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Yemeni banks cease some operation

July 14, 2011 1 comment

Growing tribal violence has pushed Yemenis to withdraw large amounts from banks that have crippled their ability to perform basic activities.

The withdrawals represent a bigger problem — tribal conflict is getting so dire that Yemenis are either fleeing the country with cash in hand or there is a real fear that whatever government comes to power could exert force over banks. With President Ali Abdullah Saleh in Saudi Arabia receiving medical treatment, there’s a sizable power vacuum that needs filling.  Saleh’s tribal allies already had turned against him. Yemen’s tribes are more than willing to vie for his former position atop the government.

This banking problem is more acute for the long term future than short term. Without any reserves, it cannot offer loans to businesses — and if it does, it risks default in an incredibly unstable economy. That means it cannot promote business in its own borders.

Additionally, it likely will not attract foreign investment (not that it was particularly successful in that regard before the Arab Spring) with financially tapped banks. The volatile political landscape will probably continue in Yemen much longer than any other Arab Spring nation, even after a new government comes to power. It appears some militant tribal faction will assume the presidency if Saleh steps down or is forcibly removed. Saleh has vowed to return to Yemen, which has made the country even more uneasy as Saleh will undoubtedly try to regain power from the tribes that now run the country. All of this sends bad signals to foreign investors.

Taiz is the city to watch. It’s considered the intellectu­al capital of Yemen, but it is growing increasing­ly militarize­d. People there never would have dreamed of seeing citizens carrying guns through the street, but it is now a daily occurrence­.

The longer Saleh stays in Saudi Arabia, the greater chance tribal violence breaks out in effort to establish control and supremacy over Yemen. I’m beginning to doubt that any change in government would lead to a peaceful, democratic one. Saleh certainly has not been a good leader — hardly anyone entrenched in power for 30+ years is — but there doesn’t appear to be a civil group ready to wrest power from the well establishe­d tribes.

From Al Bawaba:

Aeriqi confirms that banks suffering from large withdrawals may collapse and notes that liquidity is scarce. Dozens of banks are carrying out measures to ease monetary withdrawals such as reducing official working hours and initiating electricity interruptions.

Economic experts note the current crisis in Yemen has greatly impacted the Yemeni economy, especially the banking organizations which provide loans and credit to organizations and individual borrowers in order to meet their financial needs.

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Qatar plans massive construction investment despite debt, weak property market

Despite suffering some of the worst news of the financial fallout and increasing debt, Qatar has planned billions of dollars of construction projects over the next decade.

But the gulf nation is expanding construction after years of stalled projects. It plans to invest $160 billion by 2022, when it hosts the World Cup of Soccer.

The announcement comes just days after the Qatar Central Bank said Islamic assets will be split from conventional assets.

Islamic assets are generally property-based, while conventional assets are monetary — think loans and bonds. This is significant because 23.4 percent of QCB’s assets are classified as Islamic and will have to be sold off to Islamic banks, where their values will fluctuate based on the bidder and demand.

The Financial Times reports that 16 percent of Qatar National Bank’s net profits came from Islamic banking.

Beginning the projects Qatar has in the works will require borrowing and strong banking institutions. If the national banks lose 23.4 percent of their assets, I have a hard time believing this is the right time for massive projects. Of course, those banks don’t just simply give up the Islamic assets for nothing — they will be compensated — but they still lose all that Islamic business going forward.

Adding this banking issue to the struggling Qatari property market and a severe debt crisis — despite faith in the government’s checks on the financial system — makes borrowing and building seem unwise.

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