Tough times for banks in Yemen (page 1 of 3)

"The courts are weak," says Ahmed Al-Hamdani, chairman of Watani Bank. "They almost don't exist. They have very low standards, and if we get our money back, it takes an awfully long time, maybe as long as 10 years." As a result, at the end of the first quarter of this year, the loan-to-deposit ratio for Yemen's banking sector amounted to just over 30 percent, an extremely poor figure.

Yemeni banks have also ignored the global trend of paying more attention to retail banking. Products and services have been hard to find, and as one local economist says, "Yemeni banks have always been warehouses. People just park their money in the banks."

With hardly any lending and few products to sell, Yemen's banks have been left dependent mostly on letters of credit, letters of guarantee and buying up Yemeni T-bills if they ever hope to make money.

To make matters worse, two foreign heavyweights working in Yemen have been the biggest players in the market. At the end of 2001, Arab Bank, based in Amman, led the sector in terms of deposits ($358 million out of $1.8 billion for the whole sector), followed by the French giant Crédit Agricole Indosuez ($329 million). The key to attracting Yemeni customers has been these banks brand names and the safety they imply, invaluable assets in the country.

Yemen is full of uncertainties: the last civil war took place only seven years ago, and there is vast lawless terrain in Yemen with tribal clashes happening weekly. Customers have felt that the safest place to put their money is in large international banks, and Arab Bank has had an advantage of being the only financial institution offering a wide range of services.

It has been the only provider of ATMs (seven in five cities), is the leader in the credit card business and offers phone banking.
But some of the leading Yemeni banks have recently woken up to reality. Their new strategy is to get into retail banking to help offset their limits in lending by building on their fee-based income. They also believe that this might help them grab a bigger share of the market.

The initiator was Yemen Gulf Bank. Opening up shop in Yemen last year, it came on the scene 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," says 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."

So far this year, Yemen Gulf Bank has become the first bank in Yemen to offer online and mobile phone banking. Its online banking services include customers checking their balances, ordering checks, transferring money from one account to another within the bank and arranging for the bank to pay their bills.
Phone home.

"It's a complete package of Internet banking," says Zubieri. The bank has also upgraded phone banking in the market. Arab Bank only allows customers to check their balances. Phone banking with Yemen Gulf Bank offers services similar to its online banking unit, such as transferring funds and paying bills.

Yemen Gulf Bank also has its eye on ATMs. Not only was it the first Yemeni bank to install an ATM, but it has plans to be the first in setting up ATMs in key locations separate from the bank. The idea is for ATMs to be near or inside supermarkets and department stores and in other areas where people are always busy shopping.