Lending programs in Syrian government banks are subject to new amendments, after they temporarily suspended granting personal loans, for reasons they said were related to a lack of loanable liquidity, and a disparity between income levels (which are declining due to the collapse of the value of the lira) and the value of installments due on loans.
The General Manager of the Commercial Bank (the largest bank in the country), Dr. Ali Youssef, explained in an interview with the local Tishreen newspaper, “The loans will be subject, in the period after receiving new applications, to a lending plan that takes into account the capacity and capacity of each of the donor branches, and will be limited to a specific number per month.”
While similar banks, such as the Popular Credit and Savings Bank, backed down from what they had previously announced regarding raising the ceiling of their personal loans, and adopted the ceiling they were working with, which was only 5 million liras ($350), with the exception of the Real Estate Bank, which continued to grant its personal loans, under the ceiling it had set at 10 million liras ($700).
The Assistant General Manager of the Credit Bank, Adnan Hassan, linked raising the ceiling of loans that the bank will grant to the availability of liquidity, as it needs to be strengthened – as he sees it – to attract additional rates of deposits.
He confirmed in a statement to Al Watan newspaper, which is close to the government, that despite raising the interest rate on deposits, which sometimes reaches 13%, it did not contribute to raising deposit rates, due to concerns about inflation rates, restrictions on withdrawals, etc. He indicated that most of the existing deposits are deposits of public entities in the form of current accounts.
Other places for deposits
Many factors contribute to the decline in lending operations in banks, according to Dr. Ragheed Qassoua, a professor at the Faculty of Economics at Damascus University. He believes that the lack of liquidity, high inflation rates, and monetary measures that restrict withdrawals – the daily withdrawal ceiling – and restrict the transfer of funds, are likely to push individuals to save outside banks, i.e. in other, more profitable places. Because depositing in banks with the presence of accelerating inflation is not profitable and not stimulating.
Raising interest rates was not a solution.
In this regard, experts confirm that Syrian banks have focused since the beginning of 2022 on short-term credit facilities to cover their withdrawals, after most of their deposits were confined to current accounts.
Which prompted the Monetary and Credit Council to issue a decision to raise the interest rate on deposits in Syrian pounds and investment certificates from 7% to 11% as a minimum, to prevent increased risks of using these facilities for speculative operations, increase the speed of cash circulation, attract savings, and direct facilities towards productive activities.
Professor at the Faculty of Economics at the University of Aleppo, Dr. Hassan Hazouri, asked, “In light of the current situation, and in light of the liquidity drying policy adopted by the Central Bank, who will deposit his money in banks if he cannot withdraw it easily when he wants, including current accounts and demand deposits?”
He described the real interest rate, in a statement to the Russian Sputnik Agency, as negative, meaning that the inflation rate and the decline in the purchasing power of the Syrian pound during the deposit period are much higher than the return that the depositor will receive at the end of the deposit period, and thus the result of his investment is an actual loss and not a profit.
Another story for the Central Bank
Otherwise, the Director of Economic Research, General Statistics and Planning at the Central Bank of Syria, Manhal Janem, confirmed that the monetary measures taken by the bank since 2022, especially the decision of the Monetary and Credit Council to raise interest rates from 7% to 11% on deposits for a period of one month, contributed positively to the liquidity structure on both sides of the unified budget of public and private banks.
He explained that the annual general inflation rate declined from 118.8%, according to data from the Central Bureau of Statistics for the year 2021, to 51%, according to the World Bank’s forecasts for the year 2022, noting that the rate, according to the bank’s data, reached about 59.5% for the year 2022.
“According to what was published by the Central Bank via its Telegram channel,” Janem explained that the total deposits in private banks have increased since the issuance of the aforementioned decision until November 2022 by 841 billion Syrian pounds, at a growth rate of 17% from 5039 billion Syrian pounds to 5880 billion pounds, and time deposits grew during this period by 14%, and the relative weight of time deposits out of total deposits reached 24%.
3 risks
In addition, economic researchers Samir Sharaf and Wajd Al-Sayegh believe that most Syrian banks have been exposed to many risks, including:
- Credit risk due to customers’ inability to pay
- Liquidity risk due to sudden depositor withdrawals
- Exchange rate risk due to depreciation of the national currency
A joint study by them on the impact of financial sector determinants on financial inclusion in Syria and neighboring countries showed that political stability is one of the main determinants of financial development, because its instability leads to increased uncertainty about the return on financed projects, and can increase non-payment problems, which pushes banks to finance only short-term investments. The study added that war can exploit the financial sector to finance military needs and war materiel, and contribute to the lack of regulation in the financial sector, which puts the integrity of the financial system at risk.
They pointed out that Syria’s ranking in the demographic financial inclusion index according to the global database declined significantly in 2010, reaching 148 out of 228 countries.
- In 2015, Syria was removed from the global database.
- In 2017, the number of bank branches per 100,000 adults was 3.35, while in Lebanon it was 22.28.
- As for ATMs, the share of individuals in the same year was 5.36, while in Lebanon it was 38.03.
Weak financial inclusion
One of the main problems that affected the performance of the banking sector since the early years of the economic openness that Syria witnessed 2002-2006, is that it did not witness any advanced steps in terms of the spread of banks and the diversity of their services, according to international standards. The network of banking branches was concentrated in Damascus and Aleppo, while the Syrian countryside remained outside financial inclusion, as it did not benefit from banking services and facilities as urban areas did.
