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Growth has been sluggish in Pacific island countries (PICs). High cost of credit is likely one of the reasons. While the small scale, geographic dispersion, and vulnerability to shocks increase the cost and risk of credit in this country group, there is considerable variability in interest rate spreads both across countries and over time. This paper examines the determinants of lending rates and interest rate spreads in a panel of six PICs, extending the literature that was largely descriptive in nature or focused on a single country. Our results are in line with economic theory. We find that the size of the economy is negatively correlated with spreads, confirming the importance of scale. Inflation appears to have only marginal impact on spreads. High loan loss provisions and nonperforming loans increase the cost of credit. So does banking system concentration. Higher institutional quality is associated with lower spreads.

Finance, Public -- Islands of the Pacific -- Accounting. --- Islands of the Pacific -- Economic policy. --- Oceania -- Economic policy. --- Finance --- Business & Economics --- Banking --- Banks and Banking --- Industries: Financial Services --- Macroeconomics --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Aggregate Factor Income Distribution --- Financial services law & regulation --- Commercial banks --- Deposit rates --- Loan loss provisions --- Loans --- Financial institutions --- Financial services --- Financial regulation and supervision --- Income --- National accounts --- Banks and banking --- Interest rates --- State supervision --- Solomon Islands

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Financial inclusion is a multidimensional concept and countries have chosen diverse methods of enhancing financial inclusion with varying degrees of results. The heterogeneity of financial inclusion is particularly striking in the Asia-Pacific region as member countries range from those that are at the cutting edge of financial technology to others that are aiming to provide access to basic financial services. The wide disparity is not only inter-country but also intra-country. The focus of this paper is to take stock of the current state of financial inclusion in the Asia-Pacific region by highlighting twelve stylized facts about the state of financial inclusion in these countries. The paper finds that the state of financial inclusion depends on several factors, but a holistic approach calibrated to specific country conditions may lead to greater financial inclusion.

Banks and Banking --- Finance: General --- Industries: Financial Services --- Accounting --- General Financial Markets: General (includes Measurement and Data) --- General Financial Markets: Government Policy and Regulation --- Financial Institutions and Services: General --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Public Administration --- Public Sector Accounting and Audits --- Finance --- Computer applications in industry & technology --- Banking --- Public finance accounting --- Financial inclusion --- Financial services --- Mobile banking --- Financial sector development --- Financial markets --- Technology --- Fiscal accounting and reporting --- Public financial management (PFM) --- Financial services industry --- Banks and banking, Mobile --- Banks and banking --- Finance, Public --- Cambodia

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This issue of the Asia & Pacific Small States Monitor focuses on the challenges facing Asia and Pacific small states associated with natural disasters and climate change. Most tourism-oriented economies experienced a robust increase in arrivals, partly reflecting country-specific factors. Among commodity exporters (Bhutan, Solomon Islands, and Timor-Leste) and other Asia and Pacific small states, growth remains uneven: robust activity in Bhutan was driven mainly by hydropower-related construction activities; Solomon Islands experienced a continuing decline of logging stocks and a short-term disruption of gold production; and Timor-Leste’s ongoing depletion of oil reserves has led to a tighter budget constraint and lower government spending in the non-oil sector.

Natural Disasters --- Money and Monetary Policy --- Public Finance --- Macroeconomics --- Industries: Financial Services --- Environmental Economics --- Climate --- Natural Disasters and Their Management --- Global Warming --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: General --- National Government Expenditures and Related Policies: General --- Fiscal Policy --- Sports --- Gambling --- Restaurants --- Recreation --- Tourism --- Natural disasters --- Monetary economics --- Banking --- Climate change --- Public finance & taxation --- Finance --- Expenditure --- Fiscal multipliers --- Environment --- Fiscal policy --- Economic sectors --- Credit --- Money --- Banks and banking --- Climatic changes --- Expenditures, Public --- Tonga

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Slower passthrough of policy interest rate hikes to deposit rates relative to their loan rates has led to sharply wider bank net interest margins. Combined with resilient asset quality, wider net interest margins supported record profits for European banks in 2023. Drawing on historical data from the balance sheets and income statements of over 2,500 European banks, this paper shows that abnormally high profits are expected to fade soon as interest income will decline, once policy rates start being lowered, while higher impairment costs historically have weighed on profits with a lag. Moreover, a number of structural factors that have eroded the performance of European banks in the past two decades have largely remained unaddressed and will continue being a drag on profits and capital. Therefore, policymakers should encourage banks to preserve capital buffers and build resilience to future shocks, while exercising caution when considering taxes on profits or other measures that could divert potential sources of capital from banks.

Accounting --- Aggregate Factor Income Distribution --- Bank soundness --- Banking --- Banks and Banking --- Banks and banking --- Banks --- Business Taxes and Subsidies --- Central bank policy rate --- Credit --- Depository Institutions --- Finance --- Finance, Public --- Finance: General --- Financial Institutions and Services: General --- Financial Institutions and Services: Government Policy and Regulation --- Financial reporting, financial statements --- Financial sector policy and analysis --- Financial services industry --- Financial services --- Financial statements --- General Financial Markets: Government Policy and Regulation --- Income --- Industries: Financial Services --- Interest rates --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics --- Micro Finance Institutions --- Money Multipliers --- Money Supply --- Mortgages --- National accounts --- Public Administration --- Public financial management (PFM) --- Public Sector Accounting and Audits --- Tax Law --- Yield curve