NEWS

ANALYSIS: Periodic Reviews of The Financial Sector Are Critical

The Financial Sector Stability Reviews help identify finan­cial sector vulnerabilities with the key objective of formulat­ing and implementing financial sector reform programmes which are supported by intensive follow-up technical assistance.
05 Jun 2018 11:31
ANALYSIS: Periodic Reviews of The Financial Sector Are Critical
Attorney-General, Aiyaz Sayed-Khaiyum

The Financial Sector Stability Reviews help identify finan­cial sector vulnerabilities with the key objective of formulat­ing and implementing financial sector reform programmes which are supported by intensive follow-up technical assistance.

Fiji is only the fifth country in the world, and the first in the Pacific re­gion to undergo a Financial Sector Stability Review (FSSR).

A team from the International Monetary Fund (IMF) was in the country in February.

The team of seven experts was headed by IMF Senior Financial Sector Expert Peter Lohmus.

If we are to avoid a debacle like the collapse of the National Bank of Fiji, it is important that such re­views are done of our financial sys­tem.

As highlighted several times, Fiji­ans today are still paying for the col­lapse of Fiji’s first national bank.

A financial disaster which hap­pened under the watch of SODELPA leader Sitiveni Rabuka, who was the then Prime Minister.

To revamp our financial system, the 2018 FSSR mission has made some key recommendations for the continued strengthening of the RBF’s regulatory role, which are as follows:

(i)Given the dependence of the banking sector on foreign banking groups, supervision will need to ensure a strong link from the micro-supervision analysis to macro-pru­dential policy.

The supervisory approach will need to continue to evolve to become more forward looking, to proactive­ly identify and tackle risks in the banking system;

(ii)There is a need to strengthen the RBF’s capacity for the early detection of emergency stress in banks and corrective action.

The RBF should introduce recov­ery planning requirements for com­mercial banks;

(iii)Thirdly, amendments to the Banking Act 1995 will be required to address deficiencies in the regula­tory framework.

The current legislation is silent on key matters of consolidated super­vision and major acquisitions.

And this of course will be brought to Parliament in time to come soon.

The collapse of the NBF was spo­ken about in Parliament by the At­torney-General Aiyaz Sayed-Khai­yum, who talked about how hand written notes were given to bank managers instructing who to give loans to.

We need to be able to protect our­selves and our future generations from something of this sort happen­ing again.

The then Government issued $209 million in bonds to bail out the NBF. The funds borrowed were used to pay NBF depositors.

The overall cost including the in­terest payment has exceeded half a billion dollars.

Yes, exceeded half a billion dollars.

The initial bonds have matured, but both the SDL Government and later on the FijiFirst Government has had to rollover this debt.

This means that we are still pay­ing for this debt and it is likely that future generations will continue to pay for it.

This in fact has created intergen­erational inequity. The current and future generation has to bear the cost burden of the mismanagement of a State Owned Bank under the SVT Government.

Mr Sayed-Khaiyum had said that the situation was, exacerbated by the then senior Government minis­ters who “encouraged bad govern­ance, nepotism and interference in the affairs of the NBF. People were actually given hand written notes to the Bank Manager to give loans”.

Fiji cannot afford a national bank collapse of this magnitude, but with prudent periodical reviews, we can be sure that we are able to foresee something of this sort rising in the horizons.

Jyoti Pratibha

Feedback: jyotip@fijisun.com.fj

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