Banking Sector In Yemen: Challenges of Globalization [Archives:2000/38/Business & Economy]

Imad A. Al-Saqqaf
& Farouq Al-Kamali
Yemen Times – Taiz
Banks and insurance companies equally play a prominent and vital role in economics of advanced and developing countries; but at various proportions.
A small state like Switzerland is renowned world-wide for its banking institutions and systems. This has enabled it to render banking services to states, companies and rich people characterized by highly distinguished level of guarantee, of secrecy and holding back information on clients dealings. This has attracted seekers of this kind of services to deposit their huge assets in Swiss banks.
Before the two Revolutions of September 26, 1962 and October 14 there was no national monetary system in Yemen. There was no national currency for circulation either. The only legal currency then was the silver Riyal which was called Maria Teresa or sometimes the French Riyal. There was only one bank: the Saudi National & Commercial Bank which did not play any significant role in the economy neither locally nor at the foreign level.
After September 26th revolution, banking in Yemen was initiated by creating monetary institutions and national banks. Today the banking system in the Republic has sixteen banks which are:-
(1) The Yemeni Bank for Reconstruction & Development,
(2) The Commercial Bank of Yemen,
(3) International Bank of Yemen,
4) Yemeni-Kuwait Bank,
(5) The National Bank,
(6) Indosuez Bank,
(7) United Bank ,
(8) The Arab Bank,
(9) Watani Bank, and
(10) Yemen-Khaleej Bank (under founding).
In addition we have three specialized banks:
(11) Agricultural Cooperative Credit Bank,
(12) Islamic Saba Bank,
(13) Islamic Tadhamun Bank for Finance & Development.
Most of these banks were founded through capitals from national companies. As far as foreign banks, they actually are branches of foreign banks and companies headquartered abroad. They play major role in the social and economic development by funding a number of economic and business projects.
The banking sector in Yemen suffers from weak performance, deteriorated judiciary reality which consequently result in banks inability to recover their loans and shortage of qualified banking cadre.
The presence of Islamic banks made people believe that other banks are non-Islamic.
Recently, the term globalization has aroused interest of people in general and thus become divided between supporting and opposing globalization. Undoubtedly, Yemen is to be affected by globalization the economic, the financial and the banking. The questions is what are the main features of financial globalization? Other questions would be whether the Yemeni banks are capable of competition and facing globalization and if a state like Yemen can get acclimatized to globalization and benefit from it.
Dr. Abdulwahed Al-Afoori, specialized in financial and banking sciences has provided answers to the above queries.
Globalization as a comprehensive historical and objective phenomenon could be looked at its various aspects and its multi-form existence and considered as a big group of major and branch operations that tends to cover all walks of life and the existence of human society.
Financial globalization is one of the economic globalization process which is the most dominant forms of globalization in contemporary life. Financial globalization means a movement where capitals are not impeded by boundaries. This concept includes all forms of financial transactions between countries. The essence of this operation is apparent in the persistent tendency for liberation capital movement and all categories of international financial transactions from all restraints and obstacles that restrict or curb this flow.
Contemporary economy takes two main shapes of trans-country capital turnover one of which is influx of direct foreign investment carried out by multi-national companies. The other form is that of loans granted by private banks and international lending institutions which are usually implemented under acceptance of the donor countries that coordinate their policies through Paris Club regarding state loans and London Club for private loans.
Financial globalization is seen as one of the strongest trends of economic globalization in terms of its effectiveness. Some would rather view it as the first major dynamic force of globalization in general. Financial and economic liberalization movement helped in forming these situations which occurred at both local and international levels. This trend enhanced unprecedently in the last two decades of the 20th century. The prominent accomplishment of financial liberalization operations at international level was to abolish restrictions and liberalize capital account and financial accounts of balance of payments. These include all financial transactions related to capital turnover such as official and private credit assets, financial retention investments, direct investments, etc.
Success of any country in liberalizing its financial sector at a least cost is the entrance to benefiting from the advantages provided by taking part in an open world economy, may be the only option at the current circumstances. This is particularly if we know that maintaining the policy of financial suppression and control on some countries could deprive them of integrating into world financial market; but most probably would not help them avoid the so many negative impact of financial globalization. Such effects are immense particularly on developing countries.
What has been achieved in liberalization of multilateral trade level, and then following substantially the massive leaps in information and communication technology, played radical role in making financial globalization become of the most significantly effective processes of banking work in Yemen.
Commenting on impact of financial globalization on Yemen, Dr Afoori divided it into negative and positive sides. The negative impact is felt in bank functioning in channels leading to financial deficit and units of financial surplus. Under absence of organized stock markets, the banking institution faces, despite limitation of its capacity power, increasing pressures; added to them lack of specialized investment banks of the required standard. The banking system infrastructure in Yemen is neither complete nor meeting the required world specifications. This situation is also characteristic of the legislative, judicial, human, technical and technological structures. The second aspect is represented in the acute weakness in financing capability of Yemeni banks at individual or incorporated levels. Such being the case, the banking operation in Yemen is facing a real challenge which threatens its development and its future transactions.
Dr. Afoori believes that in order to reduce the negative impact to its minimum, the Central Bank should firmly go ahead at the desired speed, to implement the FSAC funded through soft loans, worth US$80 million from the IDA. Success of this program is strongly linked to success in implementing the different phases of economic reform program aimed at stabilizing the economic indexes as a whole. Another indispensable basic measure is the initiation of direct work for the creation of a stock exchange market to be followed by enhancing cooperation in the finance sector between Yemen and Gulf Cooperation Council and Arab countries in general in a bid to prepare an atmosphere for creating an atmosphere for a series of bank amalgamation to build local banks units equipped with all means, till some of them may head for specialization and investment activity. If such steps are accompanied by convenient policies to limit speed of basic financial indexes fluctuations, introducing modern systems in administering and containing risks and strict abidance by the banks with international standards of banking as well as designing flexible and indirect supervision by the Central Bank on the activities of banks including perspective systems in accounting and auditing. There must be an adoption of sequential way in steps for liberating the financial sector, and controlled measures in abolishing restrictions on capital accounts and transactions without enough preparedness. All these measures will undoubtedly lead to minimizing the negative impact of globalization on banking in Yemen.
The positive impact of globalization on the banking system in Yemen is to a great extent associated with realizing steps towards preparing the financial sector for the new situations and to limit the negative impact. An example of positive impact is opening the way for local projects to have access to various sources of international funding through modern means in addition to get integrated with world stock and monetary markets.


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