The Pacific Islands Forum Secretariat (PIFS) and the World Bank co-organised the first High-level gathering on 27-28 March in Sydney to address the decline of Correspondent Banking Relations (CBR) in the region. This meeting marks the initial step in implementing the CBR Action Plan, endorsed by Forum Economic Ministers in August 2023.
The Pacific region faces unique challenges in trade. However, the significant shift to digital trade and e-commerce opens up economic opportunities by potentially reducing distance from major markets, trade barriers, and infrastructure costs. While the digital economy allows to overcome some challenges, it relies on banking services such as Correspondent Banking Relations (CBRs) to facilitate cross-border financial payments. The global withdrawal of CBRs is therefore problematic, and seems to be more acute in the Pacific region.
During the gathering, Mr Tatafu Moeaki, Governor of the National Reserve Bank of Tonga, highlighted in his statement that “CBRs are declining globally, but the decline in PICs is higher, or to be clearer, the lowest access globally.” A 2021 IMF report states that the number of CBRs in the Pacific has fallen by nearly 50% since 2011, with US dollar CBRs falling by more than 60%, almost twice as severe as the global average. This has led to a concentration of remaining CBRs in just a few banks, putting some PICs at risk of a complete loss of CBRs.
According to a report by the World Bank; Fiji, Palau, and the Cook Islands reported no problems with CBRs. Tuvalu, Marshall Islands, and Kiribati have few CBRs left and are vulnerable. Nauru recently lost its only banking service, which will leave it without CBRs by December 2024 unless it can find a new provider. The only international bank in the Marshall Islands has stated its intention to leave. The diagnostic report provided eight recommendations to prevent further CBR withdrawals, which the PIF Economic Ministers Meeting endorsed in August 2023.
The departure of CBRs in the Pacific region is not limited to the perceived risks of Anti-money laundering and counter-terrorist financing compliance and conformity to international standards. Other factors playing a significant role are limited profitability and low transaction volumes in PICs.
In 2021, Forum Trade Ministers also recognized this concern through the Pacific Regional E-commerce Strategy and Roadmap. They suggested measures including adopting non-banking digital payment solutions, moving away from traditional banking, and implementing harmonized regulatory sandboxes or similar mechanisms for fintech development, using AFI guidelines for regulatory sandboxes for fintech as noted in Measures 5.1.4 and 5.1.2 respectively. These measures closely align with the recommendations of the CBR Action Plan.
The High-level event held in Sydney, brought together Pacific Ministers, Central Bank Governors, Senior Finance Officials and Regulators, Policymakers, Private Sector and development partners to discuss and identify possible long-term solutions. PIFS Secretary General, Mr Henry Puna was pleased with the attendance stating, ‘It demonstrates and reaffirms that we need a concerted, multi-faceted and a coordinated approach to address this issue.’
A key outcome of the high-level event is the formulation of a proposed World Bank-PIFS project to mitigate the decline of correspondent banking in the region. The proposed project will undergo additional refinement through a subsequent meeting in June 2024 in Brisbane before being presented at the Forum Economic Ministers meeting scheduled for July 2024.
For more:
Remarks of Pacific Islands Forum Secretary General, Henry Puna see here
Remarks Governor of the National Reserve Bank of Tonga, Mr. Tatafu Moeaki see here
