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Saturday, December 07, 2024

Capture of Aleppo threatens regime stability in Syria

 Capture of Aleppo threatens regime stability in Syria

What’s happened?

The survival of the regime of the president, Bashar al-Assad, hangs in the balance following the fall of most of Aleppo, Syria’s second city, into the hands of opposition forces. It was the most significant gain by opposition groups since Russia’s intervention in 2015 turned the tide of the conflict in Mr Assad’s favour. Although the Syrian regime was dramatically enfeebled by the rebel assault, we still consider the wholesale collapse of the regime an unlikely prospect in the near term.

Why does it matter?

The opposition assault, which began on November 27th and was spearheaded by Hayat Tahrir al-Sham (HTS, an armed Salafi group), is expanding rapidly in the face of limited resistance by regime forces. HTS has capitalised on the weakening of regime defences in northern Syria, with most of the Syrian military there composed of conscripts and less-experienced units. Meanwhile, the redeployment of Iranian and allied Lebanese militia forces to Lebanon to confront Israel’s incursion at the start of October has further weakened the regime’s position. Most of Aleppo, along with its international airport and the Kuweiris airbase on the eastern outskirts, is now under the control of HTS, which faced minimal casualties during its takeover. The ease with which the rebels captured Aleppo highlights their strategic advantage. In addition, rebel forces have successfully recaptured towns along the south-eastern border of the province of Idlib, including Sarakib and Maarat Naaman. With control over a section of the M5, Syria’s main north-south highway, HTS is now positioned on the outskirts of Hama, another major government-held city.

Despite the unprecedented gains made by HTS, alongside the Turkish-backed Syrian National Army (SNA) and Kurdish-led Syrian Democratic Forces (SDF), in Aleppo and Idlib provinces, we expect that the rebels’ momentum will slow. The Syrian army has regrouped around Hama, with the support of more experienced and loyal units, in order to slow the HTS advance. Its position will be reinforced by the addition of Iranian-backed groups from elsewhere in Syria, notably the Afghan-dominated Fatimiyoun, and Popular Mobilisation Forces militias from Iraq. Russia and the Syrian air force have meanwhile stepped up air strikes on HTS positions, both those recently captured and those in the rebel heartland surrounding the city of Idlib, which will probably delay any plans to organise a fresh push into the south.

Even if Hama were to fall to the rebels, making further gains would be increasingly difficult. Homs and Damascus, Syria’s capital, along with the coastal cities of Latakia and Tartous, would pose significant challenges to any rebel advance. These areas are the heartland of Mr Assad’s Alawite sect, where fears of sectarian violence from the Salafi HTS could galvanise the local population to support the regime. Moreover, Latakia and Tartous are home to Russia’s main military bases, and Iran and Hizbullah (a Lebanese Iranian-backed Shia Islamist political group) have concentrated their forces around Homs and Damascus.

In addition, there is a persistent risk of intra-rebel clashes in recently captured territories, which would undermine HTS’s momentum. Although HTS has so far avoided direct contact with the SNA and the SDF in Aleppo, the SNA has engaged SDF-held position to the north-east of the city, reflecting Turkey’s objectives to curb the spread of Kurdish influence near its border. Any fighting between these factions could draw HTS into the conflict, diverting crucial military resources away from its new front lines against the regime.

What next?

Clashes are expected to continue along the new front lines near Hama and in southern Aleppo province in the medium term, although we believe that significant rebel gains that could fundamentally threaten the regime are improbable. However, the government is unlikely to reverse the recent advances made by the rebels because of the weakness of Syrian army as an offensive force, especially without considerable support from Russia, Iran, Hizbullah and other key allies, which we do not expect to be forthcoming. The recent campaign has left the government weakened, shattering perceptions of regime stability and making Mr Assad more vulnerable to internal challenges, as shown by reports of clashes within the army in Damascus on November 30th. Although we currently assess that a military coup is unlikely, these recent developments have significantly undermined Mr Assad’s prospects of extending his regime beyond the end of his current presidential term in 2028.

The analysis and forecasts presented in this article are drawn from EIU’s Country Analysis service. This comprehensive solution offers essential insights into the political and economic outlook of nearly 200 countries, empowering businesses to manage risks and develop effective strategies.

சிரிய வசந்தம்- Rebels make gains in southern Syria

 


Syrian rebel groups reported gains in the country’s south on Saturday, advancing in Daraa, the city known as the birthplace of the country’s 2011 uprising against President Bashar al-Assad, and putting pressure on the capital Damascus.


The Syrian army said that its forces in the southwestern cities of Deraa and Sweida had “redeployed” to new positions after rebel fighters had “attacked the army’s checkpoints and military points."


The Southern Operations Room, a newly announced rebel faction in the south, announced a curfew in Daraa overnight Friday. Unverified videos posted online showed a statue of former president Hafez al-Assad being toppled in the city. The Syrian state news agency SANA said that “the sounds heard in some areas of the southern Damascus countryside are of long-range targeting and shooting at terrorist gatherings in Daraa.”


The relationship of the southern rebels with Hayat Tahrir al-Sham, the Islamist faction that made stunning gains in the north over the past week, remains unclear.


HTS said on Saturday that its forces had captured the city of al-Sanamayn, north of Daraa, and were about 12 miles away from the “southern gate” of the Damascus.


