Islamic banks face an uneven impact from the correspondent banking decline caused by increasingly tough international anti-money laundering and counter financing of terror (AML/CFT) regulations according to an industry group.

The Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI) says that that smaller banks in developing economies will be most affected from so-called de-risking by international lenders as they implement tougher AML/CFT measures.

Raising concerns

The CIBAFI raised its concerns in a letter to the Financial Stability Board (FSB), which coordinates financial regulation for the G20 countries.

Separately, the FSB had already raised its own concerns about the erosion of correspondent networks and warned of the potentially severe consequences of this for global trade, financial inclusion and financial stability.

Uneven geographical impact

Islamic banks in Africa and South Asia may be amongst those most adversely affected, with banks in the Gulf and Europe relatively unscathed, the CIBAFI said.

Of the CIBAFI’s survey of 103 Islamic banks, some 70 per cent of institutions in West, Central and South Asia and 80 per cent of banks in sub-Saharan Africa indicated that they had seen either a significant or some decline. In North Africa over 66 per cent of banks indicated that they had seen significant decline.

International banks

“Correspondent banking is an issue of particular importance to our members, few of whom have a global reach and most of whom are in emerging or developing markets,” said CIBAFI Secretary General Abdelilah Belatik.

“Because of the countries in which they are based, some have suffered particularly from de-risking by international banks,” he concluded.