Colonial National Bank reduces variable lending rates

In its latest interest rates published on 14 July 2009, Colonial National Bank has reduced its variable lending rates for residential home loans and investment property loans by 0.25% to 9.25%, from 9.50%.

There has been no changes to the bank's deposit rates.

This follows the Reserve Bank of Fiji's recent directive for banks to reduce their lending rates to the levels they were at end December 2008 and for each bank's interest spreads to be not more than 4% after a certain time period given to them.

Reserve Bank of Fiji issues Risk Management Policy for Insurance Companies

The Reserve Bank of Fiji has recently issued a Risk Management Policy governing the operations of companies licensed to conduct insurance business in Fiji. The policy puts in place requirements that cover the identification, assessment and management of risks by insurance companies including the development of appropriate risk management frameworks, policies and processes to manage risks.

One of the areas our company, Gilbert & Samuels Company Limited, consults on is the area of risk management. We can help companies identify risks, evaluate those risks and put in place strategies and controls to manage any residual risks that remain within the company.

We can also develop appropriate risk management policies and processes for companies to help them with managing risks within their businesses.

For more information, you can call our office on telephone (679) 3342719 or email info@gilbert.com.fj.

Note : Search for our company, Gilbert & Samuels Company Limited, on Facebook. We post informatoin on the services we offer and the work we are currently doing there.

Reserve Bank of Fiji issues guidelines for local Boards and on microfinance for banks

The Reserve Bank of Fiji has issued three new policy guidelines for licensed banks. The guidelines include :

• Minimum Guidelines for the Establishment of a Local Advisory Board;
• Policy Guideline on Complaints Management; and
• Minimum Requirements for Commercial Banks on Internal Micro finance Divisions and Units.

Of note are the guidelines for the establishment of local advisory boards and that for establishment of internal micro finance divisions by banks operating in Fiji.

Currently, whilst a branch of a foreign bank operating in Fiji is headed by a General Manager (or something similar), he/she and the Fiji operations reports directly to a division of the bank that looks after its foreign operations, at the bank's country of incorporation.

Policies on trading and business are currently established by the foreign branch bank's head office with its Fiji operations requested to comply with those. The establishment of local advisory boards should facilitate the more rigorous review of the applicability of some of those policies to Fiji.

An advantage of a local advisory board is that it would, hopefully, also look into more proactive product development that best suits the customer profiles of Fiji banks, rather than the "advanced and complicated" needs of a foreign customer.

With regard to the other policy requiring the establishment of internal micro finance divisions within banks in Fiji, given Fiji's current economic and business environment, focusing on the establishment of micro and small enterprises and providing necessary training to those interested in how to run a business, would be of immense benefit to the country.

In recent years, most people have been displaced off land and from regular paid employment. Instilling a business and entrepreneurial focus on such citizens will help promote a financially independent attitude that will drive them to fend for themselves by running their own businesses. This will reduce the "hand-out mentality" and a heavy reliance on Government and social security and social welfare safety nets.

Looking at, and developing other incentives to promote the development of small and micro enterprises, would be of benefit to Fiji in the areas of :

• subsidised training for budding business people and entrepreneurs;
• subsidised taxes (perhaps for the first few years of operations until businesses get on their feet);
• setting up commercial tax free zones for such small businesses, subsidised procurement prices for essential business overheads; and
• setting up centres where business owners can learn from each other's experiences and share their own experiences and challenges as well.

The move by the Reserve Bank of Fiji in establishing these policies are commendable and we hope that the objectives of these various policies are met.

The guidelines take effect from 1 January 2010.

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."

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.”

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.

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.

Reserve Bank of Fiji removes credit ceiling

The Reserve Bank of Fiji earlier this week removed the credit ceiling restrictions placed on banks and credit institutions operating in Fiji.

The removal of the credit ceiling is expected to contribute to growth in bank's and credit institution's lending portfolios with growth by certain financial institutions heavily restricted during the time the ceiling was in place.

ANZ to reduce interest rates further

ANZ will reduce interest rates further on 29 July 2009.

The reduction in interest rates come about as a result of the Reserve Bank of Fiji's policy for banks to reduce their lending rates to the levels they were as at end December 2008 and for interest spreads to be not more than 4%.

