Finding Balance 2019: Benchmarking the Performance of State-Owned Banks in the Pacific

By Asian Development Bank

This report profiles the roles, performance, market context, and regulatory frameworks of 13 state-owned banks in 10 Pacific countries. A key finding is the considerable business financing gap in the region, particularly for small-medium enterprises and sectors such as agriculture and fisheries. The report suggests that state-owned banks could address this demand, but would need to do so on commercial terms and without distorting local markets. These institutions would need to strengthen their balance sheets and risk assessment practices and operate under the same market disciplines as private banks. Finding Balance 2019 is the sixth comparative study of state-owned enterprises in the Pacific and the first to focus on the banking sector.

• Language: English
• Publisher: Asian Development Bank
• Release date: Aug 1, 2019
• ISBN: 9789292617059

Book preview

FINDING BALANCE 2019

BENCHMARKING THE PERFORMANCE OF STATE-OWNED BANKS IN THE PACIFIC

AUGUST 2019

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2019 Asian Development Bank

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Some rights reserved. Published in 2019.

ISBN 978-92-9261-704-2 (print), 978-92-9261-705-9 (electronic)

Publication Stock No. TCS190360-2

DOI: http://dx.doi.org/10.22617/TCS190360-2

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Cover design by Cleone Baradas.

CONTENTS

TABLES, FIGURES, AND BOXES

FOREWORD

Pacific island countries have long recognized the importance of private sector development to achieving their goals for sustainable and inclusive economic growth. To this end, many of the policy and legal reforms they have undertaken in recent years have sought to strengthen the enabling environment for small business by removing barriers to formalization and improving access to finance.

State-owned banks, which are present in almost every Pacific island country, can play an important role in channeling finance to the private sector—and in some countries, they already do. As is the case with state-owned enterprises (SOEs) more broadly, the effectiveness and sustainability of state-owned banks depend on their ability to operate commercially and provide services on a non-distortionary basis. In this regard, Pacific state-owned banks are no different to the more than 250 state-owned banks around the world; their core challenge is to demonstrate additionality—that is, to provide financial services that would not otherwise be provided and do so profitably, or through their presence make their respective banking systems more competitive.

Despite their shared purpose, this study illustrates the heterogeneity of state-owned banks in the Pacific as well as globally. At the same time, it identifies the key feature of the most successful state-owned banks: a strict adherence to commercial principles. These banks demonstrate that a development mandate is not only compatible with commercial results, but that the sustainability afforded by operating commercially deepens development outcomes.

This is the sixth comparative study of SOE performance in the Pacific undertaken by the Asian Development Bank’s (ADB) Pacific Private Sector Development Initiative (PSDI), and the first to focus exclusively on state-owned banks. It reflects ADB’s commitment to increasing cooperation and sharing knowledge and best practices among its member countries, and advances the thought leadership on finance and SOE reforms that PSDI has provided over its 12 years of operation.

The number of countries participating in the Finding Balance studies has grown with each edition, with this edition assessing 13 state-owned banks in 10 countries. The participating countries (Cook Islands, Fiji, the Federated States of Micronesia, the Marshall Islands, Palau, Papua New Guinea, Samoa, Tonga, Tuvalu, and Vanuatu) were selected for their comparability and willingness to share the challenges faced by their state-owned banks.

I thank the participating state-owned bank management