Financial Crime World

Loan Accounts in Palau Show Modest Growth, Despite Challenges

SYDNEY, Australia - The Asian Development Bank’s Pacific Department has recently released a report on loan accounts with commercial banks in Palau. According to the report, the number of loan accounts has shown modest growth over the past few years.

Loan Account Growth

The report aggregates data from various sources including the International Monetary Fund and the Palau Financial Institutions Commission, showing that the number of loan accounts increased from 4,976 in 2015 to 6,354 in 2018. This represents an average annual growth rate of around 3%.

Challenges Facing the Financial Sector

Despite this growth, the report highlights several challenges facing the financial sector in Palau.

Underutilization of Secured Transactions Framework

One major issue is the underutilization of the country’s secured transactions framework, which was introduced in 2012 to improve lending capacity. The framework allows lenders to take movable property as security for loans, but registration has been limited, with only around 663 security interests registered by the end of 2015.

  • Factors contributing to this issue include Palau’s usury laws, which limit the interest rates that banks can charge, and foreign-owned banks’ credit decisions being determined by head office regulations.

Limited Funding for National Development Bank of Palau

Another challenge facing the financial sector in Palau is the lack of funding for the National Development Bank of Palau (NDBP). NDBP has been unable to take deposits and has relied primarily on loan repayments, limiting its capacity to make new loans. This is despite legislation passed in 2014 allowing it to take savings accounts deposits and issue bonds.

  • The report suggests that another way to increase NDBP funding is for commercial banks to lend to the development bank, which would reduce financial disintermediation and allow NDBP to increase or reduce its borrowing against its portfolio depending on demand for loans.

Conclusion

While there are challenges facing the financial sector in Palau, the report highlights the importance of improving lending capacity and increasing funding for the National Development Bank of Palau. This will help support economic growth and development in the country.

The full report can be accessed at [ADB website].