Economy of Yemen - Banking and Finance

Banking and Finance

According to economists, Yemen’s financial services sector is underdeveloped and dominated by the banking system. Yemen has no public stock exchange. The banking system consists of the Central Bank of Yemen, 15 commercial banks (nine private domestic banks, four of which are Islamic banks; four private foreign banks; and two state-owned banks), and two specialized state-owned development banks. The Central Bank of Yemen controls monetary policy and oversees the transfer of currencies abroad. It is the lender of last resort, exercises supervisory authority over commercial banks, and serves as a banker to the government. Since end 2005 and up to the end of 2010, Tadhamon International Islamic Bank has maintained the top spot between all banks in Yemen (Commercial and Islamic) in terms of total assets, capital and trade business. The largest commercial bank, the Credit and Agricultural Cooperative Bank, which is state-owned, and the Yemen Bank for Reconstruction and Development, which is majority state-owned, are currently being restructured with the goal of eventual privatization. Because of fiscal difficulties in both banks, in 2004 Yemen’s government adopted a plan to merge them; the new publicly owned Development Bank will have a minimum capital of US$50 million. Till end April 2011 this step has yet to materialize.

The large volume of non-performing loans, low capitalization, and weak enforcement of regulatory standards hamper Yemen’s banking sector as a whole. Numerous banks are technically insolvent. Because many debtors are in default, Yemen’s banks limit their lending activities to a select group of consumers and businesses; as a result, the entire banking system holds less than 60 percent of the money supply. The bulk of the economy operates with cash. Legislation adopted in 2000 gave the Central Bank the authority to enforce tougher lending requirements, and in mid-2005 the Central Bank promulgated several new capital requirements for commercial banks aimed at curtailing currency speculation and protecting deposits.