It's a small world after all

Published: September 20, 2017

As global banks de-risk from many emerging market banks, and reduce the scale of their correspondent banking networks, local and regional banks are coming under pressure to ensure they meet global standards and operate using best practices to keep these relationships relevant.

Growth in the depth and breadth of regulatory requirements, and a huge increase in the cost of compliance, have had a massive impact on the traditional correspondent banking model, with many global banks now reconsidering their relationships with regional and local banks from a compliance, credit and operational risk perspective. 

The correspondent banking landscape is changing with some global banks even retreating from certain geographies and market segments, and in turn reducing the size of their correspondent banking networks.

This pull back has major ramifications for emerging markets for cross-border transactions, particularly in areas like clearing, settlement and in trade finance. Moreover, it is also likely to impact small-to-medium-sized companies (SMEs) and mid-market companies in these developing countries.

According to the World Bank, if the current ‘de-risking’ trend continues, there is a danger that companies in some countries, with more limited financial markets, could potentially become ‘cut off’ from access to the global financial system.

A number of global banks, however, are bucking this trend and actively looking to support under-served markets in recognition of the benefits of accessing local banks’ expertise in relation to language and culture as well as helping to navigate local market regulations. 

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