Re­stric­tions on banks hurt­ing prospects Blends with en­hanced ef­fi­ciency.

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

Daily Nation (Barbados) - - Business -

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.

Growth stall

“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)

FOR­MER GOV­ER­NOR DR DELISLE WOR­RELL. (FP)

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