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Monday, March 05, 2007

Revised National Budget 2007 : Debate about need for a local bank and a Financial Ombudsman

There has been some debate going on in the press about the need for a local bank in Fiji. The two larger banks, ANZ and Westpac, have both said that they will welcome the establishment of another bank with ANZ saying that there was a lot of competition with the main banks and also that the playing field must be level to be fair to companies who invested millions in Fiji. Westpac, on the other hand, said they welcomed competition in the market.

Other members of the public have welcomed the establishment of a local bank, some though clearly wary that they did not want to see it follow the path of the government-owned National Bank of Fiji a few years ago.

With lending margins (i.e. the difference between average lending rates and average deposit rates) about 7.7% in September 2006, this shows that there is capacity for more competition and therefore more players in the market.

If a new players is given the same 10 year tax free status that is given those companies wishing to set up in the tax free zone at Kalabu to help it with its initial establishment costs and the bank focuses on shaving these margins, then there is definitely a place for it in Fiji's financial system.

Interestingly, when one analyses Table 8, Commercial Banks' Lending and Deposit Rates, of the Reserve Bank of Fiji's Quarterly Review for September 2006, one can find that while banks average lending rates fell initially over 2004 and 2005, it has started to rise from 2006, during the height of the interest rate hikes by the Reserve Bank of Fiji.

It is little wonder that the two larger banks, ANZ and Westpac, recorded dramatic increases in their net profits for their 1996 financial year.

Government should commission an independent study to look more into this.

While we are on this subject, I can say that the figures themselves indicate that there is also scope for a Financial Ombudsman as I think there will definitely be a good number of people out there who will have issues with interest rates, fees, level of services and other complaints about financial service providers in Fiji.

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