* Chinese correspondent banking relationships surge 3,355
* U.S., EU banks cutting ties amid regulatory crackdown
* Malaysia correspondent banking ties fall following 1MBD
By Michelle Price
HONG KONG, May 8 Chinese banks have dramatically
expanded their overseas payment and trade networks since the
global financial crisis, exploiting a growing vacuum created by
Western lenders which are retreating from higher-risk
jurisdictions, new data shows.
The number of so-called "correspondent" or bank-to-bank
relationships operated by Chinese banks surged more than 3,300
percent - from 65 in 2009 to 2,246 in 2016 - according to data
published by U.S.-based payment and compliance technology
company Accuity on Monday.
This contrasts with a 25 percent drop in the number of
correspondent banking relationships globally during the same
period, largely caused by U.S. and European banks cutting ties
with smaller bank clients in regions such as Asia and Africa.
Correspondent banking describes bank-to-bank relationships
that allow individuals and companies to move money around the
world, facilitating global trade.
Although Chinese correspondent banking relationships have
grown from a low base and still account for a small proportion
of such relationships globally, the huge jump underscores how
Chinese lenders - such as ICBC and Bank of China - are
fast-globalising to support Chinese companies as they push
"These contrasting trends suggest that Chinese banks
recognise the opportunity to facilitate China's international
trade, possibly at the expense of EU and USA global banks who
are concerned with the higher risks and costs associated with
providing these correspondent banking services," said Henry
Balani, Global Head of Strategic Affairs at Accuity.
Accuity compiled the data, which is extracted from standard
settlement instructions, from an average of 29,000 banks in 238
countries or territories across the world.
Global banks are under intense regulatory pressure to guard
against money laundering and terrorist financing by closely
screening the source of funds they handle.
U.S. watchdogs have dished out more than $16 billion in
fines for antimoney laundering (AML) compliance failings since
the end of 2009, while banks globally spent an estimated $12
billion on AML compliance programmes last year, according to
data compiled by Hong Kong consultancy Quinlan & Associates.
This ballooning compliance bill has made it more
cost-effective in many cases for big banks to simply cut off
smaller banking clients in higher-risk geographies.
Correspondent banking relationships in Malaysia, which has
been rocked by a money laundering scandal involving the
country's 1MBD sovereign wealth fund, for example, fell from
1595 in 2014 to 621 last year, the data shows.
The U.S. regulatory crackdown may also be making it more
attractive for banks to transact in the yuan rather than the
U.S. dollar because dollar transactions are subject to U.S.
regulations regardless of where they take place, Balani said.
"The U.S. dollar dominates world trade, but there is a trend
towards a decline in the use of the U.S. dollar and an increase
in the use of the renmimbi," he said.
(Reporting by Michelle Price; Editing by Stephen Coates)