The Bank was due to leave American Samoa this week, but has agreed to remain for another three months to help people transition their financial affairs.
The Bank of Hawaii hasn't spelled out why it's leaving and it's unclear whether another bank will step in to deliver the services previously offered.
Speaker: Eric Mais, an expert in financial economics and institutions at the University of Hawaii
MAIS: I think my guess is that the Bank of Hawaii just feels that there are better growth opportunities in Hawaii and Guam for the amount of capital and assets they have deployed there.
HILL: Is it a question of not making any profits at all or just not large enough profits in such a small territory?
MAIS: That I'm not sure but I think it's probably the latter. They're making money off transactions and perhaps making some money off loans. I don't know in their loan portfolio there what sort of default rates they're looking at, but those are the two main ways this bank makes money is to transaction fees and the income and through net interest margin on loans. So I think they could probably be profitable there but I just think there's not as much growth opportunity there as there is here in Hawaii and Guam and that would be a reason to redeploy assets where there are just more opportunities to grow.
HILL: Is it just a question of economies of scale and distance? American Samoa is a territory that's in the Southern Hemisphere, Bank of Hawaii's main area of operation obviously is Hawaii and Guam, it's actually doing quite well in those two places isn't it?
MAIS: It's doing quite well in both of those, and again I think it's a contraction from their big expansion strategy they tried a number of years ago and it just didn't work, they didn't have good luck with a lot of these smaller markets and they pulled out of almost all over them. So I think they're just continuing on with what they started about ten years ago when they started to contract.
HILL: What usually happens in this case? Does another bank come in and step up and take over the branches and ATMs of the previous bank, or is there just going to be a big hole in the ground where a bank branch used to be?
MAIS: That's a good question and this is a little unusual because American Samoa is not like one of the states of the United States where typically a bank holding company like the Bank of Hawaii, if they want to pull out of a regional set of branches they would put those branches together, bundle them and shop them round and find another bank to sell them to. That's the way banks often expand is not by building new branches but rather acquiring branches from one of their competitors. And I'm not fully informed on the banking picture in American Samoa to know who the Bank of Hawaii might shop these around to.
HILL: There are other banks in the Pacific that are working banks, South Pacific, a lot of the Australian and New Zealand banks operate there. But the banking regulatory system in American Samoa being part of the American system would that be quite different from the way banks operate in other parts of the Pacific?
MAIS: I'm sure it would be, I'm sure it would be. We have a very extensive set of regulations concerning banks and financial institutions in the US, as all countries do around the world, and while there are some similarities across them, there are of course substantial differences. And any time you operate in a regulatory environment it's very, very important that you know what you're doing there.
HILL: Well a lot of the residents in American Samoa are obviously very unhappy about this, they say look we're going to be left without adequate banking and financial services without an American bank operating here. What's going to happen?
MAIS: Well, I'm not sure in this case but it's possible that technology might help out here a little bit. As you know many of us now do most of our banking online so it might be possible that a bank could still have a presence there but it would be online. So the customers in American Samoa that have a good online understanding of how to bank could still be serviced. But those without internet access and the ability to navigate and do that sort of way of doing transactions might be more affected.
HILL: New technology's coming in and a lot of people now have mobile phones and smart phone apps, do you need a bricks and mortar bank to operate in perhaps small territories, maybe technology might provide a way to give us a virtual banking service maybe?
MAIS: I agree, I think you have very good comment there and we're seeing this happening in places that are less developed than American Samoa, for example India and Pakistan and Nepal and places like that where now with smart phones people now have the ability to have bank accounts, very modest bank accounts for transactions when primarily before this in some of these lesser developed countries they were left out of the banking sector entirely which made it very, very difficult to start small businesses. So I think that might be the promise of technology.