnerships between Syrian and European banks to improve international confidence in the Syrian financial sector, in addition to updating banking laws in Syria to align with international standards, facilitating financial cooperation with Europe.

The financial and banking sector in Syria consists of operating banks, microfinance banks, and exchange institutions, all of which are subject to supervision by the Central Bank of Syria.

There are six public banks, the most prominent of which are the “Commercial,” “Real Estate,” “Industrial,” and “Cooperative Agricultural” banks, in addition to 11 traditional private banks and three private Islamic banks.

Managing troubled assets

The current government has inherited a heavy burden from the overthrown regime concerning banks. The Secretary-General of the Union of Arab Banks, Wissam Fattouh, stated that the banking crisis Syria has been experiencing for decades has led to a proliferation of non-performing loans and a significant depreciation of the Syrian pound.

Fattouh emphasized the need for effective strategies to address debts through the establishment of companies specialized in managing troubled assets, a model used by other countries, including the United States, Malaysia, and Ireland, after they faced financial and banking crises in the past.

In this Syrian context, Fattouh noted that one potential solution could be to allocate a portion of non-collectible debts to troubled asset management companies, which would help Syrian banks mitigate the impact of the financial crisis.

The Syrian banking sector needs to bolster its capital to enable it to withstand increasing risks while gradually privatizing public banks to improve efficiency and increase trust.

Troubled assets are those that no longer perform well or generate revenue as required, and they are often sold at a reduced price compared to their original value.

Troubled assets can take various forms, including real estate, equities, bonds, and even entire companies, and they are often a result of financial distress, bankruptcy, or other financial issues.

Dr. Firas Shaboo mentioned that establishing troubled asset management companies requires a flexible legal framework in Syria, as well as specialized competencies and sufficient financing, stressing that many problematic loans need to be restructured in Syria.

According to Shaboo, managing these assets can be through seizing certain assets or selling non-performing assets to increase bank revenues.

In the Syrian context, undertaking these measures requires technical support from external entities, both Arab and European, in addition to ensuring compliance with international standards, whether regarding how to grant loans or preparing means of what is called the client’s “credit wall” to minimize the risk of banking defaults as much as possible.

According to Dr. Shaboo, a strong banking regulatory body needs to be established, with training for staff on advanced banking standards and laws and regulations specific to banking operations.

Salah al-Din al-Jassim agrees with Shaboo that creating specialized asset management companies is a practical solution to addressing the issue of non-performing debts in Syria, but it requires a suitable legal and administrative environment that includes a legal framework allowing for the transfer, restructuring, and sale of assets according to transparent rules, in addition to specialized teams for financial evaluation, restructuring, and investment, as well as sufficient financing from the government or local and international investors, and the use of advanced technologies such as artificial intelligence and big data analytics to assess risks and manage assets efficiently.

However, Syria faces challenges in this field, according to al-Jassim, as the legal framework needs significant development due to a lack of clear legislation, and human resources require intensive training, along with weak technical infrastructure, communications, and a lack of liquidity in banks.

Despite these challenges, these companies can effectively contribute to resolving debt issues by removing non-performing loans from the banks’ balance sheets, thereby improving liquidity and lending capacity, in addition to reactivating idle assets such as abandoned factories and real estate and transforming them into productive projects, thus enhancing confidence in the banking sector and attracting foreign investments.

A crumbling sector… Building trust

The culture of banking transactions in Syria is virtually absent, due to imposed regulations that set a daily withdrawal limit on one hand, and the depreciation of the pound on the other, which means that holding money in banks results in a loss of value amid the ongoing decline of the pound.

Additionally, some electronic transactions in this context are unavailable due to a lack of infrastructure and software, amidst daily issues faced by residents in Syria related to poor access to electricity and the internet.

Firas Shaboo believes that the project’s designated duration of three years is insufficient to achieve improvements in the sector; however, tangible progress can be made during this period in terms of building people’s trust in banking transactions, as well as enacting laws that ensure financial stability in the country.

He continued that any project in the banking sector will remain without real value and actual impact unless the United States lifts the sanctions imposed on entities and institutions within the banking sector in Syria.

According to a report issued by the Malcolm Kerr-Carnegie Middle East Center, the banking sector in Syria will play a significant role during the period of reconstruction and economic recovery, whether as a means of directing foreign funds, facilitating trade, or as a source of financing.