The Impact of Correspondent Banking Relationships on Caribbean Economies

The Challenge of Remittance Costs

While the cost of remitting money to the Caribbean has not increased overall, anecdotal evidence suggests that some banks have tightened their scrutiny for deposits associated with citizenship programs in certain jurisdictions.

• No increase in remittance costs: Despite global trends, the Caribbean region has seen a stable remittance environment.
• Increased bank scrutiny: Some banks are now more cautious when handling transactions linked to citizenship programs, potentially affecting specific customers or businesses.

The Consequences of Terminated Correspondent Banking Relationships

Several respondent banks have terminated relationships with clients from sectors deemed riskier, such as online gaming establishments and credit unions. This has led to a consolidation of credit unions’ deposits in indigenous banks, and foreign-owned banks in St. Vincent and the Grenadines have discontinued deposit services to local credit unions.

• Termination of CBRs: Banks are reassessing their relationships with high-risk clients, potentially disrupting certain businesses or sectors.
• Consolidation of deposits: Credit unions are shifting their funds to indigenous banks, which may lead to changes in the financial landscape.

The Rise of Replacement Correspondent Banking Relationships

Caribbean banks have replaced lost CBRs with smaller, less known banks (second-tier banks). Some banks in Belize have established relationships with European and Asian banks or smaller US banks.

• Replacement CBRs: Banks are adapting by forming new partnerships with second-tier banks to maintain their operations.
• Diversification of banking relationships: The shift towards newer partners may bring fresh opportunities and perspectives to the region’s financial sector.

The Impact on Offshore Financial Sectors

The withdrawal of CBRs has had a more serious impact on the offshore financial sector. Regulations require an offshore bank to have an active CBR before a license is granted or renewed. Declines in CBRs have put the future growth of the offshore sector at risk.

• Challenges for offshore banks: The loss of CBRs threatens the viability of offshore banking operations and may limit the region’s financial development.
• Regulatory hurdles: Offshore banks must navigate complex regulations to maintain their licenses, which can be challenging in a rapidly changing environment.