Moneer Saif:”The domestic banking industry did not learn from the Watani Bank lesson” [Archives:2006/969/Business & Economy]
Interviewed by: Raidan Al-Saqqaf
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It is a known fact that Yemen is one of the poorest countries in the Middle East region, due in part to the government's fiscal and telepathic spending policies but mostly because of the nature of its underdeveloped economy, which includes high levels of corruption and disorganization. In this Interview, the Yemen Times spoke to Mr. Moneer Saif, one of the intellects of the banking industry and asked him about his views on various banking and economic issues.
Can you start by briefing us on your specialization and area of expertise?
First, I would like to thank the Yemen Times, the leading English Newspaper in Yemen, for giving me this opportunity to talk about some very crucial subjects in the Yemeni economy.
I have been an Assistant Manager and Director of the Dealing room Since July 9th 2002 in Tadhamon International Islamic Bank (TIIB). I worked as an FX and stocks trader and speculator in the market which gives me a chance to be an economic and market analyst whose responsibility is to study the market, mapping the trend, surveying and forecasting what comes next in the international market based on market data and sentiment to make the right decision.
How do you view the growth and development of the domestic banking sector compared to its counterparts internationally and in the region?
In recent years, the banking industry has been undergoing rapid changes, reflecting a number of underlying developments. This trend has created new competitive threats as well as new opportunities. To look at Yemen's banking system, it still suffers from a large volume of non-performing loans, inadequate loan provisioning, low bank capitalization compared to foreign banks, and weak enforcement of prudential Standards. Nowadays, some banks have started to raise their capital to reach the CBY regulation 10 bln YER.
The Central Bank of Yemen (CBY) could create a good atmosphere to hasten the development of local banks that surely will lead to robust growth in the banking sector by giving them more facilities regarding investment and legal fields. CBY can play a very important role, for example, to promote the banks' international finance performance by distributing the finance lines given by foreign banks to the local banks to expand their financing activities and thus develop reliability and confidence in Yemeni banks.
Why do Islamic banks achieve higher growth rates compared to traditional banks? And does it have anything to do with the current trend of political correctness?
Islamic banks become an essential part of the country's development as they offer proper solutions to some problems people suffer from by creating new investment methods like musharka, murabaha, estisnaa tc. these methods enrich investing tools that people want. Moreover, the successful pace made by Islamic bank is due to the following factors:
– In an Islamic environment, people prefer to deal with Islamic banks that attract so many depositors and investors who are seeking such kinds of banking activities.
– Some Islamic banks represent well-known commercial groups that have an excellent profile in the Yemeni market.
– They are competing to satisfy their customers' needs with good financial and investment services.
Regarding the current political trend of correctness and Islamic banks, one can expect a good role for Islamic bank especially in supporting the political and economic process of reforming all aspects of Yemeni life. They are part of the economic and political development. Furthermore, they can offer banking and economic solutions and share their concern with the government on how to develop the country alongside their partners (commercial banks).
What criteria do banks follow in reinvesting the funds of their clients, considering the failure of Watani Bank in protecting its clients' funds and investments?
Nothing has changed. All banks still follow the same approach to investment. Banks try to build themselves up by meeting the Central Bank's requirement to raise their capital to reach YER 10 bln. To be honest, I wish that Central Bank could solve the problematic predicament of Watani Bank and it was a mistake to announce the bankruptcy of Watani Bank. They could have avoided that by changing the management responsible for the failure and put the new management under direct control of CBY. The regulations made by the CBY was not activated properly to keep away from such dilemma that led Yemeni banking activities to be in a sticky patch and shake the trust of foreign banks especially that we are in a country of 100% Risk.
How efficient is the central bank of Yemen in monetary regulation especially with regards to stabilizing the value of the Riyal against foreign currency?
First, I would like to indicate that the fixed system is held at a constant or allowed to fluctuate only within a range of boundaries while the floating system is when rate values are determined by market forces without intervention by the government. It is noticeable that whether our market is fixed or floating is unclear. In a floating system a country becomes more insulated from the inflation of others although it can adversely affect the country with high unemployment. As is clear, CBY followed a managed float system which is not restricted by boundaries but is subject to its intervention. Therefore, I prefer the floating system with indirect intervention by influencing the economic factors that affect equilibrium exchange rates.
The Central Bank of Yemen must take a practical step and set up a committee to monitor and control the monetary policy in the market. It has a good amount of reserves that can be offered in the market to affect the value of the USD against the YER. There should be a concern about interest rate, inflation, budget deficit and cash flows into the country by creating policies to monitor all these factors which influence the fluctuation of the currency.
