Copyright : Mazen Khaddour 2002
Law Office of M. Khaddour & Associates
After almost 40 years of state monopoly on the banking sector, Syria issues Law No. 28 allowing the establishment of private banks in Syria.
All aspects of Syrian banking are handled by five state owned banks, which enjoy monopoly positions in their designated areas of the economy. Operating under the joint supervision of the Central Bank of Syria and the Ministry of Economy and Foreign Trade, these are the Commercial Bank of Syria, Agriculture Co-operative Bank, Popular Credit Bank, Real Estate Bank and the Industrial Bank. The General Establishment of the Post Office Fund acts as a facility for small private depositors.
The Commercial Bank of Syria is the country’s largest and most important bank. Its responsibilities include domestic and international trade finance, foreign exchange and the provision of hard currency accounts. There is no stock exchange in Syria and private banks and branches of foreign banks were not allowed to operate.
As a step in the reform process, the Syrian government has recently allowed the establishment of foreign banks in free trade zones.
The new law allows the establishment of private banks having the legal form of a private Syrian shareholding companies or joint Syrian shareholding companies with the contribution of the country’s public banking system, the Syrian Insurance Establishment and other saving institutions at the rate of 25 percent from the capital and by virtue of a resolution of the Cabinet of Ministers.
The established banks will operate under the supervision and control of the Central Bank of Syria and according to the terms of the Basic Monetary law no. 87 of 1953 and its amendments (a new draft Monetary law is referred to Parliament) and to the applicable currency exchange regulations to the extent that it does not violate the terms of this law.
The banks are established according to the following conditions:
1. All its stocks should be nominal and subject to exchange except those stocks of the public sector.
2. All its stocks must be owned by citizens of the Syrian Arab Republic whether natural or judicial persons.
Arab and foreign natural or judicial persons are permitted to contribute or participate in the establishment of banks or purchase its shares on the condition that their shares do not exceed the rate of 49% of the capital of the bank and by virtue of a resolution by the Cabinet of Ministers and according to the terms stipulated in the law. The value of their contributions must be paid in hard currency at the actual exchange rate applicable in the markets.
The applicant wishing to acquire a license must apply to the Central Bank of Syria, who in its turn studies the application in view of the terms of this law and the applicable laws and regulations taking into consideration the reputation of the applying party, its qualifications, credentials and the need and situation of the banking sector and refers its study and proposal to the Minister of Economy and Foreign Trade for its opinion and for the referral to the Prime Minster for the issuance of the license.
The resolution of licensing of the bank is considered null if the bank does not commence its activities within one year from the date of its registration in the Banks Registrar.
Those who acquired a license to establish a bank are not allowed, according to the terms of this law, to relinquish or under any other nomination, the license to others whether in part or as a whole.
The bank’s capital shall not be less than 1500 million Syrian Pounds (30 million US Dollars).
Founders’ shares shall not be less than 25% of the capital of the bank on the date of submitting the application. The share of the natural person shall not exceed 5 % of the capital of the bank and the share of judicial persons shall not exceed 49% with the exception of the share of the government, which shall remain in all cases according to the rate of 25% in case of a joint bank.
The shares exceeding the shares of founders are offered to the public. 50% of the value of each stock must be paid upon subscription and the remaining value must be paid within six months from date of licensing of the establishment of the bank.
The value of the participation of the resident Syrian citizens must be paid in Syrian currency. Foreign participations must be paid in hard currency.
Founders may not assign the title of their stocks or their shares in the capital of the bank to others before the issuance of three positive balance sheets.
The assigning of the title of stocks or shares in the capital can only be made to Syrians or to a non-Syrian party previously agreed upon by the Central Bank of Syria and according to a decision by the Cabinet of Ministers. In all cases the percentage of ownership by non-Syrians must not exceed 49% of the capital of the bank.
Joint banks established according to the terms of this law are not subject to the conditions and restrictions stipulated in the laws and regulations applicable to the public sector companies and establishments regardless of the rate of participation of the government and the public sector in the capital of the bank.
The bank is entitled to perform the financial services and various banking operations according to its articles of association and the applicable regulations provided it does not violate the terms of this law. However, banks are prohibited from conducting the following activities whether directly or indirectly:
1. Performing industrial or commercial operations and activities or any other activity not related to banking business.
2. Participating in industrial, commercial, agricultural, service or tourism establishments.
3. Opening credits or offering facilities to the president and the members of the board of directors or its general manager or auditors or the government officers who have direct relation to the supervision or control or following up of the activities of the bank.
Any bank established according to the provisions of this law may not cease partially or entirely its total activities for any period of time before getting the prior approval of the Central Bank of Syria.
The income tax on net profits realized by the banks established under the provisions of the new law for all their activities is fixed at the rate of 25% including the participation in the War Effort tax. This tax shall be exempted from the supplement of the Local Administration tax.
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