Damascus, Asharq Al-Awsat- Syria’s Central Bank, which has completed five years of financial reform, has succeeded in turning from a department in the Ministry of Economy and Trade into a central bank that enjoys independence and the capability to carry out financial reforms, ensure financial stability, and defend the stability and strength of the lira, as well as provide the financial and monetary climate that is suitable for attracting investments and boosting the country’s economic growth.
The Governor of the Syrian Central Bank, Dr Adib Mayaleh, has adopted a reformist policy backed by the Government. He managed through it to accomplish a wide spectrum of reforms that brought monetary stability and secured the monetary policy tools capable of bolstering a flexible policy for interest rates and managing financial liquidity while bringing about financial liberalism quietly and introducing a wide spectrum of legislation on bank controls and money laundering. These were among the issues Dr Mayaleh discussed in an exclusive interview with Asharq Al-Awsat the text of which follows:
Q) Five years after you assumed the management of Syria’s Central Bank, what are the changes that have been introduced? Can it be said that a qualitative shift has been made in the position and status of the Central Bank?
A) Our work during the past years focused on bolstering the standing of Syria’s Central Bank as a principal player in the Syrian economy that harmonizes with Syria’s inclination toward the economy of the social market as a system for running the national economy. From this premises, the reforms were focused on bolstering the bank’s role in bringing about financial and monetary stability to ensure a suitable climate for attracting investments and bolstering economic growth.
Q) The lira witnessed noticeable stability in the last years. What were the reasons for this, and how was it possible to avoid price fluctuations?
A) Syria’s Central Bank accomplished important achievements during the past years, especially concerning the foreign exchange market and stabilization of the exchange rate of the Syrian Lira in relation to the principal currencies. This reflected on stability of the overall economy and contributed to bolstering the credibility of Syria’s Central Bank in managing exchange rates, especially in view of the great importance of the exchange rate as an intermediary objective for monetary policy. The more important point in this connection is the confidence individuals and investors developed in how strong and solid the Syrian Lira is and the ability of Syria’s Central Bank to protect the exchange rate against fluctuations and maintain its stability.
The measures adopted by Syria’s Central Bank have contributed to enhancing the stability of the Syrian Lira’s exchange rate and bolstering it. This was the result of the decisions taken in the following domains:
– Unifying the Syrian Lira’s exchange rate and freeing it from the linkage to the US dollar while tying it to a basket of currencies within the framework of providing bigger flexibility for the exchange rate.
– Correcting the foreign currency cycle in Syria by introducing centers for foreign currency in the banks with the aim of protecting them against fluctuations in exchange rates and curbing speculation on the Syrian Lira.
– Changing the systems of monetary controls. All restrictions on the current account movement in the balance of payments were removed in a studied and gradual way to reach full liberalization of the account. The banks were allowed to finance most commercial and non-commercial operations in foreign exchange and to finance all the imports of the private and joint sectors.
Q) You were proud of the ability of the Syrian monetary system to avert the ramifications of the international financial crisis. How did you manage to do this and what were the most important indicators?
A) The decisions taken by the Currency and Lending Board, whether those that preceded the financial crisis within the framework of the strategic plan of Syria’s Central Bank or those that coincided with it, had an effective role in limiting the impact of the international financial crisis on both the financial sector and the real sector. All these decisions and measures came within a harmonious context and were not merely reactions to the international financial crisis which however accelerated somewhat the adoption of some decisions and measures.
After the crisis, Syria’s Central Bank sought to invigorate the real economy by encouraging the banks to expand in providing finances for investment and development objectives, so a set of decisions were taken.
Q) Competent authorities have announced that Syria has become fully ready to issue treasury bonds. Has the time for resorting to them not come yet? Or are there a rationalization and a certain policy for which the circumstances are not ripe yet?
A) Establishing a market for governmental bonds is one of the basic and primary steps for developing the financial sector in Syria. The Government realizes its need to develop the management of the public debt by issuing governmental bonds after the continuous increase in the percentage of the deficit in the State’s general budget, in addition to the Government’s desire to create a principal source for the State’s financing requirements that is based on real, non-inflationary foundations. Consequently, Legislative Decree No 60 for 2007 was promulgated on organizing and issuing Government bonds in order to enable the Finance Ministry to attain the objectives of economic development and implement the State’s investment plan.
The actual issuance of treasury bills is expected to start soon, with movement undertaken gradually to issue treasury bonds, with the aim of ensuring the financing required for the State’s general budget for 2010.
Q) You have allowed an increase in the equity of foreign partners in the capital of banks. What is your visualization of the existing banks and of the new banks that might come later?
A) Syria’s Central Bank sought during the past few years, within the framework of a clear strategy aimed at preparing the legislative and regulatory structure and developing it, to create a banking environment that is in harmony with the requirements of economic opening up. The Monetary and Lending Board issued a series of decisions within the framework of encouraging investments and attracting international banks to work in Syria. Within this framework, the equity of foreign participation in local banks was raised to 60 percent. This percentage contributes to providing the opportunity for foreigners, especially leading international banks, to acquire major shares in the capital of banks. This is in addition to raising the capital of private banks to US$220 million in the case of traditional banks and US$330 in the case of Islamic banks.
