Digital Banks: A Solution for Northern Syria

The banking sector plays a vital role in the national economy, contributing to several important aspects:

• Capital formation, as banks mobilize small individual savings and make them available for productive investments.
• Credit creation, which helps provide more funds for developmental projects, leading to increased production and employment.
• Directing funds towards productive investment.
• Full utilization of resources for development purposes across various regions.
• Encouraging appropriate industries by providing loans to suitable people and projects.
• Bank rate policy by changing interest rates, which can influence the money supply and help control inflation.
• Liquification of bank debts, where banks convert debts into cash that can be used in commercial activities.
• Financing for the government through investing its funds in government securities.
• Creating new job opportunities by opening branches in different regions.
  In these ways, banks significantly contribute to the economic growth and stability of the country. However, the challenges of division and state weakness, along with the ongoing war in Syria, have led to our loss of the banking sector and its inability to act as a lever for investment and the economy.

Impact of Wars on the Banking Sector:
Undoubtedly, divisions lead to economic and financial instability, which can negatively affect the banking sector in several ways, such as the division of the Central Bank in Yemen, where the banking sector was severely damaged following the split of the Central Bank into two competing branches in 2016, and the adoption of two different currencies in conflict areas, creating challenges for banks in handling currencies and financial transactions, in addition to impacting liquidity and credit which hinders economic growth.
Two nearby examples illustrate the impact of political divisions on the banking sector:

• Yemen, as previously mentioned, experienced a split of the Central Bank and adopted two different currencies.
• Iraq, where monetary and banking credit policies have been significantly affected by political disturbances and conflicts.
  These examples show how political divisions and conflicts can affect financial and economic stability in countries, and thus the banking sector, which is a fundamental element in the economy.
  Moreover, banking problems are not limited only to weak economies. In fact, advanced economies may also face significant banking challenges. For example, rising interest rates can expose vulnerabilities in some banks, potentially leading to greater weakness in the banking system in case of prolonged monetary tightening, and loan losses might increase as borrowing costs rise for consumers and business institutions. Furthermore, except for China, advanced economies have a significantly higher number of weak banks compared to emerging market economies, meaning that banks in advanced economies might suffer from rising interest rates and increasing defaults, along with the continued decline in securities prices.
  Thus, it can be said that banking problems can affect banks worldwide, whether in developing or advanced economies, depending on a variety of economic and financial factors.

The Reality of the Banking Sector in Northern Syria:
The banking sector in northern Syria faces significant challenges, especially in areas controlled by the Syrian opposition. Major obstacles include the lack of legal recognition of the institutions of the Syrian Interim Government, and the legal and political restrictions that prevent the establishment of government or private banks. Despite international and regional support for the Syrian Interim Government, the Turkish side is neither willing nor able to open any bank or branch of Turkish banks in the area due to international law that prohibits it. Currently, financial transactions are limited to companies and currency exchange and money transfer offices, as well as limited services provided by offices of the Turkish Postal and Shipping Corporation.

To activate the banking sector, it is essential to have a prudent government, a regulatory central bank, real and enforceable banking legislation, and an executive authority for the laws. However, there are concerns that establishing banks in northwest Syria could be seen as a step towards separation.

Thus, it can be said that activating the banking sector in northern Syria requires a joint effort and international support to overcome the current political and legal obstacles. The Syrian crisis has not only affected northern Syria but has had widespread effects on various regions of the country, including the central banking sector. The war and conflicts have led to negative repercussions on the Syrian economy in general and on the banking sector in particular.

Main impacts of the crisis on the banking sector include:

• Instability in the banking sector, as the war has led to a reduction in the services provided by banks, changes in exchange rates, and a liquidity and credit crisis.
• Negative impact on the performance of private banks, as a study using the CAMEL model showed that liquidity and exchange volume have a direct effect on return on assets and return on equity, while asset quality, management quality, profitability, and the crisis have an inverse effect.

Additionally, the Syrian crisis has repercussions at local, regional, and international levels, leading to an escalation of political and sectarian divisions, increased tensions, and the spread of terrorism in the region due to the Syrian regime’s failure to stop the deterioration from the outset. Therefore, it can be said that the Syrian crisis has affected the banking sector throughout the country, not just in northern Syria.

There are many examples of countries significantly affected by crises, which have reflected on their banking sector. One prominent example is the global financial crisis of 2007-2008, which started in the United States and spread to financial markets in Europe, Asia, the Arab Gulf region, and developing countries. This crisis caused a severe shakeup in the banking and real estate sectors in the US and global stock exchanges, leading to the bankruptcy of many major global banks.

Another crisis is the sovereign debt crisis in the Eurozone, which began in 2009 and particularly affected Greece, Ireland, Portugal, Spain, and Italy. This crisis led to a deterioration in confidence in the banking sector and affected the financial stability in those countries!

These examples show how economic and financial crises can significantly affect the banking sector, regardless of the strength of national economies.

But is there a prominent example of a country that had to rebuild its banking sector after a major crisis? The answer appears to be Lebanon, where more than three years after the onset of the worst economic and financial crisis in Lebanese history, disagreement over how to distribute financial losses remains an obstacle to reaching an agreement on a comprehensive reform plan. The crisis led to a significant contraction of the real GDP, a sharp decrease in the value of the Lebanese pound, and inflation reaching triple digits. Estimates indicate that financial losses exceeded $72 billion, making the flotation of the financial sector unviable. Lebanon is among the countries severely affected by inflation, especially on food prices, which particularly impact poor and needy families.

Therefore, it is not only important for northern Syria to revive the banking sector, but it is also essential to protect northern Syria from any collapse that could bring further harm and suffering to our people. The banking sector, as complex as it is fragile, is beneficial, but the risk of its deterioration is devastating.

