The Governor of the National Reserve Bank of Tonga, Mrs Siosi Cocker Mafi, stated that at its meeting on 28 July 2009 the Reserve Bank Board noted that economic activity continued to slow down due to the impact of the global financial crises and contributing to this slow down is the decline in domestic credit growth. Domestic banks are tightening their lending criteria due to high non performing loans.

In the year to June 2009, remittances fell by 14 percent, tourist receipts fell by 5.9 percent, and imports have also slowed down. Total private sector credit growth contracted by 2.9 percent year on year to June 2009. The slow economic conditions have resulted in businesses and individuals in Tonga facing financial difficulties and affected their ability to repay their debts.

The Reserve Bank and the Association of Banks in Tonga have been discussing ways to assist businesses and individuals who are facing difficulties with the repayment of their loans. Amongst other measures, these discussions focused on, interest rates, statutory reserve deposit ratio, and foreign exchange spread.

At its meeting today, the Reserve Bank Board endorsed the following measures with effect from the 4th August 2009:

1. That the Reserve Bank's Statutory Reserve Deposit (SRD) Ratio is reduced from 10% to 5%. Domestic banks have confirmed that the reduction in the SRD would enable them to further lower lending interest rates to ease the financial difficulties of borrowers.

2. Domestic banks will now be required, under the Reserve Bank Prudential Statement 4, to disclose the "effective interest rate" which includes interest rates charged on loans plus all the other different types of fees and charges levied by the bank on top of the interest charges. This would enable customers to be fully informed at the outset of the total cost of their borrowings from the banks and to compare prices of different products offered by the banks.

3. That the domestic banks have voluntarily agreed to reduce their existing exchange rate spreads on Telegraphic Transfers (T/Ts) as follows:

• USD/TOP up to a maximum of 220 basis points
• AUD/TOP up to a maximum of 300 basis points
• NZD/TOP up to a maximum of 350 basis points

These exchange rate spreads are to be reviewed in 12 months time. The reduction in the exchange rate spreads would assist those customers who currently use the banks carded rates. Businesses and members of the public with transactions of amounts above TOP10,000- are encouraged to shop around and negotiate a better exchange rate.

Governor Siosi Mafi reiterated that the Reserve Bank will continue to work closely with the banks and the Government in exploring further practical assistance to those businesses and individuals facing temporary financial difficulties without endangering the safety and soundness of the Kingdom's financial system. - Press Release. National Reserve Bank of Tonga, Salote Road, Nuku'alofa.