| 27 September 2019

New PSDI report benchmarks the performance of state-owned banks in the Pacific

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Commercially oriented state-owned banks can help provide much-needed financing for businesses in the Pacific, but only if they adhere to commercial principles and regulations, according to PSDI’s latest Finding Balance report.

'Finding Balance 2019: Benchmarking the Performance of State-owned Banks in the Pacific' profiles the roles, performance, market context, and regulatory frameworks of 13 state-owned banks in 10 Pacific countries. It examines when and how state-owned banks can deliver domestic financial services on commercial terms, without distorting local markets.

“State-owned banks are an important feature of Pacific economies,” said ADB Director General for the Pacific Ms. Carmela Locsin. “But they must demonstrate additionality by providing financial services that would not otherwise be provided, on commercial terms, or by helping to make their respective banking systems more competitive. The analysis, insights, and recommendations in this report will help these institutions ensure their sustainability and add value to their finance sectors.”

The report, produced by the Pacific Private Sector Development Initiative (PSDI), which is a program under ADB in partnership with the governments of Australia and New Zealand, notes that there is a financing gap in the Pacific that hinders businesses’ growth. Private banks in the subregion, according to the report, are not meeting the demand for much-needed financing. This unmet demand, which particularly affects small and medium sized-enterprises and important sectors such as agriculture and fisheries, could be successfully addressed by state-owned financial institutions—but only if they can strengthen their balance sheets and adhere to commercial principles. This is critical as state-owned banks are essentially financing risks that other banks have chosen to avoid.

“To be a successful bank, you have to be profitable,” said PSDI State-Owned Enterprise Reform Team Leader and one of the authors of the report Ms. Laure Darcy. “This report shows that there is no inherent incompatibility between what is often described as a development mandate and achieving commercial targets.”

Finding Balance 2019 is the 6th comparative study of state-owned enterprise performance in the Pacific undertaken by PSDI, and the first to focus exclusively on state-owned banks.

Download the publication here