Reddy reveals bank returns, warns one

September 17, 2009 03:36:21 PM

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Commercial banks in Fiji enjoy returns of up to 40 to 50 percent even during times of economic decline, the Governor of the Reserve Bank of Fiji (RBF), Sada Reddy has revealed.

Speaking during an after-lunch question and answer session at the Public and Private Sector Consultative Forum in Suva today on the 2010 Budget, Reddy was forthright in urging banks to join in efforts at maintaining economic stability during the tough times being experienced globally.

He said bank returns in Fiji were as high as 40 to 50 percent and in some cases, even higher and that the ratios were “clearly out of line with those in neighbouring countries”.

“Even when the economy declines, they maintain their profitability,” Reddy said.

He went on reveal that while four out of five banks had complied with the RBF’s directive for banks to reduce their interest rate spread to four percent by December, one bank had not complied.

He urged that bank to “quickly comply if not sanctions will be applied”.

Reddy said banks were to blame for the RBF’s policy on the interest rate spread.

“When we observed that banks increased their rates in February/March against the wishes of government and the RBF, that triggered the policy.”

“If banks had heeded the moral suasion of the RBF, we wouldn’t have introduced that policy.”

Reddy was responding to comments from Association of Banks chairman and Westpac
Banking Corporation chief John Cashmore during an earlier session on the interest rate spread.

The RBF head said the policy will be review at the end of the year and most likely removed.

Cashmore also told the question and answer session that banks would not be increasing fees and charges ‘because we’re regulated by the RBF”.

Reddy also issued a strong charge to the banks in the area of microfinance development, as part of which the RBF announced it was setting up a microfinance unit.

The RBF, he said, was planning a microfinance workshop in November to see how best banks could comply with that directive.

“If you’re operating in Fiji, you have to move that way,” he said.

“Banks have a role in microfinance. Maybe not in Australia, New Zealand but in Asia and other countries they have a role to play.”

“Banks can partner with some of the NGOs. They don’t have to directly get involved with microfinance… that would to some extent fulfill our requirements.”