More ATMs are part of retail banking trendYemen’s banks are changing with the times [Archives:2004/713/Business & Economy]

February 19 2004

By Peter Willems
Yemen Times Staff

It's a time of economic blues. Yemen's economic growth is down, poverty and unemployment is up, and the government is stalling to implement vital steps in economic reform.
Yemeni banks are also facing hurdles. Lending money has always been risky because the country's legal system, notorious for not being able to solve business disputes, has done little to support banks trying to collect bad loans.
At the end of 2003, the loan-to-deposit ratio for Yemen's banking sector amounted to 29 per cent, very low for international standards. Until recently, Yemeni banks have been dependent mostly on letters of credit, letters of guarantee and buying Yemeni T-bills while aiming to make money.
Yemen's banks also face two foreign heavyweights that are two of the biggest players in the local financial market. At the end of last year, Arab Bank, based in Amman, Jordan, led commercial banks in terms of deposits ($525 million of $2.6 billion for the whole sector), followed by the French giant Credit Agricole Indosuez ($349 million). These banks with international brand names and the safety they imply have been attracting Yemeni customers.
Another challenge may be to get more of the Yemeni population to use banks. It is estimated that only about 250,000 out of 18 million Yemenis have bank accounts.
According to Ali Abdul Rahman Al-Bahr, former Minister of Oil and the Chairman of Housing Credit Bank in Yemen, the reason many people in Yemen avoid banks is lack of trust and education of financial institutions. But he believes that this will change.
“When banks offer more products and services and their branches reach the people, they will learn to rely on banks,” said Al-Bahr. “When they see and use what's available, they will take advantage of it. That's the best way to educate the public about banks.”
But some of the leading Yemeni banks are doing just that, and have recently decided to use a new strategy. They are building on retail banking to help offset limits in lending to generate a healthy fee-based income. They also believe that this might help them grab a bigger share of the market.

Yemen Gulf Bank was initiator
The initiator was Yemen Gulf Bank. It opened its first branch in 2001 and came with one objective: focus mostly on products and services while being a step ahead of its competitors. “The banking sector in Yemen is very competitive, so our aim is to develop services in our bank,” said Mohamed Al-Zubieri, Chairman of Yemen Gulf Bank. “We fully believe in non-interest income coming from retail services, so we will continue to offer more products and services, which will attract more customers.”
Soon after Yemen Gulf Bank was established in Sana'a, and became the first bank in Yemen to offer online banking. It offers services that allow customers to check their balances, order checks, transfer money from one account to another within the bank and arrange for the bank to pay their bills.
Although Arab Bank already had phone banking, Yemen Gulf Bank upgraded phone banking in the market by offering services similar to its online banking unit, such as transferring funds and paying bills. It was also the first Yemeni bank to install an automatic teller (ATM) soon after it opened.
This year, Yemen Gulf Bank plans to roll out new products and expand on what it has to offer. It is developing point-of-sale by issuing cards to customers that can be used in different retail outlets, such as stores, hotels, restaurants and supermarkets.
This will be a challenge: Yemen is a market based on cash, and it might take time to make using plastics in the market popular.
“As of now, there are no points of sales,” said Zubieri. “We must development it to get businesses connected to the Visa and Mastercard network. It will cost us a lot of time and money, but we expect big returns.”

Mobile banking
Also up will be mobile phone banking that will offer a variety of services, such as customers checking their balances and receiving information from the bank. And Yemen Gulf Bank plans to place ATMs in different locations, like in major shopping centers and in the Sana'a International Airport.
Yemen Gulf Bank's focus on retail banking has shown good results. From 2002 to 2003, its deposits soared 125%, assets went up 110% and operating profits increased 60%.
International Bank of Yemen, which once focused on corporate banking by dealing with big businesses working in Yemen – especially foreign oil companies – has entered into retail banking aggressively to try and outflank its competition. “We decided to use many retail products in order to enable us to increase the volume of customers,” said Ahmed Al-Absi, General Manager of International Bank of Yemen.
In a very short period of time, International Bank of Yemen will pump out a large number of products and services and expand on them at a very fast pace. It already has a foot in the door: Five months ago, it started up phone banking, and at the end of last year it installed ATMs.
At present, it has four ATMs in Sana'a and one in Aden, but it has plans to expand on ATMs swiftly. “We have a goal to establish 100 ATMs in Yemen by the end of this year,” said Al-Absi. The strategy is to install ATMs in key locations where customers will be in need of money.
By the end of this month, the bank hopes to start issuing Visa Electron cards. These cards will give numerous advantages to customers: They will not only be able to use ATMs in Yemen but be able to use ATMs around the world and make purchases while using the cards as debit cards. International Bank of Yemen will offer mobile phone banking services by the end of February as well.
Online banking will also be on the way soon. The goal for International Bank of Yemen is to let its customers do as much banking on the Internet as possible. “Our customers will be able to make all transactions in real time,” said Al-Absi. “Not only will our customers be able to use basic services, but they will also be able to transfer money overseas to other accounts.”
International Bank of Yemen is also going after point-of-sale. The bank began developing relationships with retailers in the Yemeni market in 2002 and is almost ready to get point-of-sale up and running. Its aim is to do business with up to 1,000 merchants within a few months.
Al-Absi believes that the bank's efforts to build rapidly on retail banking will show positive results on the bottom line this year. He expects International Bank of Yemen's fee-based income to jump from 15% of total income to 30% and gross profits to increase from $900 million in 2003 to $1.6 billion this year.

Will take time
But while retail banking will help strengthen the income for some Yemeni banks, there are still obstacles ahead. Some think that it will be very difficult for Yemeni banks focusing on retail products to pull customers away from foreign banks, especially Arab Bank.
It not only has a solid reputation that goes back many years but was already armed with some retail products before the spread of retail banking among Yemeni banks. But as one manager of a Yemeni bank said, “The foreign banks do a very good job at attracting wealthy clients. Yemeni banks may do well at attracting a vast target group that is in need of services.”
Then there's the issue of such a small percentage of the population having bank accounts, at least at this time.
It will take time to see how much retail banking will improve the income of Yemeni banks developing more products and services. But one thing is certain: More services will always benefit the customers.