ANZ has also announced that the reduction in interest rates comes together with a raising of the risk preferences that the bank have. The bank has said that it will be more comfortable now with lower risk loans and customers that it would otherwise have been.

Reserve Bank changes Offshore Insurance Placement Policy

The Reserve Bank of Fiji announced a change in its policy on offshore placement of insurance business effective from 1 July 2009.

The new policy does not require those intending to buy insurance offshore to provide multiple quotes from the domestic market prior to applying to the Reserve Bank for approval.

The review by the Reserve Bank was said to help in simplifying the approval process for buying insurance offshore.

Insurance may be bought offshore in the following circumstances :

• where a particular insurance cover is not available locally;
• where the insurance premium for an offshore insurance cover is less than 15% of a similar cover obtained in Fiji; and
• where it is in the public interest to buy an insurance cover offshore.

My Observations

Over the years, I would assume that the first two of the instances noted above have generally been the primary reasons for purchase of insurance offshore. However, the third ground on which insurance may be bought offshore appears to be of interest at this particular time.

Given that insurance premium is a function of perceived future risk and past claims, it may appear that due to events happening in the domestic sphere, insurance providers may have raised insurance premiums by significant proportions. Added to this is the fallout from the global financial crisis from which most countries are suffering.

Companies in Fiji may use these reasons as justification to buy insurance offshore. Given that these companies serve members of the public, they can argue that they will be able to sell their products are a lower price, if they can reduce their costs by buying cheaper insurance offshore.

However, if that is permitted, then local insurers may stand to lose out on business that they would have traditionally had access to over the years.

In the long run, this may help correct pricing of insurance premiums as local insurers would have to re look at their pricing of products again for the Fiji market. Some might even be priced out of the Fiji market.

There are also some types of industries where it is in the public interest for them to buy insurance offshore. Some of these industries may include the health industry for certain types of covers, institutions that serve a public purpose for which cover cannot be adequately provided by local insurers, wealthy companies and individuals taking proactive risk management measures by buying insurance that better serves their needs offshore, are some that come to mind.

At these times, one would expect a rise in applications to be submitted to the Reserve Bank in this area. Given that, there should be a likely rise in approvals which would have a negative impact on Fiji's foreign reserves.

For information on our various consulting services, pls call our office on telephone (679) 3342719 or email info@gilbert.com.fj.

Westpac to reduce lending rates later this month

Westpac Banking Corporation Limited will reduce its business index lending rate by 1% and its variable rate on housing loans by 1.5% and its variable rate on investment property loans by 1% on 22 June 2009.

No reduction in deposit rates have been announced by the bank.

The reduction follows a lead taken by ANZ Banking Group Limited to reduce lending rates across the board by 0.5% by 1 June 2009.

These follow a policy directive taken by the Reserve Bank of Fiji in mid April 2009 requiring banks to reduce their weighted average lending rates to the levels they were as at end December 2008 and to cap their interest spreads (i.e. the difference between a bank's weighted average lending rate and it's weighted average cost of funds) to 4% within 3 months from mid April 2009.

Impact of recent policy decisions in Fiji

Recent policy decisions taken in Fiji have had implications which have taken place in a very short time.

A decision to retire civil servants at 55 years of age has resulted in a severe shortage of school teachers in Fiji schools as Term 2 of the school year began on Tuesday, 19 May 2009. Read here a story by Elenoa Baselala.

Earlier this week, it was reported that of the government personnel sent home upon reaching 55 years of age, about 200 are to be recruited again into the civil service as reported in the Fiji Times on Tuesday, 19 May 2009. This re-engagement of retired civil servants will add onto government costs as they will have to be insured at higher premiums, might have to be paid at a higher salary than what they were receiving when they were retired, and all this after they would have taken their funds from Fiji National Provident Fund. Most workers who continue working after 55 years of age, often choose to leave their funds there until such time they are effectively retired from employment.

After doctors and nurses have been sent home early on reaching 55 years, Government is now looking at recruiting doctors from India. The move will contribute to increased costs to Government as it pays high salaries and benefits package, in addition to relocation costs as it attempts to attract those doctors.

