Palau, officially the Republic of Palau (Palauan: Beluu er a Belau), is an island country with a population of 17,948 on 465 km2, located in the western Pacific Ocean. It contains approximately 250 islands, which form the western chain of the Caroline Islands in Micronesia. The most populous of these is Koror. The capital Ngerulmud is located on the nearby island of Babeldaob, in Melekeok State. Palau shares maritime boundaries with Indonesia, the Philippines, and the Federated States of Micronesia.
Banks in Palau have experienced a dramatic increase in deposits in the last two years. Assets in Palau grew 28% in 2015, according to the 2015 Annual Banking Industry Report, released on March 11 by the Financial Institutions Commission of Palau. This expansion in customer deposits has been attributed to tourism growth and follows a 24% asset growth in 2014. Deposits held totaled approximately $240 million.
“The financial sector is stable and experiencing healthy growth,” G. Semdiu Decherong, executive commissioner of the commission, told the Journal. The observed proliferation of investments in tourism-related ventures, such as hotels, restaurants and gift shops, together with correlating construction activity has also contributed to economic growth, he said.
Five banks and one development bank serve the banking needs of Palau, three of which are insured by the Federal Deposit Insurance Corp. — Bank of Guam, Bank of Hawaii and Bank Pacific. The two locally chartered banks — Asia Pacific Commercial Bank and Palau Construction Bank — grew 8% in 2015 due to net profits and direct capital injection, according to the industry report.
“It’s exciting times for Palau,” said Phillip J. Flores, president and board chairman of Bank Pacific. Although there is a decrease in loans, cash flow is abundant as many foreign businesses bring cash into Palau. It is more difficult for foreign businesses to make deposits or take out loans with the local FDIC banks, as it poses considerably higher risks for the banks. “We can’t take deposits and make loans to people we don’t know. We have to know our customers,” Flores said.
Total loan volume declined by $815 million, or 2.5%, in 2015. Business loans decreased by $460 million, or 15%, but consumer loans increased by $1.6 million, or 5.9%, according to the report. The ratio of non-performing loans to total loans declined from 3.19% at the prior year to 2.1%. Total NPLs fell 36%, or $366 million during 2015.
The decline in business loans is a positive sign, Decherong said, as the aggregate decrease in commercial lending is mostly due to large commercial customers having excess liquidity to pay off existing loan facilities and having little or no need for taking out large commercial loans.
Credit access for small businesses remains constrained, but financial education resources are available and have demonstrated willingness to expand business financing for qualified borrowers, he said. The increase in individual loans can be attributed to such likely factors as the minimum wage increase as well as banks offering more lending with loan specials and other products. Having outgrown its current space, the Bank of Guam is undergoing an expansion of its Palau branch, Matthew Cruz, vice president and Palau branch manager, told the Journal. The expansion will be from 2,400 square feet to more than 5,000 square feet, which includes double the number of teller windows. The number of loan and new accounts personnel will also increase.
“My personal feeling is that we will see continued growth in Palau’s economy, barring any natural disasters or any major downturns in China’s economy,” Cruz said. The economy has outperformed estimates by the Asian Development Bank for the past three years. In fiscal 2014, the ADB estimated a growth rate of 6.9%, which was later expanded to an 8% growth for fiscal 2014. For fiscal 2015, the ADB estimated growth was initially 8%, later adjusted to 10%. ADB estimates for fiscal 2016 were lower, however, and have been adjusted to 9%.
“We may see additional local players in the market, with the urgency of our congress to have our National Development Bank take deposits, as well as some initiatives to further strengthen our existing credit union legislation,” Decherong said.
A few entities expressed interest in establishing banking institutions in 2015; however, the Financial Institutions Commission did not receive any complete application packets for new banking licenses. Expansion in the banking sector and better oversight would lead to increased banking and financial services outside of the main town of Koror, Decherong said. He added that it is likely that Palau would continue to see a lot of interest from mainland Chinese and other investors seeking to open banks in Palau and that it is possible to see some consolidation in the domestic arena.
In addition to the legislation for National Development Bank to take deposits, there may be more initiatives taken to allow for a domestic payment clearing system. Decherong said he anticipates the U.S. chartered bank branches will begin to use other channels to lend to counter land tenure issues. The Financial Institutions Committee is working on regulations that will govern the licensing of alternative money remitters, such as Western Union, he said, in addition to banks, credit unions with assets over $500,000 and the National Development Bank of Palau. This and the impending credit union legislation will expand the regulated financial sector and the number of institutions under the supervisory purview of the Financial Institutions Committee.
|Agriculture||coconuts, copra, cassava (tapioca), sweet potatoes|
|Services (Including financial)||81.8% (2003 estimate)|
|Glaxy trading company||Consumer goods|
|Xuntian Electronics Co.LTD||Electronics|
|Singcent technology limited||Technology|
|Belau Art Gallery||Industrial|
The main economic challenge confronting Palau is to ensure the long-term viability of its economy by reducing its reliance on foreign assistance. Palau has created a trust fund to be drawn upon after the cessation of Compact grants, the value of which had grown to $140 million by the beginning of 2009. Also, in the late 1990s, Palau was affected by the 1997 Asian Financial Crisis, and their economy suffered.
