Reserve Bank encourages Tonga's banks to lend more [1]
Wednesday, March 14, 2007 - 17:14. Updated on Friday, May 16, 2014 - 20:18.
Tonga's Reserve Bank will introduce new measures to help inject liquidity into the local banking system, to help meet the demand for new credit by businesses trying to recover from the destruction of the town centre on November 16.
The Governor of the National Reserve Bank of Tonga, Mrs Siosi Mafi announced yesterday, that they will reduce the Required Reserves Ratio that commercial banks are required to deposit with the NRBT, in order to improve the liquidity status of banks.
Siosi said that the reduction of the ratio, "will inject additional liquidity to the banking system to assist with the anticipated pick-up in the demand for credit to support reconstruction."
Within the past month the NRBT has been readjusting its monetary policy in an effort to allow commercial banks to make available more capital funds for borrowers for the reconstruction of the capital, Nuku'alofa, and to revive the economy. On February 28 the Reserve Bank suspended the year old Credit Ceilings on lending to the private sector, and now a reduction in the Required Reserves Ratio is expected to take place before the end of the month.
Viliami Sikalu, the Westpac Bank of Tonga Manager for Finance and Treasury, said that the NRBT has good intentions because a reduction in the ratio will mean more capital for loans. He said that at the moment the ratio means that 12.5% of all deposits with commercial banks are deposited with the NRBT, "but a reduction of say 5% would mean more capital will be available for loans".
Viliami pointed out that when the NRBT first introduced the ratio it was only 5%. It went up to 15% then it was reduced to 12.5%.
With regards to interest rate on loans, Viliami said that the interest rate is set by the economic formula of supply and demand, "and if we go by the figures that have been put forward that is required for reconstruction of $150 - $200 million, the demand is still very high and commercial banks can't supply, so the interest rate will remain as it is, and it may even go up."
Viliami believed that a solution to Tonga's shortage of capital funds would be an injection of a huge amount of foreign capital. "A direct payment by insurance companies to insurers who lost their businesses would have made a difference, but some of the claims have not been honoured.
"The talk of soft loans would ease the demand but if it comes to government, they would release the loans in drips through the Reserve Bank and it would make very little impact."