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This blog is brought to you by Gilbert & Samuels Company Limited, a financial advisory services and consulting company based in Suva, Fiji.
To contact the authors of this blog, please call telephones (679) 3342719, (679) 3544897 or e-mail info@gilbert.com.fj.


Friday, November 27, 2009

Banks to celebrate as Reserve Bank of Fiji removes interest rate controls

The Reserve Bank of Fiji has announced that, with effect from 1 January 2010, it will be removing the interest rates controls that it imposed on banks in Fiji in April 2009.

The announcement is expected to cause celebrations amongst banks in Fiji who had been under pressure to reduce their interest spreads and margins since the controls were put into effect.

The change in policy stance rose after the IMF made comments regarding the policy mix used by the central bank to conduct monetary policy and urged the authorities to "utilize more market-based instruments". (Quote is taken from IMF Statement after the conclusion of its Article IV consultations in Fiji, which has been posted earlier on this blog).

In recent years, the Reserve Bank of Fiji had been reinstating direct controls to contain credit (e.g. increases/reductions in Statutory Reserve Deposits and controls on interest spreads/margins), after earlier making a move to use more market based instruments.


An excerpt from today's press release from the Reserve Bank of Fiji is provided below.

"The lending rate and interest rate spread polices will be removed. In April 2009, the Bank announced that the weighted average lending rates of banks and other lending institutions should be brought down to 31 December 2008 levels. All commercial banks have now complied with the lending rate policy of the RBF. In addition, banks are on target to meet the 4 percent interest rate margin policy by December 2009.

In removing the lending rate and interest rate spread policies, Mr. Reddy stated that “all commercial banks are advised to maintain the trend in lending rate and any increase in spread above 4 percent in the future will have to be fully justified and explained to the RBF."

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IMF Concludes Article IV consultations in Fiji

Taken from the International Monetary Fund website on this link.

The statement raises concerns regarding :
  • constraints on future growth in Fiji and how the "outlook remains highly uncertain due to political developments, the fragile nature of the global recovery, volatility of commodity prices, the risk of natural disasters, and the complex structural reform agenda";
  • downside risks including how "increased liquidity in the banking system poses risks of inflation, macroeconomic instability, and a loss of competitiveness";
  • relevance and adequacy of monetary policy instruments used;
  • the level of government debt and its sourcing mostly from FNPF funds;
  • sustainability of FNPF to pay pensions at current rates and its use to fund government debt.

"Statement of an IMF Staff Mission at the Conclusion of the Article IV Discussions with Fiji, Press Release No. 09/427November 23, 2009

The following statement was issued today in Suva after the conclusion of an International Monetary Fund (IMF) staff mission to Fiji:

“A team led by Mr. Ray Brooks, Division Chief in the Asia and Pacific Department of the IMF, visited Suva November 10 – 24 to hold Article IV discussions with the government and other stakeholders.1 The team met with Prime Minister Bainimarama, Reserve Bank of Fiji (RBF) Governor Reddy, Acting Finance Minister Sayed-Khaiyum, Finance Secretary Prasad, other senior government officials, and members of the private sector and civil society. Representatives from the Asian Development Bank and the World Bank also participated in the meetings. The team expresses its appreciation to the authorities for the constructive discussions.

“Economic growth in Fiji has been sluggish in recent years due to political developments, delays in structural reforms, and worsening terms of trade. Job growth has been slow and unemployment rose to 8½ percent in 2008.

“The economy is expected to contract by 2½ percent in 2009 as the impact of the global crisis has been exacerbated by floods that damaged crops and tourist infrastructure early in the year. GDP growth of 2 percent is likely in 2010, driven by the rebound in tourism, the devaluation, the global recovery, and rebuilding after the floods. Growth over the medium-term should rise to 2½ percent with fiscal consolidation and progress on structural reforms.

“Fiji, however, faces considerable downside risks given its external vulnerabilities. Increased liquidity in the banking system poses risks of inflation, macroeconomic instability, and a loss of competitiveness. The growth outlook remains highly uncertain due to political developments, the fragile nature of the global recovery, volatility of commodity prices, the risk of natural disasters, and the complex structural reform agenda.

