The number of Class B banks registered in the Cayman Islands fell from 172 in 2015 to 148 last year, the largest decline since 2004, according to the Economics and Statistics Office’s 2016 annual economic report.
The ESO attributed the 14 percent decline in Class B banks – which are restricted to conducting business offshore with non-residents – on the reluctance of correspondent banks to provide services to such institutions, a growing trend known as “de-risking.”
Rather than engaging in costly and time-consuming regulatory compliance measures, international banks would rather limit their services or discontinue them altogether. De-risking has hit the Caribbean especially hard, according to organizations such as the World Bank and the Caribbean Development Bank, and is being blamed for the continued decline in Cayman’s banking industry.
“The contraction in the number of Class B banks … reflects the increased challenges faced by Caribbean banks to maintain correspondent banking relationships with global banks who engage in ‘de-risking’ behavior,” the ESO report states. “In ‘de-risking,’ banks resort to engaging in cost efficiencies following increased competition, consolidations and mergers, risk considerations, and the heightened regulatory compliance requirements.”
The number of Class A banks also decreased from 12 to 11 last year, the report states. One more Class B bank has left the territory this year, putting the total number of banks at 158 as of the end of June, according to statistics on the Cayman Islands Monetary Authority’s website.
The banking industry has been diminishing constantly since the early 2000s, when there were more than 500 banks here.
Other sectors of the financial services industry contracted last year too.
According to the ESO report, mutual funds fell from 10,940 to 10,586, listings on the Cayman Islands Stock Exchange declined from 1,048 to 1,022, registrations of new partnerships declined from 3,377 to 3,356, and the total number of business companies registered here decreased.
Statistics on CIMA’s website show that as of June 30, however, the number of mutual funds have bounced back slightly to 10,621.
While the banking sector continued its decline last year, the insurance industry saw a slight 0.1 percent uptick to 740 licensed insurers, the ESO report states.
According to the report, the number of domestic insurers decreased from 31 in 2015 to 29 in 2016, but the number of captive insurers increased by three that year.
However, 10 captives have left since then, putting the total number of licensed insurers at 730 as of June 30, according to CIMA statistics.