The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian financial institutions are facing “heightened due diligence” from their correspondent banks, with some revealing this has negatively impacted their operations in areas such as remittance services.

Abhilash Bhachech, the Central Bank’s inspector of banks and trust companies, revealed in his latest quarterly letter to the industry that Bahamian institutions were already feeling the effects of ‘de-risking’ by their global counterparts.

While the effect was not systemic, Mr Bhachech said the Central Bank had seen where relationships held by Bahamas-based financial institutions were either subject to greater scrutiny or reduced.

Referring to the Central Bank’s correspondent banking survey conducted in June 2015, Mr Bhachech said: In sum, the results indicated ‘de-risking’ of global correspondent banks has mainly impacted local commercial banks and standalone international banks.

“While the impact does not appear to be systemic, the bank has observed several instances of scrutiny and/or downsizing of correspondent relationships initiated both locally and internationally.

‘For example, while four banks reported having a correspondent banking relationship terminated, all were able to find replacements. However, the level of difficulty or ease with which they were able to replace their correspondent bank was due in part to the nature of their operations, as well as the foreign correspondent bank’s onboarding requirements.”

Correspondent banks are those that allow Bahamian financial institutions to provide services in their home countries, using their physical and electronic banking.

They give Bahamian banks, and their clients, access to the international capital markets and financial system, enabling transactions to clear and be settled on a timely basis.

Foreign correspondent banks thus provide a vital gateway to the world. This access, though, has tightened in recent months as international banks respond to increased global regulatory pressures to either drop, place tighter controls on or drop altogether their correspondent banking relationships.

“The results also revealed that banks are now subject to heightened due diligence by correspondent banks,” Mr Bhachech told the industry.

“A small number of banks confirmed that de-risking has had an adverse impact on their operations, and an even smaller number has advised that this has had an impact on their remittance services.”

He added: “In the event of a withdrawal of a correspondent bank, 15 banks (or 30 per cent) indicated that they had a contingency plan in place for its replacement.

“Thirty-five banks indicated they had no contingency plan in place.”

The Central Bank received 53 responses from the 97 public banks and trust companies that it sent the correspondent banking survey to.