Around 20 percent of Yemen’s total foreign currency deposits were held in Lebanon’s banks as of October 2019, new analysis finds.
Yemen is currently embroiled in ongoing civil war while Lebanon’s banking sector is currently facing an unprecedented crisis. In November 2019, banks blocked foreign transfers abroad in a bid to keep rapidly diminishing dollar reserves in the country.
New research from the Sana’a Center for Strategic Studies found that “Yemeni banks had the equivalent of $240 million in foreign currency deposited in Lebanon.”
For months, those with money in Lebanon’s banks have struggled to access their funds either domestically or abroad.
Lebanon’s banks, which operate using US dollar accounts, make the country an attractive spot for foreign deposits from around the region, including the Gulf, and Yemen.
For Yemen’s banks, the dollar accounts meant that traders and businessmen, who operate using dollars, didn’t have to pay additional conversion rates, the paper read.
The new paper outlines why Lebanon emerged as an attractive spot for Yemen’s deposits.
“During the ongoing conflict in Yemen, Lebanon emerged as a vital clearing house to finance imports into the war-torn country. However, as Lebanon experiences its own slow-motion financial collapse today, the Yemeni economy, already in dire straits, is being placed under further strain,” the paper, titled Lebanon’s financial collapse traps Yemeni banks’ money, read.
Before Dubai, Lebanon was the region’s banking hub, and it managed to maintain this role despite the country’s 15-year civil war, the paper’s authors wrote.
In Yemen, the Financial Action Task Force (FATF) that combats money laundering and terrorism financing raised Yemen’s risk designation to high in 2015.
This move, according to the authors, led several Western European and Canadian banks to close correspondent accounts for Yemeni banks, but Lebanese banks, including Bank of Beirut, “remained willing to serve as a middleman, financing international trade to Yemen – in exchange, of course, for a sizable commission.”
Today, Lebanon’s bloated banking system is under severe stress. The country is set to begin talks with the International Monetary Fund on Wednesday as it begins to look for avenues to climb out from an acute economic crisis. Some experts have ventured that restructuring the country’s banking sector will be a condition the IMF stipulates to receive monetary assistance.