Confirmed news indicates the desire of several large regional and international banks to enter the Yemeni market. How would the entry of such banks affect domestic banks?
If Foreign Banks enter the market it will face some challenges such as the following:
– The Yemeni market is too small in investments to attract more banks to come.
It is a known fact that Yemen is one of the poorest countries in the Middle East region, due in part to the government's fiscal and telepathic spending policies but mostly because of the nature of its underdeveloped economy, which includes high levels of corruption and disorganization. In this Interview, the Yemen Times spoke to Mr. Moneer Saif, one of the intellects of the banking industry and asked him about his views on various banking and economic issues. Interviewed by Raidan Al-Saqqaf They will be badly in need of getting some attractive legal and investment facilities to help them establish their business properly.
– There should be strong support for attracting a lot of investment firms to expand and vary the basement of investment environment that will widen the market share for banks.
Yemeni banks then should reshape themselves to be adapted to this new competition as these newcomers will surely create a new kind of competition in the market.
For local banks, CBY has to support them by allocating most activities of international finance (given to it by foreign banks) for the local banks so as to raise their positions and enable them to have a good market share among the newcomers. Additionally, the government should redirect all payrolls of Government employees to the local banks that will give banks new and large liquidity and increase banks' accounts. It will back up the confidence of people in local banks and share out the banking awareness among them.
To tell the truth, newcomers generally come in great variety of shapes and sizes that can put our banks in virulent competitive threat.
Minister of Finance Dr. Al-Asali expressed plans to establish a stock market in Yemen before the end of the year. Would the existence of a stock market divert funds away from bank deposits?
Generally speaking, the stock exchange market is a good way to promote economic growth in countries. Financial markets constitute an important part of the total infrastructure for every economy that has passed the stage of domestic production. In view of the immense importance of establishing a stock exchange (financial market) in the life of a country and its effect on the quality of life, success in this field, whether in the national or international sphere, is of crucial importance in a country like Yemen and it is important that the stock exchange should start to work as soon as possible. But we have to reduce the risk of financial market imbalances, it is important that we have a well thought-out legislative, regulatory and supervisory infrastructure that functions properly and follows changes in the rest of the world. Then it will be a successful step towards the economic development of our country.
When a stock exchange is established, it will create a new kind of investing for people's savings. Many people, instead, will invest in the stock exchange market rather than keeping money in banks for the following reasons:
– It provides an additional channel for encouraging and mobilizing domestic savings.
– It improves the efficiency of capital by providing market measures of returns on capital.
– It improves gearing and helps to reduce dependence on borrowing.
Still, a new role can be given to banks to be lenders and brokers in the market. Therefore, banks and other financial institutions should become more consumer-oriented, instead of today's greater focus on products.
How would Yemen's accession to the World Trade Organization change the overall balance of payments of the country?
Yemen accession to WTO has advantages and disadvantages. One advantage is that Yemen will be open freely to the foreign markets without any restrictions. It will bring much investment and industry to the country. On the other hand, the disadvantage is that the local business environment will be hit by a free open market because the local manufacturers have the burden of a high taxation system that can make them fail to meet the requirements of their international counterparts. This will lead them to unfair competition with others.
The Economist intelligence Unit indicated that the US$ will reach 204 Riyals by January 2007. How do you view the impact of inflation on the performance of banks in the country, and if that is relative to the bank's decision to invest in Yemen or abroad?
If YER continue to depreciate more than what is now, many investors will surely run away and invest their money in US Dollars. Accordingly, many cash flows will leave the country to be invested abroad for high yields sake. Then CBY has to raise interest rate to overcome this trouble to attract those who are investing in YER.
Any other comments?
Yemen stock exchange founding is linked to some factors to make a successful pace towards developing the country's economy. The government should adopt, seriously, stable and balanced economic and financial policies to create a good atmosphere for investments. They should eradicate all obstacles that hinder the country's development and economic growth such as mismanagement and corruption. There is a need to do the following:
– Reforming of the judicial environment to play their role in settling disputes.
– Developing and modernizing of the banking system in Yemen thus compelling them to raise their capitals or emerge.
– Reforming all investment, economic, financial, and commercial regulations to build up new environment of high confidence for investors.
– Companies must to convert to be open shareholding ones.
– Careful handling of the privatization of the government institutions.
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