The services sector employs three-quarters of the workforce and generates more than four-fifths of GDP. Transport and communications generate 16 percent of GDP; distribution, restaurants and hotels, 27 percent; financial services 6 percent; and public administration, community and other services, 51 percent.
The banking sector is made up of 3 U.S. commercial banks, 5 domestically-owned commercial banks, and the National Development Bank of Palau (NDBP). Most lending by the commercial banks is made up of consumer loans for construction, travel, and education. The NDBP is responsible for most business loans. There was concern over the operation of the domestically-owned commercial banks in 1999, which were not subject to any banking regulation. A ban was imposed on certain international transactions, as it was thought that the banks were being used for money laundering . There have subsequently been U.S.-assisted initiatives to tighten control of the banks.
The publicly-owned Palau National Communication Corporation, by virtue of operating a monopoly , generally manages to cover its costs. However, the 1997-98 reduction in tourism, as a result of the Asian economic crisis, led to a fall in the number of lucrative international calls, and the corporation posted a loss.
Tourism is a major source of foreign exchange earnings. In 1997, there were 73,000 arrivals in the Islands, and the sector generated $70 million, equivalent to 53 percent of GDP. The sector is expanding rapidly—in 1993, tourism receipts were $18 million. At present there are 1,200 hotel beds, and a further 560 are planned to be in operation by the end of 2001.