Overview:
Palauans without land are finding it harder than ever to get a loan. NDBP has phased out its unsecured and chattel mortgage lending programs, requiring most borrowers to pledge land as collateral — a shift that’s shut out young entrepreneurs and landless families. Bank CEO David Proctor says the change was forced by mounting bad debt and was designed to push commercial banks into the market. Here’s what changed, why, and how residents are reacting.
By: L.N. Reklai
KOROR, Palau — The National Development Bank of Palau (NDBP) is facing mounting criticism from residents who say the bank’s decision to scale back unsecured lending and chattel mortgage programs has locked ordinary Palauans out of financing, even as bank leadership defends the move as a necessary response to mounting losses.
For years, NDBP’s unsecured and chattel mortgage loans gave young entrepreneurs, small business owners and families without land the ability to borrow money to renovate homes, buy equipment or start businesses. Under the bank’s current policy, most borrowers must now pledge land — specifically land with a legally recognized access road — as collateral. Business owners who hold valuable equipment, vehicles or inventory but no land are no longer eligible for financing unless they can offer property as security.
The shift has drawn frustration from residents who say the new rules ignore the reality that many capable, steadily employed Palauans simply do not own land.
Dr. Terepkul Ngiraingas, in his social media post, said he attempted three times over four years to secure financing to build a home, spending nearly $5,000 in the process, only to be told he would need to scale back his project or provide land with an access road and utilities, or $40,000 in cash savings, as collateral.
“What young Palauan walks around that kind of collateral,” Ngiraingas said, adding that he considered leaving Palau over the policy and that other people he has spoken with have faced the same obstacle.
Joram Bultedaob, also in a social media post, echoed the frustration, saying collateral requirements have made it especially difficult for Palauans without family wealth or land to build a future.
“Building his or her life is very hard for this collateral thing, unless you’re from a rich family,” Bultedaob said. “I’m a poor-class person. I have no collateral.”
NDBP’s response
NDBP CEO David Proctor said the bank eliminated unsecured and chattel mortgage lending after the products generated significant financial losses and undermined the broader banking sector in Palau.
According to Proctor, 74 unsecured loans turned into bad debt, contributing to reported losses of more than $700,000 in two consecutive years. He said a pattern had emerged in which some borrowers took out $15,000 loans and then relocated offshore, making it uneconomical for NDBP to pursue recovery through Interpol or legal action.
Proctor also said the lending change was intended to encourage commercial banks and credit unions to expand lending in Palau. He said U.S. banks hold roughly $500 million in Palauan deposits but lend only about $38 million to borrowers in Palau, and that NDBP’s concessional rates had been crowding out banks such as Bank of Hawaii, Bank of Guam, BankPacific, Palau Investment Bank and Asia Pacific Commercial Bank, which are all capable of offering similar unsecured products.
He pointed to Bank of Guam’s recent full-page newspaper advertisement for an unsecured loan product, along with data from the Financial Institutions Commission showing increased U.S. bank lending in Palau, as early signs the strategy is working.
Proctor said the change also allows NDBP — which has just 20 staff, including three personal banking loan officers — to concentrate its limited capacity on real estate-secured lending, a niche only NDBP can serve.
That freed-up capacity, he said, allowed the bank to introduce a new Home Equity loan product aimed at Palau’s aging population, many of whom have equity in their homes but limited biweekly income from Social Security or pensions. The loans run up to 10 years and are primarily being used for home maintenance, medical expenses and scholarships, Proctor said. At a 9% interest rate, he said, the product costs about half what short-term lenders such as BankPacific, APCB and PIB charge, allowing borrowers to consolidate higher-interest debt.
Proctor said the Home Equity product has proven popular since its introduction, even as the bank continues to face criticism over the loss of unsecured and chattel mortgage lending options for younger, landless borrowers.
