Islamic Banks Face Uneven Impact From Correspondent Banking Decline -Industry Group

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An industry body for Islamic banks has warned of uneven impact from a decline in correspondent banking, reinforcing concerns that small lenders in developing economies will be most affected from “de-risking” by international lenders.

The Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI) raised the issue in a letter to the Financial Stability Board, which coordinates financial regulation for the Group of 20 countries (G20).

Last month, the FSB said the decline in correspondent banking remains a source of concern with potentially adverse consequences for global trade, financial inclusion and financial stability.

In correspondent banking, a global bank with no branch or network in a given country will typically channel payments there through a local bank that acts on its behalf.

Heightened money laundering enforcement has pushed global banks to cut those relationships in some regions, a policy known as “de-risking”.

Islamic banks in Africa and South Asia were among those most severely affected, with banks in the Gulf and Europe relatively unscathed, CIBAFI said in the letter seen by Reuters.

Read the original article here: reuters.com


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