What did financial reforms in Yemen do?Yemeni banking connected to strong communication systems [Archives:2004/792/Business & Economy]

November 22 2004

Mahyoub Al-Kamaly
After about ten years of implementation of the economic and financial reforms in Yemen, there questions can be aroused about what Yemen has so far achieved in reforming the Yemeni banking system, and if it has managed to overstep great barriers created as a result of internal and external political events and changes and pursued a successful and stable monetary and banking policy.
It could be presumed in this regard that the Yemeni financial policy during the past ten years has achieved stability in currency exchange rate, an increase in growth of the gross domestic product and a surplus in the state's general budget. Yemeni financial policy has also achieved stability in the structure of the banking apparatus with the foundation of 18 banks, development in capitals and commercial banks' unified budget. Commercial banks have contributed strongly and effectively to supporting and financing investment and commercial projects and also in creating banking awareness throughout he whole country.
Specialists in banking say the more significant start from the beginning in the course of banking reforms, was the passing of new Banks Law that enabled banks to practice activities of a financier merchant within certain controls. The Central Bank set a condition that the banks established in Yemen should be as join-stock Corporation. The law also stipulated the limiting of the individual contribution share as not exceeding 10% of the bank's capital. The aim of that may be to avoid concentration of financial control over the bank in the hands of one person or a group of a few individuals related with one interest.
Specialists are of the opinion that the banks law and the law of the central bank contained most modern terms stipulated in the most advanced baking laws in the world. One of those is the draft law concerning money laundering submitted to the parliament in 2002 and also the central bank at that time worked for the preparation of a draft law concerning electronic dealings, which is considered one of the law the this stage requires and would help fill a great legal vacuum and organize payments and electronic financial dealings that have begun to spread world-wide.
The central bank began during this time to request from banks a gradual rise of their capitals. So in this regard it was decided on 24 April 1985 that the licensed banks in Yemen should raise their capitals to YR 200 million at an utmost date the first of June 1985, another decision was in 1986 calling on banks to raise capitals of licensed banks up to YR 300 million with February 1987 as a deadline. In January 1997 mayor of the central bank issued a decision regarding banks capitals defining the minimum amount of paid capital at YR 500 million and in January there was the central decision determining the minimum capital of licensed banks to be at YR 750 million and in January 1999 here was a central bank's decision demanding banks to raise the minimum level of their capital to one billion riyals, obliging licensed banks to carry that decision out on 31 December 1999 as deadline date. The central bank decided in the year 2000 that licensed banks in Yemen should raise their capital one billion and 250 million riyals.
As for banks to be newly established the central bank obliged them that capitals' level at their opening should not be less than YR two billion.
According to officials at the central bank, most of Yemeni banks have been able to fulfill the requested proportions and some of them realized average of sufficiency in their capitals that much exceeded the proportions as defined by Basel Committee. Generally the rate of capital sufficiency with all Yemeni banks amounted to 13%, while the proportion defined by the said committee was 12%.
The central bank has also implemented steps and serious measures aimed at knowing the actual volume of the problem of floundering debts of each bank and at the banking sector in general and to study that problem and trace back their possible impact on the banking sector in particular and the Yemeni economy in general. The bank would then define necessary methods for tackling and control the problem through application of many rules and technical bases for evaluation of loans and credit facilities according to the degree of risks for each group and the methods of calculating and forming necessary allotments for facing floundering debts. The central bank was also keen on obliging banks to apply strictly those rules. In the same context, the bank devoted its efforts for helping banks to tackle their floundering debts following three parallel axes. The first axis is the serious follow-up of the banks to study and evaluate assets meant for loans and facilities granted to their clients according to bases of evaluation issued by the central bank and also to take necessary measures for establishment of enough allotments in the face of not regular debts. Banks commitments to those instructions resulted in good outcomes represented by protection of those banks and strengthening their financial positions and preservation of contributors and depositors rights. They also helped self assets of those banks in confronting any future problems. The second axis was the central bank issuance of a periodic list containing names of those with floundering debts and those and those manipulating with banks properties and to press all banks I the country not to grant those any new loans or facilities, that list has been known as the blacklist. The third among the axes was the orientation a policy the central bank has followed for encouraging banks towards negotiating with their clients with floundering debt for the purpose of adopting cordial settlements regarding those debts. In fact those efforts and stipulations in those three axes left good impact in response by some clients to repay part of their debts or to agree on rescheduling them. The Yemeni banks have achieved some accomplishments after the central bank has taken several measures aimed at protection of banks against shock and fluctuations of prices of exchange and to keep them away from brokerage in prices in the local and international market.
The mayor of the central bank Ahmed al-Samawi says the central bank has issued instructions for the banks working in Yemen forcing them to achieve a degree of balance in their possession of various foreign currencies and the assets and deductions. Within this frame the central bank has placed a margin for fluctuation in the degree of balance no more than 15% of the capital of each bank and its reserves and also regarding each foreign currency separately, and a proportion of 25% for the total amount of foreign currency. And in order to develop the banking structure and strengthen its connection to the developments on the international arena, the central bank has designed accounting rules and criteria for the banks compatible with international accounting criteria. The banks working in Yemen have been asked to strictly commit themselves to apply those criteria as beginning from 1999. In the years 2000 and 2001 the central bank exerted great efforts by holding negotiations and arrangements with a world company for the linking of Yemeni banking sector to banks and financial establishments working in various parts of the world the international network of Swift. That measure is considered of the achievements of the central bank as this network has big role in improving Yemen's banking external dealing and also to realize other benefits such as dropping coats of carrying out foreign dealings and also enable specialists to get quick contact and be sure about the speed of their financial messages arrival to other banks and receive responses of receipt.
In pursuit of banking reform, the central bank has exerted intensive efforts for to re-structure and organize government banks and arrange their situations in the manner that would achieve raising the level of performance for keeping pace with developments in modern banking industry. Such efforts and measures included the liquidation of the Industrial Bank because of its suffering from financial restraints as a result of the hugeness of its floundering debts and its incapability of recovering big part of them. The efforts also included the coordination with international financial establishments for the restructure and rehabilitation of the Yemeni Bank for Construction and Development, The National Bank, the Bank of Agricultural Lending and the Bank of Lending for Housing. The Central Bank also succeeded in n its policy intended to activate the role of the private sector in economic activities and rationalize the banking credit directed to the government and the public sector.