Page 26 - Islands Business March 2023

Banking

BANKING: A REGIONAL OVERVIEW

At the end of 2022, the Papua New Guinea government and observes that the Central Bank of Samoa could “begin
signalled its intent to set up a state-owned commercial bank, normalising its highly accommodative monetary stance. This
and take a government seat on the board of Bank South would contribute to financial stability by containing further
Pacific. The plan has been criticised given the history of the increases in private borrowing and build up policy space to
poorly-managed Papua New Guinea Banking Corporation, respond to future shocks.”
which was privatised (and sold to BSP) 20 years ago. Kiribati is seeking an expansion of private sector credit,
Critics also say the second plan bodes poorly for corporate but financial data is not readily available. However, the World
governance in PNG. Meanwhile the Bank of China has Bank recently announced a Digital Government Project which
expressed interest in operating in PNG, Credit Corporation will expand online services, including financial services. A key
Finance has received approval in principle for a banking element will be the issuance of digital IDs for up to 20,000
license, and Teachers Savings and Loan Society also has plans people.
to become a commercial bank. Kina Bank CEO, Greg Pawson Nauru’s Department of Finance operates an agency of
says while there is a need for more competition in the sector, Bendigo Bank, but continued work is needed to strengthen
changes in corporate income tax (up to 45% from 30%) will AML frameworks, and to combat the financing of terrorism,
make it difficult for other banks to compete. He says Kina says the ADB.
Bank is reviewing its planned investments for this year, and In the Solomon Islands, private sector credit is increasing.
many will be suspended if the tax hike proceeds. The government enabled the National Payment Systems
Cook Islands has seen a decline in private sector lending. Act last year, which will increase access to affordable
Major hurdles include the high number of non performing digital payment services and drive wider financial inclusion.
loans and the lack of an efficient payment system. The Cook It paves the way for the country to adopt an electronic
Islands Credit Bureau database, where member banks and funds settlement process. Accompanying regulations and
financial institutions can check the credit history and details infrastructure are now being developed. Our Telekom’s mobile
of customers, seeks to address this risk. The Cook Islands money service is in beta testing and will be rolled out this
government has for some time been exploring the possibility year.
of joining the New Zealand payments system, which could While Tonga’s financial sector is stable, it also lacks
increase efficiencies and reduce costs. The government is diversity and is relatively underdeveloped. “Regulatory
also looking at how it can bring into Cook Islands some of the vigilance is essential due to risks arising from lenient lending
NZ$30 million of revenue earned there, banked offshore due standards and a lack of supervision of the small number of
to limitations in electronic payment systems and historical nonbank financial institutions,” an ADB assessment says.
offshoring of payments, especially in New Zealand. Tuvalu’s banking sector is relatively unregulated and
The Marshall Islands also suffers from high levels of instituting effective banking oversight as well as expanding
household debt, and the loss of correspondent banking access to financial services is key. The IMF has said:
services due to the high costs of U.S. anti-terrorism financial “Continued lack of effective financial supervision of banks
rules. The RMI government is strengthening financial and weak balance sheets of State Owned Enterprises
regulations and drafting new Anti-Money Laundering (AML) create contingent risks to the government and impede
laws. Last year, the IMF noted that RMI should be cautious in credit intermediation.” These risks include a loss of the
pursuing the digital currency SOV as a second legal tender, correspondent banking relationship.
the Digital Economic Zone and the newly enacted Law While financial inclusion is relatively high in Vanuatu,
on Decentralized Autonomous Organisations, saying they access for people on outer islands needs to be better, as does
“introduce potentially significant macroeconomic, financial credit availability for small and medium-sized businesses.
stability, and financial integrity risks” and could jeopardise Banks operating in Vanuatu have recently made their debt
the RMI’s last USD corresponding bank regime. card and EFTPOS machines interoperable, a Pacific Islands
In Samoa, an IMF assessment released this month noted first.
that lending to businesses has declined, and household Mobile money transactions have grown quickly in Fiji.
borrowing has grown modestly, driven by the lending of public One platform, Vodafone’s M-PAiSA, is projected to process
financial institutions. It continued: “While the economic payments worth $3 billion (US$1.5 billion) worth of income
downturn has raised non-performing loans, they remain within this financial year. Meanwhile, The FIJICLEAR Real Time Gross
historical averages”. The IMF supported efforts to reinforce Settlement System underwent an upgrade last year.
the financial position of the Development Bank of Samoa,
which recorded a before-tax loss of SAT$3.3 million in 2021 editor@islandsbusiness.com

26 Islands Business, March 2023