May 19 Businesses in the Caribbean and Central America are scrambling to make contingency plans over fears that more large banks will cut off relationships with counterparts in developing countries as they pull out of markets seen as riskier, a senior World Bank official said.
Tougher anti-money laundering and fraud regulations have pushed global financial institutions to cut off ties with so-called correspondent banks in countries perceived to be riskier, with the Caribbean the hardest-hit region in the world.
A World Bank survey last year of 20 international banks showed that 15 of them had cut the number of correspondent banking relationships, which are used to carry out cross-border transactions like sending remittances.
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As a result, business leaders in countries such as Jamaica face uncertainty, with some unsure if they can depend on longstanding financial arrangements on a day-to-day basis, Jorge Familiar, the World Bank’s vice president for Latin America and the Caribbean, said in an interview on Wednesday.
“If some of these risks do materialize and a business loses its banking relationship from one day to the next, responding to that might have very significant costs related to pending transactions that cannot be settled,” he said.
The United States, which has very close economic ties to many Caribbean countries, has the most financial institutions that have terminated correspondent banking relationships, according to a report by the World Bank released late last year.
“In some countries, the problems have been quite significant to the extent that there are problems in terms of sending remittances to the countries; it has a very significant effect on the cost of doing business,” Familiar said.
Cutting off personal remittances could have severe consequences in a country like Jamaica, where they made up 16.3 pct of gross domestic product (GDP) in 2014.
In April, the National Bank of Panama (Banconal) said it would consider opening a correspondent bank in New York. Since Panama was put on the “gray list” of the Paris-based Financial Action Task Force (FATF), an international anti-money laundering body, in 2014, more than 20 correspondent accounts for Panamanian banks had been canceled. (Reporting by Rebekah Kebede; Editing by Christine Murray). Article courtesy http://www.reuters.com
