GATT impact on Yemeni banks [Archives:2004/715/Business & Economy]

February 26 2004

Mahyoub Al-Kamaly
The Ministry of the Economy has considered the General Agreement on Tariffs and Trade (GATT) agreement and its contents. The provisions to liberalize financial and banking services were identified as a particular challenge, due to the weak position of Yemeni banks in relation to international competitors.
Under the new liberalization of financial services proposals, Yemeni banks fear being squeezed out of the Yemeni market by competition from multinationals.
Studies prepared by researcher Abdulaziz al-Azazi added that Yemeni banks practice short-term commercial operations. Even Islamic banks have followed that course. Although they have scored great successes they are still below the desired level and are in need of local investments away from traditional contracts. The study also points out that Yemeni bank suffer from low capital holdings compared to Arab banks, a shortage of banking technology and weak electronic services. These factors have led to Yemeni banks falling behind the pace of technological development and have resulted in the delay in establishing a stock exchange.
Among other challenges facing the Yemeni banks is the low level of cooperation with local banks, the failure of small and Islamic banks to merge and the reluctance of banks to cooperate for the construction of huge projects.
The study has also highlighted the negative role of international events on Arab and Yemeni economies. Mr. Al-Azazi identified increased suspicion following September 11 that some banks finance terror and impact of the invasion of the region by American and European companies in the aftermath of the occupation of Iraq.
The study also stressed that liberalization of trade has led to developments in the banking industry, such increased merger and acquisition activity as it has become a necessity for world banks to engage in areas where investment was previously prohibited, including insurance services.
The study recommended Yemeni banks adopt the principle of comprehensive banking instead of traditional transactions and to benefit from investment methods to achieve high profit levels as well as increased openness to world markets. It finally emphasized the necessity of developing means to monitor banks and take measures to ensure their that they keep up with the developments of the century and the application of up-to-date technology in the banking area. Additionally, there should be a reconsideration of the status of bank staff and efforts to establish a stock exchange for the creation of investment opportunities and circulation of shares should be redoubled.