$12 billion in losses for Yemeni pension funds and banks
English - Saturday 23 July 2022 الساعة 09:10 am
Aden, NewsYemen, special:
The nominal value of the assets of Yemeni banks and troubled pension funds with the government, "domestic debt", amounted to 3 trillion and 250 million riyals, valued at $15 billion in 2014, to 3 billion and 250 million dollars at the end of 2021, driven by the depreciation of the local currency, the riyal.
The drop in the riyal exchange rate from 215 riyals per role at the beginning of 2015 to 1,000 riyals per dollar by the end of 2021 eroded the real value of money owed to banks by the government, with losses amounting to 12 billion dollars.
The study "Addressing the Heavy Burden of Public Debt in Yemen" said that incurring losses of this magnitude could lead to the bankruptcy of many banks and debt holders, and destroy confidence in the Yemeni banking sector and the formal financial system.
Since late 2016, commercial banks have been essentially prevented from liquidating the face value of their invested assets and have been denied periodic interest payments, exacerbating the liquidity crisis in the banking sector.
The study issued in July 2022 by the Sana’a Center for Strategic Studies confirmed that the government’s continued failure to pay the local debt assets makes commercial banks vulnerable to more financial losses in the continued deterioration of the value of the riyal.
The study indicated that the use of the low exchange rate to pay the value of local debt instruments results in a lower cost for the government, but it results in huge losses for debt holders, whether private or public institutions, as well as individual investors.
Although the nominal interest rate of 16% on treasury bills, local banks bought 80% of the public treasury bills issued between 2010 and 2016, but the real return on this investment became negative due to the rapid deterioration in the value of the currency and the resulting high inflation.
The cumulative inflation rate in August 2020 was about 145% higher than it was in December 2014.
She pointed out that the high rate of inflation led to a significant decrease in the assets and profits of holders of local debt instruments and undermined their confidence, both in banks as financial intermediaries and in debt instruments in general, which led to a shrinking of the customer base in banks.
In August 2019, the Central Bank of Yemen in Sanaa, which is controlled by the Houthi militia, froze the compound interest on treasury bills, which caused losses to holders of treasury bills, most of whom are commercial banks, the compound annual interest of 16% on their investments and the opportunity to reinvest them.
In August 2019, the Central Bank in Sana’a took a decision to re-set the interest rate due on government bonds in which public pension funds invest from 10% to zero.
Treasury bills and government bonds in Yemen are considered fixed income assets and their interest rates have not been adjusted to achieve a balance between the negative effects of high inflation and a decrease in the purchasing power of the national currency.
