Introduction

The banking crisis in Sanaa has escalated due to the enduring impact of policies implemented by the Ansar Allah group (Houthis) over the past nine years. This crisis has grown increasingly intractable, resembling a raging inferno consuming livelihoods with relentless force. Economic dynamics, propelled by volatile security and political conditions, have compounded the overall economic and living hardships, exacerbating the cost of stability.

The banking sector serves as a cornerstone for economic growth in nations, facilitating crucial funding for projects that drive investment and bolster national economies. However, in Yemen, commercial banks confront significant risks and challenges that threaten to render them inert, exacerbated by the absence of a secure business environment in Houthi-controlled areas. The Houthis' policies have contributed to liquidity shortages and hindered banks from meeting their financial obligations, further straining economic stability and development prospects.

 Crisis Commencement:

• The banking crisis in Yemen commenced in 2016 when banks in Sana'a stopped receiving returns on their treasury bill investments from the Central Bank. This abrupt halt triggered a severe liquidity crisis among banks, leading some to struggle with meeting depositor and customer withdrawals. (1)
• The banking sector crisis has intensified significantly, exacerbated by the actions of Sana'a's centres, controlled by the Houthi group. These centres have initiated the transfer of banks' investments in treasury bills into non-withdrawable current account balances, effectively exempting them from accruing interest charges. (2)
• These practices, orchestrated by the Houthi group through their control of the Central Bank in Sana'a, have eroded confidence in Yemen's banking system among merchants and businessmen. This loss of confidence has prompted substantial financial flows away from official banking networks towards informal channels. (3)
• Subsequently, banks have encountered a mounting liquidity crisis in both foreign and local currencies, accompanied by a reduction in the circulation and availability of Yemeni riyal notes for deposit at the Central Bank of Yemen. The liquidity crunch in Sana'a has compelled commercial banks to transact increasingly in Saudi riyals. (4)
• This law prohibited all transactions involving interest, contributions, profits, or commissions and also criminalised commonly used Islamic banking practices such as Murabaha formulas, which constitute 90 per cent of Islamic banks' activities. Additionally, it outlawed deferred instalment sales, loyalty sales, debt sales, and other financial mechanisms. As a result, banks lost their primary revenue stream, which traditionally accounted for over 80 percent of their income. Concurrently, exchange companies began to replace commercial banks in providing transactional and service functions, exacerbated by severe liquidity shortages within the banking system. Consequently, the informal banking sector gained dominance over a significant portion of the circulating cash in the market. (5)
• These practices implemented by the Houthi group pushed numerous banks to the brink of bankruptcy, precipitating a wave of customer withdrawals. However, these banks could not meet their financial obligations due to their assets being seized by the Central Bank in Sana'a.
• The strains on the national economy and banking sector have intensified, particularly as the banking sector serves as a critical lifeline for all economic activities and imports. Our country relies heavily on foreign trade to meet food and production demands, along with foreign exchange facilitated by expatriate remittances and commercial transactions conducted via documentary credits. Local banks manage their international accounts to finance imports, underscoring their pivotal role in sustaining economic operations.
• The decision to prohibit interest had significant adverse effects on the economic landscape, particularly amidst a highly precarious situation marked by political and economic instability in the country. This decision coincided with the presence of substantial accumulated debts and obligations in bank transactions, which were rendered prohibited and necessitated immediate repayment. However, the government and other sectors lacked the necessary funds to settle these debts promptly.

Scarcity of liquidity:

• In mid-May of this year, the capital, Sanaa, saw unprecedented protests outside private commercial banks, with dozens of depositors demanding access to their frozen deposits. The protests ensued after banks ceased disbursing limited amounts of money to depositors in instalments. (6)
• The interest prevention law enacted by the Houthi group in March 2023 proved to be the tipping point, severely curtailing the financial and banking operations of both commercial and Islamic banks. This legislation placed these banks at risk of bankruptcy, unable to fulfil their financial obligations and causing a significant slowdown in financial and banking activities. Consequently, several banks began laying off department directors, branch managers, department heads, and employees starting in November 2023.(7)
• During the investigation into the conditions of banks in Sanaa, it was revealed that certain departments and businesses within banks have ceased operations entirely due to the liquidity crisis. Additionally, some branches have restricted their operations to just five employees, who manage the branch and conduct essential business operations.
• During our investigation into the banking crisis, we contacted numerous financial institutions for insights. According to reliable sources, the liquidity shortage has been attributed to the Central Bank in Sanaa, which is under the control of the Houthi group and withholds bank balances.
• The banking crisis has deepened significantly, exacerbated by substantial sums of money held by the two centres in Sana'a. Commercial banks had invested a significant portion of their balances, along with customer deposits, in treasury bills and public debt instruments at the Central Bank of Sana'a prior to the Houthi group assuming control of the bank by the end of 2014.
• The consequences of Houthi actions undermining the banking sector have compelled commercial banks to pay their employees' salaries over extended periods partially. Withdrawals are restricted to available liquidity, often limited to amounts ranging from five thousand to fifteen thousand per day.
• One of the most severe impacts banks faced during this crisis was significant paralysis in their interactions with the commercial sector. Merchants and importers reduced their bank deposits due to difficulty accessing their funds promptly upon withdrawal requests. This decline in demand reflects a lack of confidence in the banking sector and highlights the fragility of the current financial and banking landscape.
• The detrimental impacts on banks in areas controlled by the Houthi group stem from the policies they have implemented in their dealings with financial institutions. The situation deteriorated significantly following the decision to ban usurious transactions in March 2023.

