Arab banks draw up plan to rebuild Syria’s ailing banking sector

Reuters/Firas Makdesi

• Problem with non-performing loans
• Union of Arab Banks to step in
• Call to privatise banking institutions

A three-year plan to restructure Syria’s ailing banking sector, which is suffering from massive non-performing loans, is being prepared by the Union of Arab Banks (UAB), an industry association, with the help of unnamed European institutions. 

The Beirut-based UAB’s secretary general, Wisam Fatouh, told the Saudi Arabic language daily Aleqtisadia on Monday that the restructuring plan involves the development of infrastructure and the training of Syrians working in the financial sector.

“This plan will be implemented in partnership with some European banks, but it faces challenges, mainly the sanctions on the Syrian central bank.

“We are in touch with Syrian central bank officials to discuss the implementation of the plan,” Fatouh said.

Fatouh, an Egyptian, said Syria’s economy had been wrecked in the 14-year civil war. This, coupled with sweeping Western sanctions and the collapse of the local currency, the lira/Syrian pound, has led to a large increase in bad loans.

“There is a pressing need to devise an effective strategy to tackle the bad loans problem,” Fatouh said.

“This strategy must include the creation of a company specialised in managing non-performing assets similar to what other countries had done in the past, including the US, Ireland and Malaysia.”

The Syrian banking sector needed an injection of capital to handle growing risks, and public banking institutions should be privatised to “improve their efficiency and boost public confidence,” he said.

Fatouh said that the country faced big challenges in combating money laundering and terror funding. There was also a need to improve internal compliance mechanisms and upgrade operations by using digital techniques.

• Sanctions on Syrian banks choke economic recovery

• Politics will rule in the surreal world of Syrian banking

• Iraq hires EY to explore restructuring of state banks

Syria’s new central bank governor, Maysaa Sabreen, told Reuters last month that she was drafting amendments to the central bank’s laws to enhance its independence, including allowing it more freedom to make decisions over monetary policy and banking supervision.

The central bank was looking at ways to expand Islamic banking to bring in Syrians who avoid using traditional banking services, Sabreen said.

It was also looking to restructure state-owned banks and to introduce regulations for money exchange and transfer shops, which have become a source of hard currency, she said.

Manhal Ganim, director of the central bank’s economic research section, said a decision in 2022 to raise interest rates on deposits from 7 to 11 percent boosted the banking sector’s liquidity, with deposits growing by around 17 percent to 5.9 trillion Syrian pounds ($452 million) in mid-2024.