“We commend the authorities for their efforts to limit the overall deficit in 2009 to the budgeted level of 3¼ percent of GDP. This is being achieved by containing expenditure in the face of an unexpected 10 percent fall in revenue. However, central government debt, at over 50 percent of GDP, is high by regional standards. In addition, government has contingent liabilities of around 15 percent of GDP.

“Fiscal consolidation is needed to reduce central government debt to the government’s target of 45 percent of GDP over the medium term. Limiting the 2010 budget deficit to around 2 percent of GDP—excluding costs associated with civil service reforms—would begin to reduce the debt-to-GDP ratio. In the medium term, expenditure can be contained through a well-designed civil service reform and revenue can be strengthened by rationalizing tax incentives. Transparency in fiscal reporting should be improved by widening the coverage of the budget and publishing quarterly reports on the fiscal outcome.

“Monetary policy should be tightened to contain inflation, protect the reserve position, and lock in the competitive gain from the devaluation. Inflation is projected to rise to 7 – 8 percent year-on-year by early 2010 and any further upward pressure on prices could lead to higher wage demands and macroeconomic instability. Given these risks, the recent increase in the statutory reserve deposit ratio is a welcome step. But further measures are needed to absorb excess liquidity and utilize more market-based instruments. We endorse the authorities’ review of the RBF Act to provide the RBF with more independence.

“The Fiji National Provident Fund (FNPF) should be reformed to make it actuarially sound. The generous rate of conversion of benefits to annuities should be reduced and management should be made independent of government and responsible to beneficiaries. The government should reduce its reliance on the FNPF for financing and the FNPF should not be used to finance public enterprises since these actions undermine the fund’s soundness. We support the government’s intention to conduct a comprehensive study to guide its reforms of FNPF.

“The authorities are planning sweeping structural reform that is required to spur growth, create jobs and reduce poverty. Priorities are civil service, public enterprise and land reform, and price liberalization. The social impact of redundancies arising from civil service and public enterprise reform, and the impact of price liberalization, should be mitigated through well-targeted subsidies to vulnerable groups. The government’s decision to corporatize water, procurement and printing services is a very positive step.

“The IMF Executive Board is expected to conclude the Article IV consultation discussions in January 2010.”

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Tuesday, November 24, 2009

Foreign Exchange Dealer Licence Revoked by the Reserve Bank of Fiji

The Reserve Bank of Fiji has revoked a foreign exchange dealer licence issued to Galaxy International Limited after the company made "serious breaches under the Exchange
Control Act and Financial Transactions Reporting Act, and non-compliance with its conditions of
licence" (refer to Reserve Bank of Fiji Press Release dated 23 November 2009).

Galaxy International Limited was issued with a restricted foreign exchange dealer licence in 2004.

The revocation of licence has the effect of Galaxy International Limited not being permitted to act as an authorised restricted foreign exchange dealer in relation to the following transactions:

  1. Sale, purchase and repatriation of traveller’s cheques and foreign currency notes;
  2. The remittance of proceeds of repatriated Fiji currency notes;
  3. The issue of bank drafts;
  4. The use of telegraphic or electronic transfers for payment and receipt of funds; and
  5. Any other type of transaction that was approved by the Reserve Bank of Fiji for Galaxy
    International Limited as an authorised restricted foreign exchange dealer.

The list of other remaining foreign exchange dealers and money changers can be found at the Reserve Bank of Fiji website on this link.

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ANZ Interest Rates (updated 24.11.09)

Schedule of interest rates released by ANZ Fiji are as follows:

  • Business Index Rate - 9.85%;
  • Residential Property Loan : Standard Variable Rate - 8.00%, 1 Year Fixed Rate - 7.75%;
  • Investment Loan : Standard Variable Rate - 8.50%, 1 Year Fixed Rate - 8.00%;
  • Personal Loans : Secured - 11.00%, Unsecured - 15.00%;
  • Small Loans : Unsecured - 19.50%;
  • Retail Term Deposits: 9 months to 1 year - 2.25%, 1 to 1.5 Years - 3.50%, 1.5 to 2 Years - 3.75%, 2 Years to 3 Years - 4.00%.

