帕劳金融体系现代化：机遇与风险

Modernizing Palau’sFinancial System: Opportunities and Risks Ricardo Davico and Yuanyan Sophia Zhang SIP/2026/010 IMF Selected Issues Papers are prepared by IMF staff asbackground documentation for periodic consultationswith member countries.It is based on the information 2026FEB IMF Selected Issues Paper Asia and Pacific Department Modernizing Palau's Financial System:Opportunities and Risks; Republic of Palau Authorized for distribution by Harald Finger IMF Selected Issues Papersare prepared by IMF staff as background documentation for periodicconsultations with member countries.It is based on the information available at the time it was ABSTRACT:Palau’s financial system faces structural challenges that inhibit effective financial intermediation,mobilization of domestic savings, and payment system efficiency. The authorities have been striving to addressthese challenges through digital initiatives. While these initiatives are intended to modernize the paymentsystem and retain domestic savings, they also entail significant risks that need to be carefully managed with RECOMMENDED CITATION:Ricardo Davico, Yuanyan Sophia Zhang, 2026. "Modernizing Palau's FinancialSystem: Opportunities and Risks; Republic of Palau" IMF Selected Issues Paper (SIP/2026/010). Washington, SELECTED ISSUES PAPERS Modernizing Palau'sFinancial System: Opportunitiesand Risks Republic of Palau Prepared by Ricardo Davico and Yuanyan Sophia Zhang (APD) REPUBLIC OF PALAU SELECTED ISSUES January 13, 2026 ApprovedByThe Asia and Pacific Prepared By Ricardo Davico, YuanyanSophia Zhang (APD),with inputs from Kieran Murphy and Jeanne Verrier (MCM),Grace Jackson, Stephanie Forte (LEG), and guidance fromJennifer Elliott (MCM), and Harald Finger (APD). CONTENTS MODERNIZING PALAU’S FINANCIAL SYSTEM: OPPORTUNITIES AND RISKS ________2 A. Background of Palau’s Financial System: Overview of Key Impediments ________________2B. Opportunities and Risks of Fintech Initiatives ___________________________________________8C. Policy Issues __________________________________________________________________________10 BOX 1: Overview of Palau’s Banking System __________________________________________________14 FIGURE1. Palau’s Banking System _________________________________________________________________7 References_______________________________________________________________________________15 MODERNIZING PALAU’S FINANCIAL SYSTEM: Palau’s financial system faces structural challenges that inhibit effective financial intermediation,mobilization of domestic savings, and payment system efficiency. The authorities have been striving toaddress these challenges to support their economic diversification efforts through fintech and digitalinitiatives. While these initiatives are intended to modernize the payment system and retain domestic A.Background of Palau’s Financial System: Overview of Key Impediments 1.Access to private credit remains limited in Palau due to the unique features of itsbanking system.Palau’s banking system comprises three branches of U.S. FDIC-insured banks, twosmall non-FDIC-insured banks and one state-owned development bank. The U.S. FDIC-insuredbanks (the Bank of Guam, the Bank of Hawaii, and Bank Pacific) dominate the commercial bankingsector, accounting for 98 percent of total deposits. Given their access to U.S. capital markets, the U.S.branches invest mostly offshore, resulting in very limited lending to local businesses or households.1 2.The NDBP plays a crucial role in addressing the credit gap caused by the limitedinvolvement of commercial banks in financial intermediation, but its lending remainsconstrained by funding sources.Credit from the NDBP accounts for about half of total domesticcredit, one of the highest shares among the Pacific Islands. Around three quarters of the NDBP’sportfolio consists of housing loans, with the remainder allocated to aquaculture projects (2 percent) 3.Ineffective financial intermediation can be partly attributed to deep-rooted structuralissues within the banking system.Commercial bank lending in Palau has been significantly lower than that of its peers, with a primary focus on unsecured, small-sized loans to individuals.While common constraints among small and micro-state economies –such as limited business REPUBLIC OF PALAU 4.Lending Cap:Under the usury law, the interest rate on commercial lending is capped at the U.S.prime rate plus 4 percentage points — which amounted to 11 percent as of November 2025. The cap restricts lenders' ability to appropriatelyprice risk, making lending in Palau lessattractive compared to investmentopportunities in the U.S. Furthermore, theinterest rate on individual or personalloans—capped at 18 percent by the law, aless binding constraint than the commercial •Information Asymmetry:Small firms in Palau often lack the capacity to implement appropriateaccounting practices, making it difficult for banks to properly assess their creditwort