In a real sense, encouraging new entrants in the financial system can be considered a national risk management strategy, says Bank of PNG acting governor Elizabeth Genia.
“In recent years, we have seen internationally active banks leave the PNG market,” she said.
“This has resulted in concerns for increased risks of anti-money laundering/counter terrorism financing and cyber security issues for domestic financial institutions which have acquired the assets disposed of by the departing institutions.”
Genia said recognising those risks, BPNG strongly supported domestic financial institutions to increase capital charges and to upgrade their core banking systems to achieve more robust anti-money laundering/counter terrorism financing, anti-compliance and cyber security.
“The simple fact is we have a low ratio of banks to people, compared with our smaller South Pacific neighbours,” she said.
“This lack of financial choice is causing an ongoing bottleneck that is restricting our nation’s economic development.
“But of course, new entrants to our financial system need to be the right new entrants.
“We do require all participants in the PNG financial system to contribute positively to BPNG’s mandate relating to the development of the system.”
Genia said BPNG’s mandate was to produce financial regulation and prudential standards to ensure stability.
“All participants in the PNG financial system must comply with these regulations and prudent standards,” she said.
“BPNG takes its supervisory responsibilities very seriously.”
Genia said BPNG did not require financial institutions to be all things to all people.
“Specialising in a particular sector, or a type of product, is just as valid,” she added.
Meanwhile, many small foreign-owned businesses in the country, and some larger resource companies, operate on a cash basis and avoid formal banking, says an economist.
PNG Institute of National Affairs executive director Paul Barker, commenting on the Bank of China (BoC) opening its office in the country last Thursday, said China was now a big investor and trading partner in PNG.
“The Chinese, but also some other businesses, would find it convenient to have an additional banking source both for supporting investment and trade finances with strong Chinese market links – whether the Bank of China, Hongkong and Shanghai Banking Corporation Ltd or other banks,” he said.
He said BoC, as a representative office, was well placed to monitor the PNG market, develop ties and assess whether to seek a banking licence in the next few years.
Barker said it was important for foreign-owned businesses to formalise transactions.
“It would also reduce the risks of crime associated with large quantities of cash accumulating,” he said.
“These businesses may be more willing to bank with BoC, but might still wish to avoid oversight from both PNG and Chinese authorities.
“PNG authorities need to strengthen financial oversight, while encouraging greater competition and access to financial services as well as overseas businesses.” Barker said the Chinese businesses were looking for new economic opportunities overseas.