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Friday, May 25, 2007

Reserve Bank of Fiji profits from depressed economy

Reserve Bank of Fiji has announced a net profit of F$10.7 million for 2006, profiteering from the depressed economy.

This adds on to the earlier stories posted on this blog of banks in Fiji making huge profits in the current depressed economic conditions and the environment of high interest rates which were attributed to monetary policy decisions taken by the Reserve Bank of Fiji.

To an ordinary lay person on the street, his or her understanding of the situation is that the Reserve Bank's reasoning for raising interest rates which included protecting the level of foreign reserves, was only to protect its own financial position. There may be good economic reasons for the decisions being taken but, for an ordinary person, it all boils down to profiteering on the part of the Reserve Bank.

As in previous years, 50% of such profits are paid to the Government Consolidated Fund. This will happen again for the most recent financial results that were declared. The profits paid to Government help with Government's financial position.

The other question that needs to be asked is whether Fiji's foreign reserves were invested in the most optimal investment opportunities or were they not? Some of the central banks' foreign dollar assets are held in low-earning accounts with other central banks - funds which could have earned a little more from being invested in the money and capital markets in overseas countries.

For this, Government and the people of Fiji should call on the Reserve Bank of Fiji to provide an outline of its investment policy and approach, its preferred risk profile of investments and the returns it would target, for each coming year.

At the end of each year, it should then account to Government and the people of Fiji about how it has fared against that investment policy and approach and the returns it had targeted at the beginning of the year.

In simple terms, more accountability is called for on that part of the central bank's function.

In the meantime, reproduced below is the article in the Fiji Times, Friday, 25 May 2007, with regard to the Reserve Bank of Fiji's 2006 profit.


"Bank records $10.7m profit", Friday, May 25, 2007

Fiji's financial system was strong with total assets growing by 10.6 per cent to $8.7billion in 2006, says Reserve Bank of Fiji Governor, Savenaca Narube.

In the RBF's 2006 annual report released yesterday, Mr Narube said the bank recorded a profit of $10.7 million, which was lower than 2005.

Mr Narube said the 2006 profit was lower because of the lower level of foreign reserves recorded during the year.

In accordance with the RBF Act, the bank will transfer one-fifth of the balance of revaluation reserves which amounted to $4.2million.

The total transfer to government in 2007 would be $14.9million, the bank said.

In 2007, he says the economic growth is expected to decline by 2.5 per cent compared to an initial growth forecast of 2 per cent.

He said while the political events in the later part of 2006 as well as the closure of the Vatukoula Gold Mine in early December adversely affected Fiji's overall economic performance, the economy was still expected to grow by 3.4 per cent in 2006 slightly down from the initial forecast of 3.6 per cent.

Mr Narube said "our key economic challenge is to reverse the widening trade deficit".
He said exports must be the platform for growth and the country must speedily implement strategies to grow exports like sugar, gold and other resourced based products.

University of South Pacific economist Doctor Mahendra Reddy said the issue was not of a strong financial system but rather of how competitive it was.

"At the moment, we don't have purely competitive financial system. The banking industry is led by two major banks. Our non-bank financial institutions are also very few thus affecting competition," said Dr Reddy.

Mr Narube yesterday briefed the interim administration on the state of the economy."

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