RBF Help for Flood Affected Businesses

Following its announcement of a Flood Rehabilitation Facility in an RBF press release dated 27/2/09, The Reserve Bank of Fiji has today (01/04/09) announced the implementation of the facility proper. The facility is aimed at businesses affected by the recent floods by providing low interest paying loans. The facility is worth FJD 20 million, maximum interest charged is 6 percent per annum and the loan term is a minimum of 6 months with the possibility of extension.

Businesses may apply for funds for the following reasons:

• Replacement of flood-damaged inventory;
• Loss of sales (including working capital) due to the flood;
• Repair or replacement of flood-damaged plant, machinery and equipment;
• Restoration of flood-damaged buildings including resorts and hotels;
• Replacement of vehicles damaged by the flood.

For interested businesses, further information can be obtained from the Fiji Development Bank, commercial banks in the country or The Reserve Bank of Fiji.

Fiji Development Bank to concentrate on its developmental function

Fiji Development Bank has been asked by the Minister for Finance to focus on its initial developmental function and that is to concentrate on lending in the agricultural and small business sectors.

In recent years, the Fiji Development Bank has boosted its commercial lending area and is somehow a direct competitor to banks.

While it still does offer lending in the agriculture and small business sectors, lending in these areas may have been crowded out in the development bank's bid to increase its commercial loan portfolio.

One of the reasons that the development bank has gone into commercial lending was to contain the rise in losses from its agriculture lending portfolio.

On the whole, a good review of the function of each financial intermediary would be necessary to ensure that they are all contributing to development in Fiji. Over the years, as new entities has sprung up, a dilution of the distinct role of each entity may have resulted.

It would be good therefore that Government does a review of the entire financial sector to ascertain and clarify what role each intermediary or sub-sector of that sector should play.

Fiji Development Bank Interest Rates (Updated 1.11.07)

Schedule of interest rates released by Fiji Development Bank are as follows :

• Residential Property Loan : Variable Rate - 10.25%, 1 Year Fixed Rate - 8.25%;
• Investment Loan : Variable Rate - 10.75%.

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

Fiji Development Bank to be reviewed

The performance and operations of the Fiji Development Bank (FDB) are to be reviewed as approved by the Interim Cabinet. The special and detailed review of the FDB is to be conducted by the Reserve Bank of Fiji.

Fiji Development Bank's Choice Home Loan Facility

One of the most liberal home loans packages recently introduced in Fiji is that by Fiji Development Bank's Choice Home Loans. These are some of its features :

• 50 year mortgage;
• interest only payments mortgage; and
• low doc loan.

From an individual's perpective, going into such a long term loan of 50 years has its drawbacks one of which is that by the time a person retires he would still have a loan outstanding to pay.

For instance, most home property buyers in Fiji use a part of their funds with the Fiji National Provident Fund (FNPF) to help make up a deposit to buy their first residential property. For these people, they spend the first few years of their working life building up their FNPF to then be able to have enough to meet the deposit required for purchase of property.

This means that the majority of individuals would buy their first property when they are in their late twenties or early thirties.

If such a person takes a Choice Home Loan and its 50 year mortgage, they would have to make loan repayments until they are almost 80 years old when retirement age in Fiji is between 55 and 60.

On the other hand from an institutional perspective, locking funds into long term lending (such as the Choice Home Loan 50 year mortgage) while the majority of funding sources are short--term (between 1 and 3 year terms), places a huge strain on maturity matching of sources and uses of funds and the institution's asset-liability management. In short, it is not good as well for the institution that is providing it.

It would be good for the institution and the appropriate authorities look into the suitability of this particular product again. The institution may have its logic for offering such a product but as someone that has experience in the financial sector for over 17 years, I cannot really bring myself to understand it.