Yemen: 'Unrest creating chronic instability'

Sana'a, Mar 15, 2011,The escalation of anti-Saleh protests in Yemen are, according to one Islamic banker, creating "chronic instability" which is "paralyzing the local banks."

"There are some problems that the local [Yemeni] Islamic banks have side-stepped, such as suffering significantly from the global credit crunch. However civil strife does not spare anyone, and the current unrest is weakening the local Islamic banks making them incapable of meeting their external liabilities," said Arif al-Ariki, assistant director general of Tadhamon International Islamic Bank.

The Central Bank and government have been trying to play down the impact that the protests are having on the economy. Officially the Central Bank has declined to comment on the unrest, but one person with familiarity of the situation did say that the government doesn't want to publish information on how the disorder is hurting the banking sector, including the country's four established Islamic banks: Saba, IBY, Tadhamon and Shamil Bank of Yemen & Bahrain. The source confirmed that there had been an unprecedented decrease in deposits amid fears of the escalating protests demanding the departure of President Saleh.

"Locally, shareholders have a strong preference for cash, and externally Yemeni banks are deemed high-risk and this is affecting their activities abroad," said Tariq Hamoud, head of credit studies at TIIB. Trade has almost stalled and in the long run the local Islamic banks will suffer big losses, he added.

There is no official data either from the government or external ratings agencies as to the extent the banks have been affected by the wave of popular protest in the MENA region. However, officials at the Central Bank did admit that investors and savers are withdrawing large amounts of cash in US dollars from the Yemeni banking system and ceasing contributions.

Locally Islamic banks account for more than a third of banking assets here and Yemen has been developing a range Shari'ah compliant products to attract surplus liquidity from the country's savers. One such initiative was last month's $125m Sukuk program by the Central Bank. Islamic banking is seen as core to the development of the national economy.

However any forward steps have been stalled by the current protests. As Wael al-Ariki, communications manager for IBY explained: "Banks are just an extension of human nature, and there is a lot of anxiety and fear going around - not just in Yemen, but in places like Bahrain too - which is having an effect on our business."

Source: Islamic Global