Interest rates are on a per annum basis and may be varied by ANZ without prior notice.

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Monday, November 23, 2009

Westpac Interest Rates (updated 23.11.09)

Schedule of interest rates released by Westpac Fiji are as follows:
  • Business Lending Rate - 9.99%;
  • Residential Property Loan : Variable Rate – 8.50%, 1 year Fixed Rate – 7.75%;
  • Investment Loan : Variable Rate - 8.50%, 1 year Fixed Rate - 7.75%;
  • Retail Term Deposits : 6 to less than 9 months - 2.25%, 9 months to less than 1 year - 3.00%, 1 year to less than 1.5 Years - 3.50%, 1.5 years to less than 2 Years - 3.75%, 2 years to less than 3 Years - 4.00%.

Interest rates are on a per annum basis and may be varied by the bank without prior notice.

Companies interested in developing new or reviewing their current strategic plans can contact us on telephones (679) 3342719 or (679) 9921427 or email info@gilbert.com.fj. We also carry out consultancies on capacity assessments and risk management.

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Friday, November 13, 2009

Tonga beats Fiji in World Bank's Doing Business Rankings

Of countries in the Pacific Islands Region, Tonga has beaten Fiji in the latest Doing Business Rankings done by the World Bank.

Tonga's Ease of Doing Business Ranking was 52 compared to Fiji's 54. Samoa follows at 57 with Vanuatu at 59, Kiribati at 79, Papua New Guinea at 102, Solomon Islands at 104.

View the country rankings on this link.

For advice or assistance with investing in Fiji, pls call us on (679) 3342719 or email info@gilbert.com.fj.

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Thursday, November 12, 2009

Colonial National Bank Interest Rates (Updated 11.11.09)

Schedule of interest rates released by Colonial National Bank are as follows:
  • Business Banking Base Rate – 9.20%;
  • Residential Property Loan : Variable Rate – 8.25%, 1 Year Fixed Rate – 7.25%;
  • Investment Loan : Variable Rate – 8.25%, 1 Year Fixed Rate – 7.25%;
  • Retail Term Deposits: 9 months - 5.00%, 1 year - 3.50%, 1.5 Years - 3.75%, 2 Years - 4.00%, 3 Years - 4.50%.

Interest rates are on a per annum basis and may be varied by the bank without prior notice.

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Monday, November 09, 2009

Reserve Bank increases Statutory Reserve Deposit Requirement

The Reserve Bank of Fiji has announced that it will increase banks Statutory Reserve Deposits to 7%, from the current 5%.

The increase will reduce the amount of funds that banks available for lending and other purposes.

The move comes as inflation rates rose to 6.3% in September 2009 from 5.1% a month earlier. Year end inflation has been forecasted by the Reserve Bank of Fiji at 9.5%.

Taken together with the Reserve Bank's earlier directive that banks reduce their interest spreads to 4% over 2009, banks will face committed pressure to attempt to maintain their profit margins as they work to meet the Reserve Bank's directive.

Over the last ten years, the Reserve Bank of Fiji has used interest rates as a primary tool to influence interest rates movements. Apparently, this might not have worked as planned so over the last two years, the Reserve Bank has gone back to using more direct means of controlling bank credit through the use of statutory reserve deposit requirements, credit ceilings and specific interest rates directives.

Note : For bank and financial sector compliance advice, pls call our office on (679) 3342719 or email info@gilbert.com.fj. We have assisted a number of financial institutions (in the banking and insurance sectors and the capital markets industries) to put in place policies and procedures to meet any relevant requirements imposed by their financial sector regulators. Our Principal has also sat as a Board Director of a licensed credit institution in Fiji. During his time there (a little over 2 years), he assisted with putting in place appropriate policies and processes and improve the risk and compliance culture within the company. These contributed to the institution making record profits over 2 years consecutive years. Refer to the financial institution's relevant summary financial statements for the 2 years here and here.

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