Seven Pacific Island countries will maintain uninterrupted access to the global financial system through a new World Bank project aimed at strengthening correspondent banking relationships in the region. The initiative, announced by World Bank Group President Ajay Banga during his first visit to the area, is designed to support Fiji, Kiribati, Republic of the Marshall Islands, Samoa, Tonga, Tuvalu, and Vanuatu. Additionally, it includes one regional organization, the Pacific Islands Forum.
Correspondent banking relationships (CBRs) are essential for providing financial services in foreign currencies across borders without establishing costly branches abroad. These relationships facilitate international trade, investment, remittances, disaster relief efforts, and humanitarian assistance.
Over the past decade, Pacific Island Countries (PICs) have experienced a significant decline in CBRs—down 60 percent compared to a global average of 30 percent. This reduction is attributed to supervisory enforcement of international standards that make correspondent banking a high-risk and low-profit business requiring substantial transaction volumes. Individual PICs often lack the economies of scale necessary to make these relationships profitable for international banks.
The newly approved project aims to provide an immediate but temporary solution while laying the groundwork for medium-term resolutions regarding CBR withdrawal. Initially, it will offer subsidies to contract providers offering correspondent banking services to eligible financial institutions in PICs at risk of losing their last CBR in key currencies. This measure ensures continuity of financial flows until more sustainable solutions are established.
Additionally, the project will coordinate with development partners to help participating PICs enhance compliance with international standards and strengthen regulatory frameworks. It also seeks to prepare a more sustainable solution involving regional aggregation of transactions to achieve scale and establish a clear market-driven business rationale.
A regional approach is central to addressing the long-standing issues surrounding CBRs. The Pacific Islands Forum will play a crucial role in regional policy coordination and implementation success by housing the unit responsible for executing this project.
"Safeguarding continuous access to international financial services is essential for the families and businesses of Pacific Island Countries," said Banga. "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.”
The Correspondent Banking Relationships Project’s $68 million credit and grant financing comes from the International Development Association (IDA), which supports some of the world's most in-need countries.
Since 2013, the World Bank has expanded its program in the Pacific significantly by increasing its commitments more than six-fold.