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GROWTH PROSPECTS in developing countries like Barbados are hampered by increasing restrictions being imposed on foreign banks which limit the flow of muchneeded financing to firms and households. 4-Cylinder, 16 Valve, 1400 cc Multipoint Injected Gasoline
This according to the World Bank’s Global Financial Development Report 2017/2018: Bankers Without Borders, released this past week.
“International banking can have important benefits for development,” the World Bank said, “but is no panacea and carries risks. Developing economy policymakers would do well to consider how to maximise the benefits of crossborder banking while minimising its costs.”
The 2007-2009 crisis and economic downturn prompted an extensive reevaluation of the benefits and costs of international banking and led to restrictions that brought a decade-long surge in financial services globalisation and cross-border lending to a halt.
Former Governor of the Barbados Central Bank, Dr Delisle Worrell, attended a meeting of the Financial Stability Board in London which looked at the difficulties some resident individuals and companies encountered in their banking relationships, and in setting up bank accounts for new clients.
“We were told that preliminary findings (of a World Bank study) were that corresponding banking relationships had declined because the increasing costs of compliance with anti-money laundering and other stipulations make certain kinds of activity unprofitable for banks,” Worrell reported.
“Most seriously affected are the Caribbean, Sub-saharan Africa, small banks and money transfer companies.”
However, the World Bank said developing countries might need to reconsider the value of international banks as critical gateways to global credit and faster economic growth, even as they continued to manage risks.
“As aspirations continue to rise all over the world, and the banking sector evolves, there is a critical question: will finance be a friend or foe in the fight to end poverty?” asked World Bank Group president Jim Yong Kim.
“International banking does create risks of exporting instability, especially for countries with poor regulations and institutions, and those risks need to be mitigated. But without a competitive banking sector, the poor will not be able to access basic financial services, many businesses will be locked out of markets, and growth in developing countries will stall.”
The report said bank finance was essential for a vibrant private sector, particularly for nurturing small and medium-sized businesses. Developing countries coud maximise benefits from a stronger banking system while shielding against risks through improving information sharing through credit registries, vigorously enforcing property and contract rights, and guaranteeing strong supervision of banks.
As advanced economy banks retrenched after the crisis, developing country banks stepped into the void and expanded across borders, accounting for 60 per cent of new bank entries since the downturn. The result has been an increase in banking relationships between developing countries and regionalisation of international banking operations.
At the same time, the report noted, total asset size of the world’s largest banks increased by 40 per cent, raising concerns that regulatory efforts since the crisis had failed to address the risk of banks that were too big to fail.
“In the face of greater uncertainty about the benefits of openness, many countries have viewed the recent expansion of the world’s largest international banks with alarm and have restricted foreign banking. Nearly 30 per cent of developing countries have put in place restrictions on foreign bank branches. These curbs are depriving many economies of opportunities to access global credit that could benefit businesses and households.
“Openness to international banking is no guarantee of financial development or stability,” said World Bank research director Asli Demirguc-kunt. “But a wealth of research shows how the right policies and institutions can ensure that openness leads to greater competitiveness, smoothing of local economic shocks, and increased access to the scarce capital needed to spur growth.” (AB)