Steps and Solutions:
To activate the banking sector in areas controlled by the Syrian opposition, several strategic steps can be taken, including:

1. Establishing a central bank to regulate monetary policy and ensure currency and price stability.
2. Developing banking legislation that ensures transparency and good governance.
3. Encouraging local and foreign investments to enhance capital in the banking sector.
4. Enhancing confidence in the banking system and building trust between citizens and banking institutions by providing security for deposits and financial transactions.
5. Training and qualifying staff to develop local competencies through training programs for personnel in the banking sector.
6. Improving technological infrastructure by investing in information technology to modernize the banking system and facilitate electronic transactions.
7. Strengthening regional and international cooperation and seeking partnerships with international financial institutions to support the banking sector.
8. Establishing specialized financial institutions by creating financial institutions that mobilize and organize capital financing.

These and other steps require joint efforts and coordination among various concerned parties, and they necessitate international support to ensure their success and sustainability. However, most of these solutions seem completely unrealistic, making it essential to search for more feasible alternatives.

Practical Solution:
After agreeing on the difficulty of establishing a banking sector in northern Syria, we are looking into alternative solutions that allow us to benefit from the advantages of the banking sector in a way that suits our Syrian situation. We can utilize modern technologies like digital banks to support and develop the banking sector in northern Syria. Digital banks offer many advantages that can contribute to improving banking services and enhancing financial inclusion, especially given the difficult circumstances the country is experiencing. Here are some ways digital banks can be used:

• Improving access to banking services, as digital banks provide access to financial services online, making it easier for people in remote or conflict-affected areas to access these services.
• Reducing operational costs by eliminating the need for physical branches and costly infrastructure, thus lowering overall banking costs.
• Enhancing financial inclusion by enabling digital banks to offer financial services to individuals who do not have traditional bank accounts.
• Improving the quality of service as digital banks provide high-quality, low-cost banking services and facilitate customer communication.
• Increasing efficiency and effectiveness by meeting customer needs around the clock.

Digital banks are generally considered safe, thanks to advanced security measures taken to protect data and financial transactions. Digital banks use technologies such as encryption and multi-factor authentication to ensure account security, and they offer round-the-clock customer service to handle any inquiries or issues that may arise. However, it is important for users to take personal precautions, such as using strong passwords and not sharing personal information, to help maintain the security of their accounts.

There are many examples of digital banks in different countries around the world, such as:

• In the United Kingdom, banks like Revolut and Monzo are leading digital banks offering innovative and flexible banking services.
• In Germany, N26 is a famous digital bank that provides full banking services via digital platforms.
• In China, AiBank, a joint venture between CITIC Bank Corp and Baidu, offers banking services that integrate financial technology and artificial intelligence.
• In the United Arab Emirates, PayIt is a digital bank that offers a full range of banking products through smartphone applications.

These examples show how digital banks have become an important part of the global banking system, offering innovative solutions to the challenges of traditional banking services. Why not benefit from them? The Syrian opposition can learn from global examples in developing the banking sector, especially given the current challenges. Digital banks and financial technology (FinTech) offer innovative models that can be adapted to the Syrian context to achieve the following goals:

• Enhancing financial inclusion and using digital banks to provide banking services to people in areas most affected by conflicts.
• Improving banking services by offering more efficient and cost-effective banking services through digital solutions.
• Encouraging financial innovation and developing new financial products and services that meet the needs of the Syrian market.
• Achieving financial stability through the use of technology to improve risk management and governance in the banking sector.

It is important for the Syrian opposition to consider the regulatory environment, technological infrastructure, and specific needs of the population when implementing these models. Efforts should be made to develop local capabilities and strengthen partnerships with international actors to ensure the success and sustainability of the digital banking sector.

The Syrian opposition can also benefit from the expertise and advanced technologies of Turkish and Qatari banks to develop digital banks in northern Syria. Turkish banks already have a presence in northern Syria, and the Turkish lira has been used as a currency in some areas. This means that there is already financial and economic cooperation between the areas controlled by the Syrian opposition and Turkey. Therefore, the Syrian opposition can benefit from Turkish and Qatari banking expertise and technologies to develop digital banks in northern Syria, but it will be necessary to overcome legislative and technical challenges to ensure the success of these efforts.

Conclusion:
Through all that has been mentioned, we at the Economic Office of the Syrian Future Movement recommend three things:
First: To take this study seriously as we see it as an important step to change the economic reality, which should not be tied to complete political solutions for all of Syria, especially given the stubbornness of the Syrian regime and its allies to accept any solution.
Second: We recommend benefiting from digital banks and activating them in northern Syria by following these steps:

1. Develop technological infrastructure and establish a strong infrastructure for communications and the internet to ensure that digital services are accessible to all users.
2. Legislation and regulations are necessary to create a legislative framework that supports digital banking services and protects user rights.
3. Regional partnerships, and cooperation with Turkish and Qatari banks to benefit from their expertise and technologies in the field of digital banks.
4. Training and qualifying local staff on the use of and management of digital banking services.
5. Cybersecurity and securing adequate protection for data and financial transactions to maintain user trust.
6. Awareness and education through launching public awareness campaigns about the benefits and uses of digital banks.
7. Innovative services by offering new digital banking services that meet the needs of users in northern Syria.
   By taking these steps, digital banks can be activated in northern Syria and used to improve the economic and financial situation in the region.
   Lastly, we strongly recommend holding a meeting sponsored by the National Coalition or the Interim Government for the Syrian and Arab economic elites and the participation of the United Nations and friendly countries to present their vision on this study issued by our Economic Office of the Syrian Future Movement.

Ammar Al-Amouri
Economic Office
Research and Studies Department
Articles
Syrian Future Movement (SFM)