Last week, I had analysed that the Reserve Bank of Fiji's recent policy decisions will presumably see banks and financial institutions working to raise their non-interest income streams which would ultimately mean that banks will be paying more and higher bank charges. This is because the recent policy announcement by the Reserve Bank has only concentrated on containing interest rates and spreads. Banks and financial institutions might therefore not lose out at all as they make their money/profits from non-interest income streams. Read my posts on this blog last week.

The recent devaluation has not had a desired effect on the tourism industry in Fiji. Tourism Fiji, the former Fiji Visitors Bureau has reportedly said that they have not seen an increase in numbers of tourists as had been expected after Fiji devalued its dollar by 20% a month ago. There are, therefore, other factors that come into play. Are they linked to the political environment or are they more linked to the effect of the global crisis on people's purses as they suffer the fallout from global recession and higher costs of living?

Over recent weeks, most merchants in Fiji have some way or another benefited from the devaluation. Some have used the opportunity to raise their prices of goods at ridiculous levels. For instance, a Gillett Mach 3 Turbo 4-blade pack, which I would buy at around F$17.00, had risen to almost $25.00 with the reason given by the cashier, and with a smile, as "it's the devaluation". The Consumer Council of Fiji would really need to do a survey of some of these shops soon.

As Fiji works on attracting more foreign investment, one of the things that will need to be worked on is to ensure at all times that investors interests are adequately protected as they participate in commerce. If there are some issues with laws on a broader scale, research has shown that at an entity level, companies should at least attempt and put in place adequate safeguards to protect their interests of shareholders and owners. This serves as an attraction before an investor would decide to invest in business in a particular country.

Almost all our efforts in recent years and months have been focused on promoting more sports without much emphasis on other areas where our children could be exposed to help build their future. Read an earlier post I did on this on my other blog here.

In the meantime, Government has reduced the age where people are allowed to drink liquor from 21 to 18. In this environment, when things are looked at in totality, what are we promoting? Is it alcoholism at an early age? Read here.

When one analyses some of these policy decisions, it is difficult to see any coherent flow of policy ideology in some of these decisions. Policy makers will stand back and review some of these policies again or those that are still in the works before they introduce them to ensure coherence.

Fuel prices rise and increased costs of doing business in Fiji

Fuel prices rise again from today, Monday, 18 May 2009.

The increases are a result of increases in the international product price of fuel and also the recent devaluation of the Fiji dollar.

Prices outside Viti Levu will vary depending on cartage and freight charges to individual islands.

The increase in product prices brought about by the recent devaluation of the Fiji dollar will contribute to increased costs of doing business in Fiji which may also see an increased in business failures as costs spiral out of control for businesses.

So far Government has not announced any special concessions or benefits that can be tapped by small or micro business enterprises during these hard times.

It is expected that reduction in interest rates as intended by the Reserve Bank of Fiji's recent monetary policy announcements will benefit this sector.

Last weekend, ANZ has announced a reduction in its variable lending rates by 0.5% effective from 1 June 2009. The regulator hopes that all other banks will follow suit and announce reductions in their lending rates.

Note : For investment advice and portfolio management assistance, pls call our office on telephone (679) 3342719 or email info@gilbert.com.fj.

We also provide consulting services covering strategic and corporate planning, business continuity planning, capacity assessments and on any issue relating to the financial sector.

Will customers pay higher bank fees under new RBF policy?

The Reserve Bank of Fiji had announced around mid April 2009 that it was capping banks and financial institutions weighted average lending rates to the level at which those rates were for each financial institution at end December 2008.

It also announced that it was placing a ceiling on the interest spreads of the same institutions to a limit of 4%. Read our earlier post on the Reserve Bank of Fiji's new policy here.

What does that mean?

While banks and financial institutions struggle with the new requirements, from which customers should greatly benefit from, particularly when interest spreads with some banks might be around 8% or so, this would mean that banks will desperately look at either increasing revenue from other non-traditional sources, such as fees and commissions, or cutting down their overheads, including closing branches and sending some of their staff home.

Banks and financial institutions might now all be looking at ways to increase their non-interest income, through raising of fees, charging of new fees, etc. It is interesting to note that the Reserve Bank's policy announcement in April 2009, did not mention anything on controlling non-interest income, particularly fees income and commissions, of banks and financial institutions.

So, customers? Expect some increase in your bank charges over the next few months.