The group’s forces have also been closing in on Homs, a strategic choke point north of the capital. If HTS captures Homs, Syria’s third largest city, it will mark a significant strategic victory, as Assad-held Damascus will be cut off from the coast and what remains of the regime’s territory will be split in two. It could solidify the rebel group’s gains and moving it closer to taking the capital after capturing Aleppo and then Hama, as the 13-year conflict reignited.


Here are other key developments


  • The U.S. Embassy in Syria on Saturday urged U.S. citizens to leave “now while commercial options remain available in Damascus,” as the Islamist rebel group makes rapid gains against President Assad’s forces and closes in on the strategically important city of Homs. The situation “continues to be volatile and unpredictable with active clashes between armed groups throughout the country,” the embassy alert said.
  • Secretary of State Antony Blinken on Friday spoke with the Turkish Foreign Minister about developments in Syria and stressed the “importance of protecting civilians, including members of minority groups,” a readout of the call said. Turkey is the most important outside power supporting the rebel side in the Syrian civil war.
  • The United Nations humanitarian agency OCHA warned that as hostilities in Syria expand, “civilians, including humanitarian workers, are facing grave threats to their safety.” At least 370,000 people have been displaced since the escalation of hostilities, the agency said.

Sri Lanka: Private Credit Growth Key To Banking Sector Recovery- BMI

Sri Lanka: Private Credit Growth Key To Banking Sector Recovery

Asia / Wed 06 Nov, 2024 BMI

Key View

Interest rate cuts by the Central Bank of Sri Lanka have reduced the margin boosts that commercial bank enjoyed over the last two years, and we expect  monetary policy easing to continue.  

The good news is that the economy is gradually improving, which should support credit growth and in turn banking sector profitability.

While challenges remain, the banking sector’s impairment coverage ratio and liquidity measures remain sound for now.  

Further monetary policy easing will pose a headwind to commercial banks in Sri Lanka. 

Disinflation remains well underway with the inflation rate falling to as low as -0.8% y-o-y in 

October, significantly below the target rate of 5%. In response to that, the Central Bank of 

Sri Lanka has started cutting interest rates, and we expect more cuts ahead to bring the policy

rate down to 6.0% by end-2025 from its peak of 15.5% in 2023. This will reduce the boost to 

banks’ net interest margins that they enjoyed over the last two years (see chart below).

NIM Boosts Is Diminishing Sri Lanka - Deposit/Lending Rate & 

Net Interest Margin, %


Source: Haver, BMI

The good news is that the economy is gradually improving, which should support credit growth 

and in turn banking sector profitability. GDP will rebound from a 2.3% contraction in 2023 and 

expand by 4.5% in 2024 and 4.7% in 2025 on our forecasts. We expect credit demand to come

from the private sector. Indeed, household debt has returned to growth after contracting for 

much of 2023, while the decline in corporate debt has gradually eased (see chart below). 

Amid the ongoing fiscal consolidation, these two sectors have the potential to replace the fiscal

stimulus that drove credit growth in the past year. 

NIM Boosts Is Diminishing Sri Lanka - Deposit/Lending 

Rate & Net Interest Margin, %


Source: Haver, BMI

One major hurdle to credit growth is the condition of bank balance sheets. The economic 

downturn over the last few years has led to higher credit costs and concerns over bank 

capitalisation. This may hinder the recovery in credit growth.  Moreover, state banks with 

high public sector debt exposure may come under pressure from Sri Lanka’s debt restructuring

 with key creditors, including China. In particular, reduced interest rates from such restructuring

 would affect their revenue streams. While we currently consider the upcoming September 

presidential elections tail risk, it could cause slower economic growth and delay economic 

reforms and debt restructuring under the IMF’s guidance. Such a situation will have a negative 

knock-on impact on the banking sector.

Capital Adequacy Dipped, And Elevated NPL Risks Banks' Future Capital

 Adequacy Sri Lanka - Capital Adequacy Ratio (LHC) & NPL Net Of Provision

 To Capital (RHC), %


Source: Haver, BMI
 

Another potential headwind is the recent dip in the banking sector capital adequacy ratio, even

 though it has remained well above the regulatory threshold (see LHS above). Elevated non-

performing loan (NPL) ratios, which indicate that a significant portion of loans are not 

generating income, pose additional concerns about banks’ capital adequacy. Indeed, the ratio 

of NPLs (net of provisions) to capital in Sri Lanka has risen and remains significantly higher 

compared to its neighbouring country, India (see RHS above). This points to further potential 

stress on the banking sector's capital base, as banks may have to set aside more provisions 

to cover potential loan losses.

Overall Financial Soundness Is Improving Sri Lanka - Total 

Impairment  Coverage Ratio & Liquid Assets To Short-Term

Liabilities


Source: Central Bank of Sri Lanka, BMI

For now, the banking sector’s impairment coverage ratio and liquidity measures remain 

sound (see chart above). The strengthening of the Sri Lankan rupee also reduces the burden 

of foreign currency-denominated liabilities, which account for around 20% of total liabilities. 

These factors will help to mitigate the challenges facing the banking sector. 

This commentary is published by BMI, a Fitch Solutions company, and is not a

comment on Fitch Ratings Credit Ratings. Any comments or data included in 

the report are solely derived from BMI and independent sources. Fitch Ratings 

analysts do not share data or information with BMI.⍐ 

Copyright © 2023 Fitch Solutions Group Limited. All rights reserved. 30 North Colonnade, London E14 5GN, UK.


Asia 
Sri Lanka

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