Q) Do you believe that the private banks have really managed to attract deposits from abroad in the way you were hoping? Did they contribute to convince the Syrians to direct their savings to them in the way you hoped?
A) The entry of private banks into the Syrian market has contributed to diversifying banking services and improved the conditions for competition. The private banks succeeded in attracting new depositors and big deposits that had been accumulated outside the banking sector, in addition to the introduction of new banking products that were not known before, something that helped them attract clients who were originally dealing with external banks as a result of the inability of the banking sector to provide the services required by the clients.
This has been reflected principally in increasing the size of banking deposits with the operating banks that have scored major growth in the last years. The total deposits with the banks reached around 1,200 billion Syrian Liras by the end of 2009, in comparison with 669 billion Syrian Liras at the end of 2004.
Q) Do you intend to allow foreign banks to open branches in Syria?
A) As I mentioned previously, the law has given permission to raise the equity of foreign entities in the capital of banks from 49 percent to 60 percent, and this percentage can be increased to reach 75 percent on condition that this increase should be in favor of the equity of the banking and financial public sector.
Q) It is said that the coming period will be the phase of entry by Gulf banks. Can we talk about the names of banks that plan to enter the Syrian market?
A) The Syrian market has succeeded in attracting banks that have wide operations and good reputation in the banking market in the region, whether from neighboring countries like Lebanon and Jordan or from the Gulf countries. The coming phase will witness the entry of more of these banks, including international banks. There are now several requests submitted by Turkish and Arab banks which are now in the process of registration and their names will be announced soon.
Q) How do you assess the potential opportunities in Syria for Islamic banking services?
A) The Islamic banking sector is considered a new-comer in Syria. The Islamic banks entered to meet the demands of a broad segment in the Syrian society that shuns dealings with the traditional banks. This provides a major factor in the increasing trend by Islamic banks to work in Syria because there is a promising market in it for Islamic banking activities, especially with the popularity this type of banks has with a broad segment of clients. This is in addition to the fact that the Syrian banking market, despite its relatively recent opening to the outside world, is a strong market that encourages the entry of new banks. This is supported by the existence of modern legislation that provides incentives for investments in this sector.
At the end of 2009, deposits with Islamic banks in Syrian Liras and foreign currencies amounted to more than 58 billion Syrian Liras. The credit facilities given by Islamic banks also amounted to 21 billion Syrian Liras by the end of 2009.
Q) How much independence has Syria’s Central Bank attained, and were there recent developments in this connection?
A) The independence of Syria’s Central Bank is considered one of the important points on which there has been wide debate in both the press and the economic circles in the past period. From the practical side, the issue of independence is considered necessary for the success of Syria’s Central Bank in achieving the ultimate objectives of the monetary policy and carrying out the functions and tasks entrusted to it.
Q) Are there decisions and laws that you are preparing to issue to help in developing and improving the banking perspective in Syria?
A) The process of legislative reform occupies an important position with Syria’s Central Bank, the aim being to create a suitable legislative environment for the activities of the banking sector that responds to the emergent local and international changes and developments. This is done by working continuously to promulgate the legislation required in this framework. Within this context work is currently in progress on a set of important laws which we hope will be issued in 2010. The most important among them are:
– Completing amendments to the Law on Syria’s Central Bank and the Basic Currency Law.
– Completing amendments to Law 28 on the creation of private banks in Syria.
– Completing the legislative framework pertaining to the creation of a society of banks.
– Completing the legislative framework for an establishment to underwrite risks on loans in Syria.
– Completing the legislative framework for an establishment to guarantee deposits.
– Completing the amendments to the decree on combating money laundering and finance of terrorism.
– Completing the rules regulating operations by money-exchanging companies and bureaus.
Q) What is your assessment of the performance of the private banks in 2009? Are you satisfied with the results?
A) Despite the relatively recent start of activities by private banks in the Syrian market at the end of 2004 they managed to quickly obtain a good share of the banking sector as a result of the flexibility they enjoy in attracting and investing savings, in addition to the comprehensive services they provide. The entry of private banks has also had a positive effect on the performance of the public banks.
Q) You recently visited Paris, and it was said that lifting the banking blockade imposed by the United States was at the crux of your talks. Is this true? How do you deal with the American pressures, and do you believe they have become less costly than before?
A) The visit to France was aimed principally at conducting talks with the French Central Bank within the framework of developing banking and financial ties and creating frameworks for cooperation between Syrian and French banks, such as cooperation on money laundering and other important issues.
As for dealing with the American pressures, it can be said that the external financial relations of our financial institutions, especially with American banks and financial institutions, are limited relations. Consequently, the impact of the American sanctions on the banking sector in Syria is limited in general. Further, to avoid any possible negative effects on the work of Syria’s Central Bank, action was taken over the past few years to diversify the basket of official reserves and confine dealings by the public sector to the euro, in addition to disengaging the link between the Syrian Lira and the US dollar and tying the Lira to the Special Drawing Rights unit. Within this context, Syria’s Central Bank also invests its reserves in European and Arab banks and in international banking institutions that enjoy high credit rating by the most important international rating agencies.