Timor’s banking system is a reflection of its history. There are three banks with a presence, all foreign, one each from the country that colonized it (Portugal), occupied it (Indonesia) and helped liberate it (Australia): Caixa Geral de Depósitos, Bank Mandiri and ANZ respectively.
These banks are arguably seen as conduits for capital to leave Timor rather than helping to bring it in. “Apart from the Portuguese bank, the others are not giving any loans to people,” says João Mendes Gonçalves, minister of economy and development. “They claim this is mainly geared to the risks associated with loans, and we understand all that – our legal framework is not complete yet.” Instead, “they are in deposits from people, transferring money overseas, and getting commission from that”.
ANZ itself, which set up in January 2001 even before Timor’s formal independence, says it supports “both international firms and a fast-growing Timorese client base”, offering savings, transactional banking products and international services for personal customers, commercial clients and government and non-government organizations. A spokesman says ANZ “sees a number of opportunities… to play a strong role in the development of Timor-Leste as a nation,” including facilitating foreign investment, lending and providing banking services to the public sector.
However, Timor is witnessing the birth of its own banking sector. The Institute of Microfinance Timor-Leste was established under the UN-led transitional administration, with a mandate for poverty reduction. It has grown but been impeded by law, unable to take more than $1 million in total deposits, or to give loans bigger than $5,000. In July, it changed hands. “We reached an agreement that for the better future of the institution, it would be better if it came to the government,” Gonçalves says. “We would strengthen it and ensure they expand into other districts, transforming it into the first national bank of East Timor.”
The country does need a banking sector, because it barely has a private sector to speak of and has no hope of developing one without access to credit. Plenty needs doing before western banks are likely to commit themselves further, though, starting with a bankruptcy law; Gonçalves says he is about to send a draft law to the ministry of justice.
For the future, there is also talk of a national development bank to support Timorese entrepreneurs. Gonçalves says he has lobbied the World Bank, Asian Development Bank, International Finance Corporation and another group to come in with the government in putting in $3 million apiece to a development fund.