Banking Paralysis

• The impact of this decision extended beyond commercial banks and also affected Islamic banks, particularly by prohibiting transactions involving Murabaha formulas. These formulas are widely utilised across Islamic financial institutions and are endorsed by all major Islamic schools of thought.
• The Houthi group's targeting of the banking sector included freezing the balances of conventional banks earmarked for investment in government debt, typically treasury bills. Additionally, Islamic banks were prohibited from liquidating their investment assets, such as lands and real estate, without prior approval from the Central Bank in Sana'a. These restrictions rendered banks unable to manage their assets effectively, exacerbating concerns of bankruptcy and collapse.
• This highlights the extent of the Houthi group's interference with financial transactions, particularly affecting Islamic banks which heavily rely on real estate transactions, primarily through the Murabaha formula. Unlike conventional banks, Islamic banks typically do not invest in public debt instruments such as treasury bills.
• The inability of depositors to access their deposits and rights from commercial banks led some, as documented by the paper's author, to lodge complaints with the two centres in Sana'a. However, banks responded that their balances and funds were held by the Central Bank in Sana'a, attributing this as the primary reason for their inability to release customer deposits.
• To meet the demands of regular customers, some banks began using funds deposited between 2018 and 2020, ranging from 50 to 100 thousand per month. However, as the crisis intensified, many banking sector workers testified that banks eventually struggled to fulfil even minimum withdrawal requests from customers.
• The freezing of bank balances at the Central Bank in Sana'a began in 2016, following the internationally recognised government's decision to relocate the Central Bank of Yemen to the temporary capital, Aden. This decision aimed to prevent the transfer of banks' main headquarters from Sana'a, where the Houthi group intended to freeze all bank funds held at the Central Bank in Sana'a, including reserves used for covering letters of credit and foreign transfers essential for importing various goods.
• In 2019, during the Eid al-Adha holiday, the Houthi group escalated their actions by arresting bank leaders and seizing server systems from general bank administrations in Sana'a. Banks headquartered in Sana'a were compelled to transfer their balances to the Central Bank in Sana'a and its branches in Houthi-administered areas, closing operations on the last working day before the holiday.
• According to banking sources, this action represented a significant turning point in the Houthi group's direct undermining of banks. The group justified their seizure of bank balances by claiming they were held for safekeeping by the Security and Intelligence Service.
• The contamination of the banking environment by the Houthi group and its detrimental impact on economic and financial activities have resulted in nearly complete stagnation within the banking sector. Over the past year, one bank closed its branches across governorates, leading to employee layoffs and retaining only its branches in Sana'a and Hodeidah.
• Banking activities have sharply declined, leading to the inability to pay depositors despite substantial balances held by the Houthi group at the Central Bank in Sana'a. Some banks have struggled to cover basic expenses such as electricity, water bills, government fees, insurance, and taxes on salaries for over two years. In addition, employees in some branches report difficulties accessing even nominal payments of ten thousand riyals due to severe liquidity constraints.
• From our analysis of information gathered from the banking sector, it becomes evident that the targeting of commercial and Islamic banks serves strategic motives, primarily driven by the Houthi group's efforts to reshape a decades-old banking sector. Their aim is to establish a new financial framework that aligns with the interests of groups enriched through wartime trade, operating outside established international banking norms and regulations. This restructuring includes the proliferation of numerous exchange facilities that now dominate the currency market in Houthi-administered areas, with plans to transform them into microfinance banks. Furthermore, there are indications of efforts to revive banks under Houthi control, such as CAC Bank and the Yemeni Bank for Reconstruction and Development, where the group manages revenues, appoints board members, and consolidates financial control.
• Since gaining control of the capital, Sana'a, the Houthi group has targeted existing banks with the objective of establishing an alternative financial entity. This strategy involves transforming their exchange facilities into microfinance banks and assuming control over financial activities traditionally held by established banking institutions.
• The continuous destabilisation of the banking sector in Sana'a aligns with broader efforts to impose comprehensive restrictions on the private sector. This includes targeting commercial enterprises, draining national capital, and incentivising it to relocate abroad. These actions aim to consolidate the Houthi group's grip on Yemen's economy, with the banking sector serving as a central focus of these efforts.

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  هوامش 
  1- مصير مجهول لاستثمارات البنوك في أذون الخزانة – المشاهد نت- 12يونيو 2023- https://almushahid.net/115026/ 
  2- الحوثي تدفع القطاع المصرفي إلى الهاوية- 30 مارس 2023 – المصدر أونلاين –متاح على الرابط -  https://almasdaronline.com/articles/271765 
  3- التخفيف من الانعكاسات السلبية لانقسام البنك المركزي على القطاع المصرفي اليمني-   9مارس 2023- مركز صنعاء للدراسات – متاح على الرابط  https://sanaacenter.org/ar/publications-all/analysis-ar/19668
  4- بهدف الاستيلاء على فوائد المودعين.. الحوثي تصدر قانون البنوك في مناطق سيطرتها- 21 مارس 2023- يمن شباب نت -https://yemenshabab.net/news/83576 
  5- الحوثي تدفع القطاع المصرفي إلى الهاوية- 30مارس 2023 – المصدر أونلاين - https://yemenshabab.net/news/83576 - 
  6- أزمة السيولة في بنوك صنعاء تنذر بتكرار السيناريو اللبناني- 13 مايو 2024  - العربي الجديد –متاح على الرابط   https://www.alaraby.co.uk/economy/ 
  7- مقابلات اجراها الباحث مع مصرفيين، يوليو ٢٠٢٤.