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To contact the authors of this blog, please call telephones (679) 3342719, (679) 3544897 or e-mail info@gilbert.com.fj.


Wednesday, April 15, 2009

Reserve Bank of Fiji places ceiling on interest rates and interest spreads

The Reserve Bank of Fiji today imposed a ceiling on lending rates of banks and other lending institutions (including the Fiji National Provident Fund). The ceiling imposed on each institution is the weighted average lending rate of that particular institution as at 31 December 2008.

Additionally, the Reserve Bank of Fiji has also taken the major action of putting a ceiling on interest spreads, which (depending on the definition used) I would understand to be the difference between an institution's weighted average lending rate and it's weighted average cost of funds (i.e. the average rate it pays for customers' deposits placed with it).

The high interest spreads of banks and lending institutions in Fiji has been the subject of much contention by consumers of banking services over the years, with the two large foreign owned banks each making over F$30 million per year in recent years. It is understood that the interest spreads/margins of banks in Fiji are much higher than what they are in most developed economies.

The move to contain lending rates and spreads has not usually been undertaken in recent years by other countries, particularly those with central banks that use open market operations to influence interest rates like Fiji. However, it would seem appropriate for Fiji at this time, given our present circumstances.

Another good move taken by the Reserve Bank of Fiji would see an emphasis on building micro finance lending by banks and financial institutions in Fiji. As a result of the global/local crisis, more and more people would be displaced from jobs. Upskilling and training them to run their own small businesses would help them fend for themselves.

PS : The Reserve Bank of Fiji today announced that it has a new Governor, Mr Sada Reddy, who was Deputy Governor up to last week. Read about it in other media.

For advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj.

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