As for overheads, banks and financial institutions would be all out to reduce their overheads as a direct result of the new banking and financial institutions requirements. This would see the cutting down of some services in some areas, closing of certain non-profitable branches and agencies, and termination of staff.

Again, you would be able to see these over the next few months.

Note : For investment advice and portfolio management services, pls call our office on telephone (679) 3342719 or (679) 3544897.

Interest Rates starting to trend downwards?

Treasury Bills (TBs) interest rates have started to trend downwards in figures disseminated by the Reserve Bank of Fiji today.

28 day TB rates fell from 5.79% issued on 8 April 2009 to 5.70% on its issuance on 6 May 2009. 91 day TB rates, similarly fell from 7.35% to 7.30% on those dates.

Banking system liquidity (measured by bank demand deposits held at the Reserve Bank of Fiji) rose to F$119.6 million at end 7 May 2009, from F$105.2 million a week earlier.

Given that TB rates have started to decline and given the rise in banking system liquidity which one hopes will be sustained, one can assume that commercial bank deposit rates should start to fall,. That ultimately should contribute to a fall in commercial bank lending rates.

As lending rates fall, the other challenge is to find projects/avenues where the available funds can be directed to be utilised for purposes that can generate production, exports and employment.

Check my other post here for suggestions on what can be done further.

Banking System Liquidity Improved Slightly - What can be done further?

Banking system liquidity in Fiji has improved slightly to around F$105 million at end April 2009.

This came after the Reserve Bank of Fiji's actions to reduce the deposit requirement that banks are to hold with the Reserve Bank to 5% from 6%. The Bank had also devalued the Fiji dollar exchange rate by 20% three weeks ago.


What can be done further to stimulate the economy?

The Reserve Bank of Fiji's actions have in the past been generally appropriate for Fiji.

Around 2006, to dampen growth in the property loans market and with intentions to promote lending for investment purposes, the Reserve Bank had put in a requirement that lending for housing mortgages be limited, particularly for those customers that already own a home/property.

They also reviewed all bank lending applications to ensure that lending was indeed directed towards investment related purposes.

What can be done now to encourage money to move around the economy and stimulate growth, is for lending by banks and credit providers to be encouraged again. However, as in the past, lending has to be for purposes that generate economic growth e.g. those that will generate production, more exports, and increased employment. Lending for residential property development and buying second home can still be restricted. (This particular market got very inflated a few years ago in Fiji, particularly in the Suva and Nadi areas.)

Should banks now work on developing mortgage securitisation products (having learnt lessons from the US banks' sub prime mortgage lending debacle) and be able to transfer out some of the loans that exist in their books, to free up their capital and liquidity for further lending? I am quite sure there will be interest locally and around the Pacific Islands region for buying mortgaged backed securities from Fiji. The regulator and potential investors, though, have to be up-to-date with the actual risks and how these securities are to be valued - these were both weaknesses in US regulators, banks and investors prior to the financial crisis of 2007/2008.

With more and more people are being displaced from their employment as a result of the global/local crisis, there would also be a need for an alternative livelihoods project (like that which had been done in the agricultural/sugar cane sector in the past) where such people are provided training on new skills to be able to generate income e.g. setting up and running small businesses.

The Small and Micro enterprise sector has been found to be one of those that can contribute well to the development of an economy, anywhere around the world.

In Fiji, people who wish to run businesses have a primary need to understand the basic principles of running a business, how not to mix business with their personal affairs, the rudiments of an accounting and recording system, how to raise capital and prepare the background papers for it, how to prepare budgets and monitor compliance with them, how to prepare business/corporate/strategic plans and to stick with them (including regularly review them to ensure that they are adequate for the changing environment in which they operate), etc.

More and more people are entering the job market with qualifications but there are not many jobs available. Yet, curricula in schools and tertiary institutions do not provide anything on entrepreneurial training like they do in Singapore, for instance.

Can we export some of our qualified personal but provide incentives for them not to entirely migrate to overseas countries where they will provide their services, but to still find it a benefit to remain a Fiji citizen/resident?

The development of a national human resource development plan should be able to identify these things.

These are some of my thoughts that can be developed further.

Note : For investment advice and investment portfolio management services, call our office on (679) 3342719, (679) 3544897 or email info@gilbert.com.fj. We also do consultancies in areas relating to the financial sector in Fiji and can conduct or assist with similar consultancies in the Pacific Islands region. Our other products include :

• strategic/corporate planning;
• business continuity planning; and
• capacity assessments.