The results of a study prepared by the Syrian Economic Center show that for every 26 Syrian citizens there is one bank account, while statistics indicate that for every 16 Egyptians there is one account, and for every 3 Moroccans there is one account. According to the center, this indicates that the lending mechanism is still slow and has not risen to the required level. It is affected by many factors, including the placement of insurance and mortgage signs, stamp duties, etc., which amount to 5% of the loan for investment and housing loans.
As for limited income loans, the bank is only entitled to withhold 19% of the 75% of the salary, and this is what determines the ceiling for limited income loans, given that the banks’ short-term resources are deposits with a maximum term of one year. The study asked, “How can loans for a period of 3 or 4 years be financed with short-term deposits?”
Inflation drives away deposits
The Central Bank links the rise in inflation rates in Syria to a similar and unprecedented rise witnessed by many economies, driven by several factors, most notably the disruption of the supply chain linked to the Covid-19 pandemic, and the rise in commodity price shocks resulting from the Russian-Ukrainian crisis.
The Deputy Governor of the Central Bank of Syria, Dr. Maha Abdul Rahman, revealed that the annual inflation rate reached 122% last April, considering the number large, and she continued, but the country has not yet reached the stage of rampant inflation.
In a television statement, she attributed the reasons to external factors such as sanctions imposed on Syria, conflicts in several countries, and borders that cannot be fully controlled, which leads to continuous smuggling operations. Internal factors include weak production, chronic problems such as the trade deficit, and deficit financing.
Lack of transparency
However, the repercussions of the war have had a significant impact on the financial and banking sector over the past 13 years, as a result of the exposure of the market value of its assets to danger, in addition to the recession resulting from inflation, changing consumer needs, and increasing non-performing loans.
Tight Western sanctions on the financial sector, and sanctions by the Belgium-based SWIFT international financial services organization, which allows banks to use the global money transfer system, have restricted Syrian banks’ foreign currency transfer activities. Most Syrian businessmen have turned to Lebanon, Jordan and Turkey to open letters of credit in dollars and complete regular commercial transfers with foreign parties, in order to continue their businesses.
The German-based financial expert, Abdul Qader Barakat, believes that explaining what the banking sector is witnessing, in terms of savings and granting loans, and other difficulties that hinder people’s access to its available services, in isolation from the existence of political stability that turns the page on war and its dangerous effects on the financial, banking and business sectors, is merely a vicious circle.
Speaking to Al Jazeera Net, he pointed out that the official discourse of the Assad regime still hopes for an improvement in the general economic situation, relying in its reading on funds and aid coming from abroad, after the openness witnessed by Syrian-Arab relations, especially the Gulf ones, which will contribute, as promised, to improving the situation of the lira, reducing inflation rates, and restoring citizens’ confidence in their banks to deposit in them.
He added: Until the opportunity arises, the Syrian economy still maintains its negative classification according to most global indicators. Especially for the financial and banking sector, as the stock market growth index in Syria, according to data from the Arab Federation for Digital Economy (affiliated with the Council of Arab Economic Unity in the League of Arab States), reached 32.58, which is the lowest percentage in the performance of Arab stock markets for the year 2022. The banking safety index also reached 31.19, while the same index for Jordan reached 82.09 and Lebanon 74.63. As for the ease of obtaining loans, Syria’s index reached 0.00 compared to 95.00 for Jordan and 40.00 for Lebanon.
Barakat pointed out that the lack of transparency in describing the situation, and the absence of accurate figures on the reality of the economy, growth rates, state finances, debts, foreign sector savings, and the conditions of the banking sector, hinder the conduct of useful analyses. Because the essence of the problem is that those who manage financial policy do not want to speak frankly about the failure of their policies, nor about the major imbalances that the economy suffers from as a result of its transformation during the war into a clientelist economy, working for the benefit of an elite allied with the regime, who controlled its tools and invested it to fill their financial portfolios. In other words, no one in the ruling system wants to address the problem through its causes.
Political situation is a major obstacle
The European Investment Bank conducted a survey between 2005 and 2006, with the support of the European Union Fund and the Euro-Mediterranean Investment and Partnership Programme in Syria, on the difficulties facing companies and limiting their future growth. 650 Syrian companies participated in the survey, 81% of which indicated that lack of confidence in the political situation was the main obstacle.
As for corruption problems, they came in second place at 71%, and among the prominent problems for the companies studied were inflation issues at 68%, and the legal environment at 55%.
In response to the question (Why did you not receive your loan) that the questionnaire asked 19 entities that did not receive the loans they requested, 63% answered because of the long period, 42% because of the corruption of loan officers, and 32% because of the lack of the necessary guarantees.
At the end of its report, the European Investment Bank recorded 6 observations on the reality of the work of government banks in Syria:
- Weak public administration and heavy government intervention
- Poor staff qualification
- Weak IT and management information system
- Limited link between lending and cash flow
- Poor risk management
- Lack of international accounting standards
He also noted that only private banks are obligated to adhere to international accounting standards, while government banks are subject to the supervision of the Central Agency for Financial Control, based on its own accounting principles, and no public bank has been subject to supervision that adheres to international accounting standards.
