“The Houthis will suffer economically if the main banks move their headquarters from Sanaa to Aden”.

Abdullah Al-Shadli (South24) 

On June 2, less than one week from today, the 60-day deadline set by Aden’s Central Bank of Yemen (CBY) will expire. Resolution No.17 of 2024, issued on April 2 of this year, ordered commercial, microfinance, and Islamic banks to move their primary headquarters from the Houthi militia-controlled Sanaa to the capital, Aden.

Although the timeframe set out in the decree has mostly passed, banks have not yet responded to the decision. So far, none of them have officially accepted or rejected it. Over the past week, the exchange market has witnessed much turmoil, with the value of the local Yemeni currency decreasing to its lowest level in recorded history, at 1760 Yemeni riyals to one US dollar.

Moreover, some banks in Aden began disbursing amounts of money from the accounts of individual and institutional customers, under the pretext of a lack of cash liquidity, especially in USD. South24 Center experienced this first-hand and witnessed other customers go through the same thing. This has raised questions about the link between these developments and the Aden CBY's decision, which economists described as a big blow to the Houthis. There are also questions about potential scenarios once the deadline expires.

The response of banks

On May 20, the state-run news agency Saba reported that the CBY of Aden had held an irregular meeting to review the moves being taken to implement the decision, and the measures that would be imposed against non-compliant banks. 

The report didn't publish specify the details of the meeting’s contents. However, it indicated that the Aden CBY leadership expressed “great satisfaction with the support the decision received at all local, regional and international levels”, as it will save the banking sector and protect it from the hegemony of a group designated as terrorists by the international community, referring to the Houthis.

An exclusive source working at the Houthi-controlled Central Bank in Sanaa spoke to South24 Center on condition of anonymity.  He said that some commercial banks have refused to move their headquarters from Sanaa to Aden, including Al Tadhamon, Al Kuraimi Microfinance, and the Yemen Commercial Bank.

So far, the three aforementioned banks haven't officially confirmed or denied the source's claims. They’ve also failed to respond to questions regarding this issue sent by South24 Center through their official contact platforms. The banking source said that these banks attribute their decision to, along with other reasons, a lack of cash liquidity.

Sanaa-based economic expert, Rasheed Al-Haddad, claimed that other banks, such as Yemen Kuwait Bank, and Shamil Bank of Bahrain, refuse to accept the decision of Aden’s CBY. The two banks so far haven’t confirmed or denied Al-Haddad’s claim and did not respond to South24 Center’s request for comment.

Likewise, the CBY of Aden hasn’t responded to a similar request for comment by South24 Center, though an official there said that giving media statements about the matter is currently prohibited.

Economic expert and Head of the Economic Media Center, Moustafa Nasr, told South24 Center that the Yemeni Banks Association had sent a message to Aden’s CBY, explaining the difficulties of implementing the decision to move their operation centers to Aden within the allocated timeframe.

He added that there are “practical and technical obstacles preventing banks from moving to Aden within this short period”.

Economic academic at the University of Aden, Dr. Samy Mohammed, told South24 Center about unidentified mediators used by the banks in Sanaa to intervene in the Aden CBY’s decision, in an attempt to delay it or extend the deadline. However, South24 Center has not been able to verify the authenticity of this information from an independent source.

On May 13, during his briefing to the UNSC, the UN Special Envoy to Yemen, Hans Grundberg, said that his office’s economic team has been “engaged extensively” with the latest developments in Yemen’s banking sector.

Sanctions against violators

Economic expert Ahmed Bahakim pointed out that the CBY of Aden has a package of sanctions tools that can be applied against non-compliant banks. They include “the freezing of assets, suspension of licenses, restriction of access to financial services, and blocking of international transactions”.

He also told South24 Center: “The CBY of Aden can start legal procedures against non-compliant banks, request court orders to enforce the moving of headquarters, and impose further sanctions for non-compliance”.

Dr Samy Mohammed, speaking on the potential measures, said: “The most important of these tools is the SWIFT system for international money transfers. The CBY of Aden can block Sanaa banks from this system. This would paralyze their international operations, including receiving grants and aid from international organizations, which amount to an average of $1.6 billion annually”.

He added: “This would cost these banks huge losses, especially with the Houthi government’s decision in Sanaa to suspend what it called ‘usurious transactions’, a move which has eroded the trust of depositors in areas controlled by the group”. 

He explained: “The banks in Sanaa will face the threat of closure if they don’t implement the Aden CBY’s decision to move their main headquarters to Aden before the deadline’s expiration. Meanwhile, the banks fear retaliatory measures by the Houthis if they do comply”.

However, expert Moustafa Nasr warned against the Aden CBY blocking non-compliant banks from the SWIFT system or revoking their licenses. He believes that such a move would have dangerous ramifications for Yemen’s entire banking sector.

He added: “Such a move, though necessary in some cases, should be the last solution and be used very cautiously. The CBY of Aden has several other tools for regulating the work of banks and monitoring their performance. They include imposing sanctions or taking other disciplinary measures”.

Nasr called for dialogue and negotiations between the CBY of Aden and relevant banks to reach conciliatory solutions to ensure the banking sector’s activities and service to the people can continue. He believes that the expected Houthi retaliatory measures against any banks complying with the Aden CBY’s decision should also be taken into consideration.

However, Rashid Al-Haddad downplayed the importance and impact of expected punitive measures by the Aden CBY.

He explained this by saying: “The circulating threats can’t be applied. These banks can use other illicit channels to continue their tasks and activities and cover themselves abroad, avoiding bodies which they previously reported to, such as The Financial Action Task Force (FATF), particularly since Yemen has historically been non-compliant with money-laundering regulations”.

A blow to the Houthis

Bahakim believes that the Houthis will suffer economically if the main banks move their headquarters from Sanaa to Aden. He said the repercussions against the Houthis include “the loss of financial control, impact on revenues that enable them to maintain their operations and influence, isolation from the global financial system, and challenges related to access to the main financial services”.

According to him, these obstacles may undermine the Houthi's ability to maintain their rule and military operations, which could weaken their grip on power in North Yemen. On March 30, the Houthis announced the issuance of a new 100-Yemeni riyal coin, claiming that it would solve the problem of damaged currency in their areas. 

The CBY of Aden warned against dealing with this coin, describing it as ‘fake’. Furthermore, the US, Britain, and the European Union condemned its issuance. 

The main headquarters of major banks aren’t the only ones that still operate in the Houthi-controlled Sanaa. The main offices of oil companies that operate in areas controlled by the internationally-recognized government are also still in Sanaa. Moreover, a good number of international and local organizations are still active in Sanaa despite Houthi restrictions and pressure.