The Yemeni banking sector - commercial and Islamic banks - witnessed an increase in the number of banks by 60 percent, with the entry of 11 new banks into the banking market - 8 of which are active in Islamic finance - bringing the number of Yemeni banks to 28, from 17 in 2020.
The capital, Aden, acquired 5 banks out of the total number of new banks, followed by Hadramout Governorate with 3 banks, and the others were distributed: two banks in Ma’rib Governorate, and a bank in Taiz Governorate.
The expansion of the banking sector came at a time when the national economy is suffering from underdevelopment and stagnation, due to the war the country is going through. In 2021, economic growth recorded an additional contraction of negative 2 percent.
Official evidence indicates an economic contraction in 2022, as a result of the Houthi ban on exporting crude oil in the fourth quarter of last year, but banking experts stress that the recession does not prevent the opening of new banks.
The expansionary monetary policy pursued by the government during the past years, converting the deficit into cash, was the main reason for accelerating the decline in the value of the Yemeni riyal, and the inflation of the money supply in the banking market.
The total assets of the banking sector, according to 2020 data, amounted to approximately 3.618 trillion riyals, of which the International Bank of Yemen owns 713 billion riyals, while the second largest bank in terms of assets is Tadhamon Islamic Bank with assets amounting to 557 billion riyals.
In March 2022, the Aden-based Central Bank of Yemen announced new regulations, increasing capital requirements for commercial and Islamic banks to 45 billion riyals, and microfinance banks to 5 billion riyals, within the next five years.
According to banking experts, the increase in capital requirements was driven by several factors: First, the capital currently owned by financial institutions has shrunk to a large extent in real terms due to the significant decline in the value of the Yemeni riyal since the war began.
Second, merchants, entrepreneurs, and fund contractors increasingly competed for licenses to become microfinance banks, which would allow them to accept deposits and grant financial loans, as required by law.
The Yemeni banking sector stands out as the weakest in the Middle East in terms of intermediation, as bank deposits accounted for 27% of GDP, far below the Middle East average of 76%.
The World Bank study shows that Yemen is characterized by one of the lowest levels of family financial inclusion in the Middle East and North Africa region, with 6% of adults in Yemen having accounts with banks, and only 1% of Yemenis saving in a formal financial institution.