The principal statutory role of the Reserve Bank is to ensure and maintain at all times the financial stability of the overall banking sector in Tonga. This calls for strong capitalisation and ample liquidity in all of the four banks under its licensing regime. Overall, there has been sufficient and ample liquidity in the banking sector in the past decade to date.
However, recently the threat of loan default risks has increased as the non-performing loan ratio of the total banking sector rose to 11.2% by 30 June 2024, compared to 9.1% a year ago and 3.4% as of 30 June 2021. Non-performing loans (NPLs) are loans in which the borrower is not making the agreed-upon payments of principal and interest for a specified period, typically 90 days or more.
In dollar terms, non-performing loans as of 30 June 2021 were T$16.2 million. By 30 June 2024, non-performing loans increased to T$58.1 million.
The concerning trend of non-performing loans of this magnitude requires the Reserve Bank to closely supervise and impose regulatory measures necessary to reduce the risks.
Governor Moeaki stated that: “In such a risky situation, regulatory compliance by licensed banks is an important safeguard for financial stability and for the best interests of depositors, borrowers and all stakeholders.
“The Reserve Bank has always discharged its statutory duties and obligations, reasonably, equitably, and in good faith.
“The Reserve Bank reaffirms to the public its commitment to upholding its statutory mandate of maintaining the stability of the financial and banking system of the Kingdom,” stated Governor Moeaki.
_
