What will the Syrian banking system look like when the fighting stops? The obvious answer is that it will depend on how long the fighting continues and who emerges as the victor.
And to some extent, that obvious answer is the correct one.
If the rebels overthrow the Asad regime, fighting their way to Damascus, the destruction to the country’s infrastructure will be huge. Regime figures who have been managing the financial system in recent years will either flee or be removed, and physical assets will be looted, either by the departing regime or by uncontrolled elements of the victorious forces.
In the final days of Saddam Husain’s rule in Iraq, the Central Bank of Iraq was emptied of millions of dollars by regime figures preparing for a last stand or a future fight back.
If the Asad government prevails and regains control of its territory, then destruction in the regions outside Damascus will be considerable, but the Damascene key infrastructure, both physical and professional, will probably be in reasonable shape.
Yet whoever controls Damascus in the years ahead will inherit a banking system dominated by decrepit state-owned institutions that have been managed by public servants with little appreciation of modern banking.
Any country’s banking system reflects the broader economy in which it operates, and there has been little real change in the structure of the Syrian economy and the relationships within it for decades. (The rise of private sector businessmen and industries is a chimera – their success has been reliant on regime patronage.)
The so-called “reform” of Syrian banking in recent years has combined the granting of new banking licenses to private sector interests and foreign banks with the acquisition of shares in many of those banks by cronies of the regime. The process has brought new skills and technology into the system.
Six of Syria’s 20 banks now have Lebanese banks among their major shareholders. Jordanian banks are the largest shareholders in another three, and Qatari investors in another two.
Lebanese banks in particular stand to gain once the fighting stops and business resumes (and assuming sanctions are lifted). With their strong personal connections to the Syrian business community, geographical proximity, and entrepreneurial acumen, they were already building strong franchises when the Syrian civil war began in 2011.
But the experience of Iraq since the overthrow of Saddam provides a cautionary tale to any who think that a change of regime will lead to quick and dramatic change in an antiquated banking system.
In Iraq, state owned banks continue to dominate the banking scene, with Rafidain and Rashid accounting for about 90% of banking assets. Reform programs implemented by foreign advisors backed by millions of dollars achieved little over many years. The Central Bank of Iraq, focussed on upgrading its own operations and on winning the political knife fights that threatened its independence, was unable to force the two big banks to make meaningful changes to the way they conducted business.
So what are the realistic priorities for the reconstruction and development of the Syrian banking system once the conflict ends?
Assuming that head offices and branch buildings are physically intact, the first task will be to restore the provision of reliable electrical power and internet connections through bank networks. Without these, the process of reconciling branch accounts into a consolidated ledger – and managing the bank’s liquidity position – is delayed and dependent on couriers.
Then the focus should move to the Central Bank. An authoritative and competent Central Bank is the key to upgrading a banking system because only the Central Bank can force commercial banks to take the difficult decisions that are needed to modernize their operations.
Thirdly, the loan portfolios of state-owned banks will have to be realistically revalued and restructured, and then the banks re-capitalised.
Alongside these moves, a modern electronic payments system needs to be introduced.
But most important of all, and most difficult, will be the need to bring competent and motivated senior staff into the state- owned banks, and to modernize and enforce the laws and regulations that underpin financial activity. The timetable for doing that kind of change is more likely to be measured in decades than in years.