The country was originally settled approximately 3,000 years ago by migrants from the Philippines and sustained a Negrito population until around 900 years ago. The islands were first explored by Europeans in the 16th century, and were made part of the Spanish East Indies in 1574. Following Spain's defeat in the Spanish–American War in 1898, the islands were sold to Imperial Germany in 1899 under the terms of the German–Spanish Treaty, where they were administered as part of German New Guinea. The Imperial Japanese Navy conquered Palau during World War I, and the islands were later made a part of the Japanese-ruled South Pacific Mandate by the League of Nations. During World War II, skirmishes, including the major Battle of Peleliu, were fought between American and Japanese troops as part of the Mariana and Palau Islands campaign. Along with other Pacific Islands, Palau was made a part of the United States-governed Trust Territory of the Pacific Islands in 1947. Having voted against joining the Federated States of Micronesia in 1979, the islands gained full sovereignty in 1994 under a Compact of Free Association with the United States.
Politically, Palau is a presidential republic in free association with the United States, which provides defense, funding, and access to social services. Legislative power is concentrated in the bicameral Palau National Congress. Palau's economy is based mainly on tourism, subsistence agriculture, and fishing, with a significant portion of the gross national product (GNP) derived from foreign aid. The country uses the United States dollar as its currency. The islands' culture mixes Japanese, Micronesian and Melanesian elements. The majority of citizens are of mixed Micronesian, Melanesian, and Austronesi and escent, with significant groups, descended from Japanese and Filipino settlers. The country's two official languages are Palauan (member of the wider Sunda–Sulawesi language group) and English, with Japanese, Sonsorolese, and Tobian recognized as regional languages. Palau is a multi-party democratic republic. The President of Palau is both head of state and head of government. Executive power is exercised by the government, while legislative power is vested in both the government and the Palau National Congress. The judiciary is independent of the executive and the legislature. Palau adopted a constitution in 1981.The governments of the United States and Palau concluded a Compact of Free Association in 1986, similar to compacts that the United States had entered into with the Federated States of Micronesia and the Republic of the Marshall Islands. The compact entered into force on 1 October 1994, concluding Palau's transition from trusteeship to independence as the last portion of the Trust Territory of the Pacific Islands to secure its independence pursuant to Security Council Resolution 956. The Compact of Free Association between the United States and Palau sets forth the free and voluntary association of their governments. It primarily focuses on the issues of government, economic, security and defense relations. Palau has no independent military, relying on the United States for its defense. Under the compact, the American military was granted access to the islands for 50 years. The U.S. Navy role is minimal, limited to a handful of Navy Seabees (construction engineers). The U.S. Coast Guard patrols in national waters.Palau's economy consists primarily of tourism, subsistence agriculture, and fishing. Tourist activity focuses on scuba diving and snorkeling in the islands' rich marine environment, including its barrier reefs' walls and World War II wrecks. The government is the largest employer, relying heavily on U.S. financial assistance. Business and tourist arrivals numbered some 50,000 in financial year 2000/2001.The population enjoys a per capita income twice that of Micronesia as a whole. Long-term prospects for the key tourist sector have been greatly bolstered by the expansion of air travel in the Pacific, the rising prosperity of leading East Asian countries and the willingness of foreigners to finance infrastructure development.Air service has at times been spotty. Palau Micronesia Air, Asian Spirit, and Pacific Flier provided service to the Philippines and other destinations at various times during the 2000s, but all suspended service. United Airlines now provides near-daily service to and from Guam and once-weekly service to Yap. Also, Delta Air Lines provides service three times per week to Tokyo.In November 2006, Palau Saving Bank officially announced bankruptcy. On 13 December of the same year, the Palau Horizon reported that 641 depositors had been affected. Among them, 398 held less than $5,000 USD, with the remainder ranging from $5,000 to $2 million USD. On 12 December 79 affected people received compensation. Mr. Toribiong said, "The fund for the payout came from the balance of Palau government's loan from Taiwan." From a total of $1 million USD, which originally was for assisting Palau's development, $955,000 USD was left at the time of bankruptcy. Toribiong requested the Taiwanese government use the balance to repay its loans. Taiwan agreed to the request. The compensation would include those who held less than $4,000 USD in an account. The income tax has three brackets with progressive rates of 9.3%, 15%, and 19.6% respectively. Corporate tax is 4%, and general sales tax is 0.0%. There are no property taxes.
Palau use the U.S. dollar as their currency. This has the advantages of not having the expense of running a central bank, the currency is completely convertible, and price stability is reasonably well ensured as the Palau do not have the ability to print currency. The rate of inflation has been in single digits at 3.4 percent. The only drawback for "dollarized" economies is that they do not earn the seigniorage (profit from the minting of coins) they would gain if they issued their own currency. The increasing number of countries that have been attracted to using the U.S. dollar in place of a domestic currency has caused the United States to consider sharing some of the seigniorage it earns as currency issuer.
|National Song||"Belau rekid"|
|Currency||United States dollar (USD)|
|GDP / GDP Rank||300 Million USD|
|GDP Growth Rate||1 Percent|
|GDP Per Captial||$16472 (PPP)|
< 1.0% Muslims
< 1.0% Hindus
< 1.0% Buddhists
< 1.0% Jews
10.4% Other Religions
Palauan (Micronesian With Malayan And Melanesian Admixtures) 69.9%
Other Asian 2.4%
President – Thomas Remengesau Jr.
|Website||Go to the web|
|Public Debt||24.1 Percent|
|Unemployment Rate||1.7 Percent|
|Labor Force (Occupation)||-|