Middle-east Arab News Opinion | Asharq Al-awsat

Effects of the Declined CBR in the Arab Region | ASHARQ AL-AWSAT English Archive 2005 -2017
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Cairo – A joint international report concluded that Arab banks are heading towards a safer and more stable system.

Arab Monetary Fund (AMF), the International Monetary Fund (IMF) and the World Bank published a report on the findings of a survey on the withdrawal of Correspondent Banking Relationships (CBRs) in the Arab region.

The survey, done between February and June 2016, aimed to assess to what extent banks operating in the Arab region have seen terminations and/or constraints on the operation of their CBRs over the past four years (2012-2015), to identify the underlying causes, and to collect evidence on how this withdrawal has affected bank products and services and their client segments.

After the 2008 financial crisis, the global financial community was prompted to rethink its definition of risk management.

The decline in CBRs is due to overall risk appetite of foreign financial institution, concerns about money laundering/terrorism financing risks in the respondent financial institutions’ national jurisdiction, and lack of profitability of certain CBR services/products. Not to mention, the changes of legal, regulatory or supervisory requirements in foreign financial institutions’ jurisdiction that have implications on maintaining CBR.

The report notes that the decline in CBRs, experienced by banks in the Arab region significantly affects banks’ ability to service certain client segments and to provide certain products, as well as to conduct foreign-currency-denominated capital and current-account transactions.

The report also highlights the need to pursue further efforts to strengthen regulatory regimes, as well as to establish and maintain an open dialogue and regular discussions among regulators in the jurisdictions involved.

A total of 216 banks in the Arab region participated in the survey. Almost 39% of the sample indicated a significant decline in the scale of correspondent banking relationships, while 55% of the banks have not experienced any significant change, while 5 percent indicated a significant increase in their CBR.

The report also indicated that about 40% of the participant banks in the Arab region has the United States (USA) as the home jurisdiction of the largest share of banks that are withdrawing CBRs, followed by the United Kingdom (UK), Germany, Kingdom of Saudi Arabia (KSA), United Arab Emirates (UAE), France, Canada, Italy, Switzerland, and Australia.

In addition, 63% who had their CBRs terminated or restricted were able to find replacement CBRs. While 17% of them managed to establish alternative means for each terminated relationship to meet their needs, and 20% are still unable to find replacements.

The three entities in charge of the report ensured their readiness to continue supporting all efforts that aim to help reduce effects of the declined CBRs.

Though the report doesn’t provide a complete analysis of the economic impact of the declined CBRs in the Arab region, it helps enhance dialogue and support policy makers in reaching solutions.