Samoa Stays Connected to Global Financial System

Apia, Samoa- 09 September 2024 – Samoa is one of seven Pacific Island Countries that will maintain uninterrupted access to the global financial system through a new World Bank project to strengthen correspondent banking relationships in the region.

The project will benefit Fiji, Kiribati, Republic of the Marshall Islands, Samoa, Tonga, Tuvalu, and Vanuatu, and one regional organization, the Pacific Islands Forum.

The Correspondent Banking Relationships Project’s $68 million in credit and grant financing is funded through the International Development Association (IDA), the World Bank’s fund for the world’s most in-need countries.

World Bank Group President Ajay Banga announced the project during his first trip to the region. It promotes a regional approach and is designed as a platform allowing more Pacific countries to join and for bilateral and multilateral donors to participate.

Correspondent banking relationships allow financial institutions to provide services in foreign currencies across borders without opening costly branches abroad, making them crucial for international trade, investment, remittances, disaster relief, and humanitarian assistance.

Pacific Island Countries (PICs) have faced a significant decline in CBRs, dropping 60 percent over the last decade compared to a global average of 30 percent. Supervisory enforcement of international standards can make correspondent banking a high-risk, low-profit business requiring high transaction volumes.

However, individual PICs lack the economies of scale to offer sufficient business for the CBR relationship to be profitable and within the risk appetite of international banks.

The approved project offers a temporary but immediate solution and lays the ground for the medium-term resolution to correspondent banking relationship withdrawal.

First, it will entail a subsidy to contract a provider offering correspondent banking services to eligible financial institutions in PICs facing the loss of their last CBR in a key currency.

This ensures continuity of financial flows to and from PICs until a more sustainable solution is in place. Second, it will coordinate with development partners to help participating PICs enhance compliance with international standards, strengthen regulatory frameworks, and prepare a more sustainable solution that involves the regional aggregation of transactions to achieve scale and a clear market-driven business rationale.

Importantly, the project promotes a regional approach to solving the long-standing problem of CBRs. The Pacific Islands Forum will play a critical role in regional policy coordination and the project’s success, housing the unit responsible for its implementation.

“Safeguarding continuous access to international financial services is essential for the families and businesses of Pacific Island Countries,” Banga said.

“This project is ensuring that correspondent banking services continue while we work together on a market solution based on scale and a clear business rationale.”