Palau Development Bank pushes for deposit-taking license to fill funding gap

Aerial view of Palau (Photo: Supplied)

The National Development Bank of Palau (NDBP) is seeking to expand its role in the island nation’s financial system by offering deposit services and potentially issuing savings bonds. 

This move aims to address a perceived lack of long-term funding options and attract capital, both domestically and internationally. 

Proponents, including NDBP CEO David Proctor, argue that the bank’s development mandate differentiates it from commercial banks focused on profit. They see deposit-taking as a tool to fill market gaps and support economic growth. 

“A development bank is there to fill the void from market failures,” NDBP CEO David Proctor said. “There’s a clear need for this development bank to step in and offer long-term deposits.” 

The proposal emphasises not competing directly with existing banks. NDBP plans to offer fixed-term deposits and long-term savings accounts, avoiding services like checking accounts and debit cards. Additionally, attracting offshore investors is seen as crucial to offset capital outflows from FDIC-insured banks. 

The initiative comes amid efforts to comply with regulatory requirements set by the Financial Institutions Commission (FIC). An application for a banking license is expected by the end of March 2014, with approval taking an estimated two months. Even with a license, internal preparations would be necessary before offering deposits. 

NDBP also explores launching a savings bonds program, similar to models in developed countries like Japan. This programme, led by the Ministry of Finance, could provide an alternative investment avenue and generate capital for the government. However, implementation timelines remain unclear. 

While the proposal faces discussion and potential hurdles, it reflects NDBP’s ambition to play a more active role in shaping Palau’s financial landscape and fostering sustainable development.