Cover Story
Bankrolling Island Development
Despite Stagnant Economies, FSM, Marshall Islands Banks Earn Record Profits
National banks of the Federated States of Micronesia and the Marshall Islands have faced the same essential problems since the mid-1990s: big cutbacks in government workforces — in countries where government is still the engine of the economy — and stagnating economies. Yet both of these private banks have recorded record profits in the late 1990s, even as the two governments were contracting under the supervision of Asian Development Bank-supported reform programs.
Bank of Marshall Islands deposits grew nearly 100 percent from 1996 to 2000, reaching $27.4 million as of December. Bank of the FSM has seen similar growth, with its deposits rolling up to $41.2 million by the end of 1999. Bank of Marshall Islands profit skyrocketed 64 percent from 1999 to 2000, peaking at just under $2 million, according to the bank’s annual audit. Bank of FSM’s nearly 41 percent net income rise in 1999 over the previous year — to almost $1.2 million — was not far behind.
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Their success belies the state of the economy. The U.S. General Accounting Office reported late last year that from 1986 to 2000, “per capita income, adjusted for inflation, showed essentially no increase…in the FSM and fell in the Marshall Islands.” FSM officials estimate that, despite the massive infusion of American funding since the Compact of Free Association started, per capita income grew just 2.4 percent in nearly 15 years. In the Marshalls, the GAO estimates income fell by nearly 30 percent.
Both banks attribute their success to aggressive customer services and expanding loan programs that foreign banks doing business in the islands can’t or don’t want to match. Interestingly, too, the two banks have different philosophies: Bank of FSM just opened its first office outside the FSM — in Saipan — and is considering additional offshore branches in Palau and Guam. “Bank of the FSM decided to diversify outside the FSM in line with the expectation that there will be a cutback in funding (from the Compact),” President and CEO Thomas Riefe told Pacific. “We need interest-generating offices outside the FSM.”
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Bank of Marshall Islands, meanwhile, is expanding, too, but focused entirely on services within the Marshall Islands. Bank President Patrick Chen told Pacific the bank’s goal is to begin offering services to a number of the remote atolls and islands in this watery nation that is scattered across about 750,000 square kilometers of ocean. “We’re doing well in Majuro,” he said. “It’s time that we go out to the outer islands.” It is essential to assist businesses and individuals on these distant islands to develop economically, Chen said.
Bank of Marshall Islands has already taken its promotion of local businesses a step farther than most banks. As part of its recent main branch expansion, Bank of Marshall Islands opened a handicraft center that sells everything from baskets and woven purses to coconut oil soap and locally produced music tapes and CDs. The bank has generated significant sales of local products by giving them visibility in a high-traffic location.
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The Marshalls has two sub-district centers: Jaluit, which has, for an outer island, a thriving community with an electricity-generating plant that supports a major government high school; and Wotje, also a government high school island, with a soon-to-be-built power station. Chen is eyeing both of these sub-centers, as well as Arno Atoll, which is just a 30 minute ride away from Majuro by power boat. The four island communities that receive large compensation payments from the U.S. because they were exposed to nuclear testing are also on his priority list. Given that most of these islands don’t have much in the way of basic of infrastructure — communications is generally limited to HF radios and power to solar panels — Bank of Marshall Islands is looking at providing what Chen describes as “mobile bank” services to outer islands using Air Marshall Islands planes to visit.
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“We’ve been particularly aggressive and competitive in courting customers,” Riefe said of the past several years in the FSM. “Previously we were consumer loan-oriented,” he said. “We’ve shifted more toward commercial loans.” The Bank of the FSM targets mid-level businesses for loans, with commercial loans in the $100,000 to $400,000 range. The bank estimates that it had 51 percent of the total loan market in the FSM in 1999. The Bank of the FSM lends more than competing banks because its mission as the national bank is to help fuel development in the country, Riefe said.
In late November, Bank of the FSM opened a loan production office in Saipan, where several thousand FSM citizens reside. That move was made in response to what Riefe said was repeated complaints from FSM citizens about the difficulty in gaining banking services, and requests to Bank of the FSM to open an office. “We want to test the waters this year, and then we’ll see about expanding it to a full service bank,” Riefe said.
The Bank of the FSM broke ground in early February for its new corporate headquarters and branch office in Pohnpei, with construction scheduled to finish in June 2002. Aside from Saipan, the bank has branches in Chuuk, Pohnpei, Kosrae and Yap.
In a similar expansion mode, Bank of Marshall Islands opened a new branch at Majuro International Airport, the first bank to offer airport services. It also has dramatically upgraded services at its Ebeye branch, which services the Marshallese community next to the Kwajalein missile range.
In the computer and Internet age, the branches within each country are linked electronically so that customers on Ebeye can withdraw funds from a Majuro account, or a customer in Yap can access their home account in Kosrae — some 2,500 km away.
Both banks focus large contributions on community efforts, with education-related projects gaining significant support.
Bank of the FSM recently financed a Micronesian Seminar video production focusing on social dilemmas faced by local Micronesian entrepreneurs, as well as donating a mobile library to the Pohnpei Public Library.
In the Marshalls, Bank of Marshall Islands recently donated $10,000 to the national scholarship office earmarked to help business and finance students. “The private sector needs to work to build the economy,” Chen said. For the future, “education and health are the two most important areas. That’s why we donated money to scholarship, because we need more Marshallese who are skilled to increase our self-reliance.”
