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Yemen’s Banking Sector Struggles to Survive Amidst Political Unrest and Economic Crisis

In the midst of Yemen’s ongoing political turmoil and economic crisis, the country’s banking sector is facing a precarious future. A recent study conducted by the Folke Bernadotte Academy, funded by the Government of the Kingdom of Sweden, highlights the various factors threatening the sector’s stability.

Factors Contributing to Instability

  • The Yemeni government’s inability to control the currency and maintain a stable monetary policy has led to rapid depreciation of the Yemeni riyal.
  • This has resulted in a significant decline in purchasing power, making it difficult for citizens to access basic necessities such as food and medicine.

Lack of Trust in the Banking System

  • The conflict has led to a lack of trust in the banking system, causing many Yemenis to turn to alternative forms of currency exchange, such as unlicensed money changers.
  • This has created an environment where corruption and fraud can thrive, further eroding confidence in the sector.

Interviews with Yemeni Bankers

  • “There is a clear lack of trust in the banking sector, which is making it difficult for us to operate effectively,” said one banker based in Aden.

Separation of Bank Branches

  • The separation of bank branches in militia-controlled areas from the influence of legitimacy has created a complex web of rival currencies and exchange rates, further complicating the situation.

Call to Action

  • “It is essential that the government takes concrete steps to stabilize the currency and maintain a transparent monetary policy,” said Farea al–Muslimi, one of the study’s authors. “Only then can we hope to rebuild trust in the banking system and restore economic stability.”

Conclusion

Yemen’s banking sector is facing a critical juncture. Without swift action to address these challenges, the consequences could be devastating for the country’s economy and its citizens. It is imperative that the government, international organizations, and stakeholders work together to find a solution to this crisis.

Endnotes

  1. Sana’a Center for Strategic Studies, “Houthi Strikes Prompt Government Terrorism Designation,” October 2022.
  2. Sana’a Center Economic Unit, “Addressing the Crushing Weight of Yemen’s Public Debt,” July 2022.
  3. Farea al-Muslimi, “Revitalizing Yemen’s Banking Sector: Necessary Steps for Restarting Formal Financial Cycles and Basic Economic Stabilization,” February 15, 2019.

Sources

  • Sana’a Center for Strategic Studies
  • Folke Bernadotte Academy
  • Government of the Kingdom of Sweden
  • Interviews with Yemeni bankers
  • SWIFT Scope
  • Yemen Youth Satellite Channel YouTube page