No Change to Bank Interest Rates

There have been no changes to interest rates for banks in Fiji, after recent monetary policy decisions taken by the Reserve Bank of Fiji, including reducing the Statutory Reserve Deposit rates of banks from 6% to 5% of their deposit and similar liabilities.

This is evident from the interest rates published by the country's two largest banks, Australia and New Zealand Banking Group Limited and Westpac Banking Corporation in recent days which we have posted on our blog earlier today.

This would mean that interest spreads, the difference between average lending rates and average deposit rates or cost of funds of a bank, would still be high or at least have not changed much.

In recent weeks, the Reserve Bank of Fiji had issued policy directions to banks one of which was to reduce their interest spreads to 4% in three months time.

While retail customers, the ordinary bank customers including Moms and Pops, would have no change to their rates, wholesale customers have the advantage of enjoying higher rates. Wholesale term deposit rates for 1 year terms are still around 8% or 9%, however, there is some downward pressure on them.

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

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.

Fiji Dollar Devalued

The Reserve Bank of Fiji has devalued the Fiji Dollar by 20%. The devaluation takes immediate effect today, 15 April 2009.

The devaluation has been done to contain Fiji's falling foreign reserves as well as the impact of recent developments on the economy. Additionally, further restrictions on exchange controls have been put in place.

In simple terms, the devaluation would mean that more Fiji dollars are needed to purchase imports and exporters get more Fiji dollars when they export goods and services. This makes imports more expensive while exporters earn more local currency.

Devaluations are meant to discourage imports and to encourage exports, a reason for which is to assist maintain or boost our country's foreign reserves.

Given that things in or from Fiji will be cheaper to overseas buyers, it should help encourage more purchases of our goods and services from foreign buyers, including tourism.

However, for locals, cost of living would be expected to rise in the short/medium term as a direct result of the devaluation as prices of goods, particularly imported ones, rise. One outcome of this may see people putting pressure on employers to raise their salaries. However, raising salaries and wages would be a real challenge for employers given the current state of the economy, its performance, and the high costs of doing business.

PS : Note our post on the impact of the new ceiling on lending rates which were announced today by the Reserve Bank of Fiji.

For investment and business advice, please call our office on (679) 3342719 or email info@gilbert.com.fj.

Our Portfolio Management Services

The impact of the global financial crisis for Fiji can be seen in the figures released by the Reserve Bank of Fiji with a reduction in inward remittances by 26.7% during 2008. The tourism industry has also indicated how tough their marketing has been to attract tourists to Fiji at this time.


How can the crisis affect companies and individuals in Fiji?

Primarily, the impact of the crisis will be on those companies and individuals who have some assets or liabilities denominated in foreign currency or have products and services that they market to non-Fiji residents.

Companies and individuals who have their assets or liabilities denominated in foreign currency may find that their assets may increase or reduce in value depending on movements of the foreign currencies in which those assets have been denominated, against the Fiji dollar. For liabilities, they may find that they owe more or less than what they had previously owed, due again to movements in exchange rates.

Similarly, if an individual or company offers its products and services to a target market that are non-residents of Fiji and sell those overseas, then what they expect to get for those sales may change due to changes in exchange rates. More importantly, the global crisis may bring about a reduction in consumption demand in most of the economies/markets overseas which may include the economy/market where the individual or company offers its products and services.


Investment Advice and Portfolio Management Services

If you have investments or are considering some, it might be the best time to consult a professional that can assist you.

To protect your investments, we can assist you with portfolio management services at a competitive fee. As part of this service, we can review your current investments and make suggestions on how they can be improved to better weather the crisis. We can also review and recommend for you new investments that will meet your investment objectives. We will also provide you with regular (at least quarterly) updates on how your investments are performing during the time we manage your portfolio for you.

Investments will be held in your own name rather than by us giving you all the rights and control over investments made.

Our principal, Gilbert Veisamasama Jr, is a licensed investment advisor and with his licence he can provide investment advice and portfolio management services to clients.

If you are interested to discuss this further, please contact us on telephones (679) 3342719 or (679) 3544897 or email info@gilbert.com.fj.