Private Sector Assessment for Palau by Asian Development Bank;

Author:Asian Development Bank;
Language: eng
Format: epub
Publisher: Asian Development Bank Institute
Published: 2017-08-15T00:00:00+00:00

Information is often unreliable in the best of circumstances, and, in Palau, some bankers report that the problem is exacerbated by many businesses not filing accurate tax returns.

Bankers report being confronted with two separate sets of financial statements; one that is used for tax returns, and one that represents the true state of the business. Since any assessment of financial soundness has to be based on formal tax returns, businesses that would otherwise qualify for loans are unable to obtain financing. This lack of transparency in small business reporting adds to the riskiness of lending to small business, making it difficult for bankers to determine a creditworthy borrower from one that is not creditworthy. It is difficult to assess how widespread this problem is across Palau.

The two large foreign banks in Palau—Bank of Guam and Bank of Hawaii—are both branches of offshore headquarters. The Bank of Hawaii uses credit-scoring models for loans up to $50,000, all of which are unsecured, but few borrowers in Palau qualify for these types of loans. Both offshore banks have access to US credit bureau reports. This is an advantage that local banks, including the NDBP, do not have but which could be remedied with the establishment of a locally domiciled credit bureau that was also linked to US bureaus.19 These reports are used extensively in making consumer loans. Both banks indicated that they would like to make more business loans, but Palau’s usury ceiling and information problems made it difficult to do so.

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