Trade Financing

Twelve commercial banks and one public sector specialized bank (Cooperative Agricultural Credit) operate in Yemen under the oversight of the Central Bank of Yemen (CBY). Since 1996, three Islamic banks opened and are competing successfully in the banking sector. In August 2006, the CBY licensed Qatar National Bank (QNB), which has branches in London and Paris. QNB is expected to open in 2008.

CBY has maintained a 13 percent interest rate on rial deposits and now allows each commercial bank to determine interest on its foreign currency accounts. The change reflects expectations for a high but stable inflation rate and for a stable rial-to-USD currency exchange in 2006.

In addition to its oversight of 14 banks, the CBY issues licenses for banking activities to supervise the banking sector. Of the 17 licensed banks, 10 are national banks, three are local branches of foreign banks, and four are joint venture banks.

Foreign-Exchange Controls
There are no limits or controls on the transfer of funds into and out of Yemen or on funds garnered from an investment in Yemen. Any individual or company may import foreign currency into Yemen; exporting currency out of Yemen should not exceed USD 10,000 unless otherwise approved by the Central Bank. Again, CBY does not impose restrictions on foreign payments and transfers and allows the transfer of foreigners’ accounts resulting from foreign transactions. Commercial banks and private exchangers are allowed to purchase foreign currency from customers and to hold a percentage of foreign exchange for import payments. There are no taxes on purchases or sales of foreign exchange.

The Yemeni rial has floated freely since 1996, and the exchange rate was stable in the 174-175YR/1USD range until October 2002. After falling to 182-183 YR/1USD by the end of 2002, the rial has remained relatively stable. At the end of 2007, the rial sold at a market rate of 199 YR/1USD. In order to evaluate imports for tariff collection, the Customs Authority bases its calculation on a monthly average exchange rate published by the Central Bank of Yemen set to the prevailing market rate.

Project Financing
The international credit ratings of Yemen’s commercial banks have been steadily improving in recent years. International commercial banks confirm locally issued LOCs on less than 100% cover and are lengthening their tenure from sight to 90-120 days. Local banks have sufficient stock to lend to the private sector for most projects, but they will lend only to known customers because the Yemeni legal system will rarely support their claims against defaulters.

The ROYG committed itself to implementing the projects and programs stated in the World Bank’s Poverty Reduction Strategy Paper managed by the Ministry of Planning and International Cooperation (MOPIC). These projects cover areas of economic growth, human resources development, infrastructure, and social protection. Some of the projects were implemented during the 2003-2005 period and 70 percent of these projects were self-financed through the ROYG budget. The government seeks assistance from the international community to finance the remaining 30 percent.