YEMEN BANKS DURING TURMOIL: AN ANALYTICAL STUDY

Abstract

The financial crisis is a phenomenon that affects the stability of the country. In addition, the long-term functionality of a nation and its bank is also impacted by the financial crisis. This study investigates the effects of turmoil on the performance of Yemen banks by using liquidity ratios, current and cash ratios, and the Return on Equity (ROE) framework to analyze profitability. The analysis performed on a sample of six Yemeni banks, over the period from 2011 to 2016. The banks were National Bank of Yemen, Cooperative and Agricultural Credit Bank (CAC), Yemen Bank for Reconstruction and Development, Shamil Bank of Yemen and Bahrain, Yemen Kuwait Bank for Trade and Investment, and Saba Islamic Bank. There are three main findings of this study. First, turmoil has negatively affected banks’ liquidity, the effect varied according to the system followed by the bank, where it affected commercial banks more than Islamic banks. Second, results reveal that banks’ profitability has decreased during turmoil because of increase in expenses associated with decrease in banks’ ability to generate income. Finally, the third result discloses that the heaviest effect of turmoil on Yemen banks is due to inflation