Liquidity Crisis and Its Impact on the Yemeni Banking Sector: An Empirical Study on a Sample of Yemeni Banks

Abstract

     This study aimed to analyze the liquidity crisis and its effects on the Yemeni banking sector, and to know the impact of this crisis on the liquidity coverage ratio and employment in banks, and the role of incorrect monetary and financial policies that contributed to reaching this crisis. The study uses the descriptive and analytical methods, and relies on scientific studies, periodicals and official reports to clarify the reasons for the exacerbation of the liquidity crisis and its effects on the Yemeni banking sector. Accordingly, the study was divided, in addition to the introduction, results and recommendations, into two axes: The first axis discusses the liquidity crisis, its concept and components. The second axis studies the impact of the liquidity crisis on the banking sector by analyzing the financial statements of a sample of banks operating in Yemen and knowing the extent of the impact of freezing banks' balances by the Central Bank on their liquidity coverage and employment ratios. The study concluded that the repercussions of freezing bank balances had a significant impact on their liquidity ratios and that there was a deviation in achieving liquidity ratios according to Basel III standards. The results show a decline in employment rates due to the liquidity crisis. The study recommends the need to end the monetary division and release the bank balances that are being held so that they can meet their obligations to depositors urgently before this crisis multiplies on the banking sector and harms banks and the financial and banking sector in general. The study proposes a set of solutions that can be applied in the long term in order to eliminate some of the imbalances and distortions in the banking sector and restore balance to the economic sector.