Cook Islands Banking Review by Sam Knowles

The Government recently commissioned Sam Knowles to undertake a review of the Cook Islands Banking system.

The objective in undertaking the review was to define a long term strategy for the provision of banking services for the Cook Islands economy that will on a sustained basis:

•    lower the cost of banking for businesses operating in the Cook islands;
•    improve the accessibility to banking by Cook Islands businesses and residents;
•    provide the banking services necessary to support the major growth sectors of the economy; and
•    minimise the need for Government financial support to achieve the above.

The conclusions and recommendations of the review are based on conversations that Sam had with Government leaders, the regulator, business owners, the banks and suppliers. Research and analysis was also carried out based on official documents, bank information and external banking studies. The key conclusions of the review are that the:

•    Cook Islands banking system is operating on a developing country model, whilst the business customers have developed country needs and expectations;
•    low scale of the banking systems makes it a high cost model;
•    profitability of the banking sector is relatively low, and is possibly at unsustainable levels;
•    banking system has a significant non-performing loan problem that is a major drag on the economy; and
•    structure and operation of the current suite of property legislation is the major underlying cause of high bank lending rates

Action to address all these issues will be required if the Cook Islands banking system is to contribute towards the restructure of the economy so that there is continued sustainable growth. The key recommendations of the review cover both short and medium term strategies including:

•    the need to take urgent action to assist in clearing the market of the many properties covered by non-performing debt;
•    amendments to existing laws to make lending a lower cost process for the banks;
•    changing bank licensing to encourage the banks to move towards a model that provides customers access to the scale and range of services provided by the New Zealand and Australian banking system; and
•    undertaking a review of relevant land legislation that considers how to best establish a property category that is better aligned to the banking requirements for securing loans while still preserving the cultural significance of landownership

Further detail and discussion of these recommendations is provided in the full report here pdf20120812_Final_Banking_Review.pdf133.99 KB.