Iran-backed Houthis pushing the Yemen's banking sector into the brink of bankruptcy

The Iran-backed Houthis passed a draft law that gives them the right to seize and control all bank deposits in commercial and Islamic banks, and to eliminate what is left of the margins of the collapsing national economy.

The Houthis ignored the objections of the private sector and the Association of Banks in Sana'a, after they vehemently refused to pass this law that violates the right of the banking sector, which prohibits all types of interest on deposits, loans, letters of credit and bank guarantees.

This step would push banks to the brink of bankruptcy, by withdrawing customers of their deposits from banks, and perpetuating the process of economic and banking separation, since banks will continue to work on them in areas run by the government, which will lead to a complete division of the banking and financial sector in the country.

In an attempt to contain the banks' rejection of this step and discourage banks from stopping their opposition to this law, Mahdi Al-Mashat met with the head of the so-called Supreme Political Council of the Houthis, with the Association of Banks.

Economists said that this meeting comes in order to complete passing the law and implement the Houthi efforts aimed at undermining the banking sector, by finding legal justifications that legitimize the process of seizing depositors' money, and relinquishing their legal responsibility towards people's rights.

Private sources who spoke to Al-Masdar Online outlet, believe that the Houthis are seeking, behind the issuance of this law, to prevent banks from investing again in the Central Bank of Yemen in Aden.

The sources said that there is a tendency for the central bank in Aden to reactivate monetary policy tools, open investment in public debt instruments, underwriting and treasury bills with the aim of controlling the money supply.

The sources pointed out that the step would prompt commercial and Islamic banks to respond to the central bank and initiate subscription and investment in bonds especially since the central bank adopted a high interest rate, ranging from 18 to 20 percent of the subscription value.

The Yemeni Banks Association said in a previous note that it is more appropriate for the Houthi group to touch the reality of the banking system in all its aspects, and to assess the negative effects and losses incurred by banks and the banking sector during the past years.

The association added that the Houthi decision will further complicate the situation and multiply the challenges and losses in the banking sector and the Yemeni economy in general.

What increases the burdens on the national economy and the banking sector is that the Yemeni economy relies on foreign trade to meet its food needs and production requirements, in addition to foreign exchange through remittances of expatriates and those commercial operations that take place through documentary credits, in which local banks cover their accounts abroad to finance imports.

Most banks are going through a difficult situation and suffer from severe imbalances, and the application of the interest prevention law by the Houthis would push these banks to the brink of bankruptcy or to leave the country.

"The Houthis have made a number of disastrous amendments to the legal system, which reinforces the division and establishes a separatist racist regime in some regions of northern Yemen, and will negatively affect the lives of citizens". Economic expert Abdul Hamid Al-Masjadi told Al-Masdar Online.

"Among these amendments, the militias approved a circular called the "Law to Prevent Usurious Transactions", which contradicts the Yemeni constitution, and with 14 effective laws issued during the past decades". Al-Masjadi said.

For his part, economic expert  Abdul Wahed Al-'Awbali said that the implementation of the new Houthi law to cancel interest in Yemen may lead to a complete separation between the banking and financial sectors, which leads to difficulties in conducting smooth banking and commercial transactions and a decline in confidence in the banking system.