Powerful quake hits Yemen banking sector [Archives:2005/902/Front Page]

December 12 2005

SANA'A, Dec. 10)Yemeni economists have described the Central bank of Yemen (CBY) measures of taking control of the Watani Bank for Trade & Investment after the latter's declaration of its bankruptcy as belated. They have blamed the CBY for not taking due measures against the Watani Bank at earlier time. The y maintained that weakness of the CBY monitoring progress of monetary process in the country as one of the causes behind the Watani Bank collapse. The CBY could have restrained that big collapse which was a surprise for all observers in banking field.

Those economists mentioned that the Central Bank had diagnosed in its 2001 annual report problems and violations committed by the Watani Bank. Among violations stipulated in the CBY report were that the Bank was not preserving liquid assets, bought shares in projects more and larger than defined rates, as well as buying some plots of land, buildings and equipment. The Watani bank had exceeded its powers by granting credit facilities to indebted clients although they had not repaid their debts. The Bank had also violated provisions of article 13 of the law No. 38 through not keeping liquid monetary assets.

The aforementioned CBY report affirmed that the Watani Bank violated instructions of the Central Bank regarding accounts of government institutions by opening current accounts in favor of some parties that are prohibited to open their accounts but with the Central Bank. Those violations, as stipulated in the central Bank report, required and deserved stricter and more serious measures.

The Central Bank of Yemen had on Thursday published an announcement declaring its taking control of the Watani Bank for Trade and Investment. The announcement mentioned, “In view of the inability of the Watani Bank for Trade and Investment to meet its financial obligations, the Central Bank of Yemen has decided to take control of the aforementioned bank as from 0800 am on Wednesday 7 December 2005 and as such the powers of the Board of Directors and executive management of the bank have been terminated and vested into a Central Bank of Yemen Committee charged with the matter. The Central Bank of Yemen reassures all parties concerned that it constantly supervises and inspects the banking sector to ensure its solvency and soundness.”

On the other hand, officials from the Watani Bank, declined to disclose their identities, confirmed that the cause of the bank's collapse were the huge loans it had granted to hundreds of contractors. Those contractors were unable to repay their debts, ascribing that to delay in receiving their payables on government institutions to which they had implemented projects.

Reliable banking sources have confirmed that the persons who had obtained big lending facilities were in fact from among influential personalities. Figures show that some of them received loans and facilities amounting more than one billion Yemeni riyals. This indicates that the bank was not pursuing the scientific approach in its work.

Those officials said the bank management could not be held responsible for that alone. They said the government's wrong policies and procrastinations have a share in the responsibility that caused the situation of the bank to lead to this tragic result.

To stress their opinion, those officials mentioned that several commercial banks were eventually queuing towards a similar destiny of the Watani Bank. They added that there was a beginning of a sort of crisis facing those banks but they managed to deal with it without making the clients be aware of it. In the case of the Watani Bank, the clients have largely contributed to inflame the crisis when they rushed to withdraw their money from the bank immediately after their knowledge about shortages in the bank's liquidity.

The Watani Bank for Trade and Investment has recently signed an agreement the financial establishment OITC to enter as a strategic partner of the bank in an effort to be able to abide by instruction of the Central Bank of Yemen's decision No. 123 for the year 2004. The decision stipulated that Yemeni commercial banks should raise their capitals to YR 6 billion by the year 2009. The Watani Bank confirmed that the agreement was intended to attract international investors possessing financial and technical capability to effectively contribute to economic and development field.

The incident of the Watani Bank collapse would inevitably be a subject of study and consideration to be benefited from by all. It is particularly so as there are indicators of other banks collapse. Yemeni commercial banks should learn this lesson to improve their performance. In addition, the Central Bank of Yemen should improve its monitoring and control in conformity with the law in order to create secure and more stable climates. What happened to the Watani Bank did not affect it alone. It has rather shook all banks credibility among the public especially the clients.

The Watani bank for Trade and Investment was established in 1998 with a capital of YR 500 million and by the end of December 2004, it was raised to YR one billion and 747 million. It used to offer all its banking services by using modern means and equipment. It banking activity was confined to the capital Sana'a and only two branches in Hudeida and Aden governorates.