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Working Group 5 BACKGROUND The financial services sector in Fiji is a significant contributor to Fiji’s economic growth and to job creation. In 2006, the sector employed over 7,200 employees, contributed close to $119.0 million in taxes and represents around 14.0 percent of gross domestic product (GDP). The sector comprises three major industries: the banking industry, the insurance industry, and the other non-bank financial institutions (OFI), which include the Fiji National Provident Fund (FNPF), the Home Finance Company, the Unit Trust of Fiji, the South Pacific Stock Exchange (SPSE) and a number of credit unions. The financial sector mobilizes savings and allocates credit across society. It provides not only payment services but also enables firms and households to cope with economic uncertainties by hedging, pooling, sharing and pricing risks. As well, it provides a service as intermediaries in the capital and debt markets and is responsible for transferring funds from investors to companies. Importantly, it is a major facilitator in raising the standard of living of our people. Between 1970 and 1990 , the average ratio of Reserve Bank assets to GDP fell from 1.2 percent in the 1970s to a marginal 0.1 percent in the 1990s, thus indicating the reduction in size of the Reserve Bank relative to Fiji’s economy. Contrary to this, a constant rise in the average ratio of commercial bank assets to GDP was observed over this period. Interestingly, the OFI average ratio of assets surpassed that of commercial banks, reflecting the growing importance that OFI has in the Fiji economy. The Financial Sector in Perspective Activity measures of financial intermediaries , such as the average ratio of private sector claims by commercial banks to GDP and the average ratio of claims by both commercial banks and OFI to GDP, increased constantly from the 1970s to the 1990s. In addition, data from the 1980s shows that the growth of private credit offered by OFI was greater than the other parts of this sector. The concentration of commercial banks , which is given by the ratio of the 3 largest commercial banks’ assets to total banking assets, shows that while there was a gradual decrease from 93 percent in 1990 to 78 percent in 2000, market power in the sector remains relatively high. The ratio of stock market capitalization to GDP has experienced sustained growth, from 6 percent in 1997 to 10 percent in 2001. However, while the size of the stock market has increased in Fiji, there has been very little activity observed and the ratio of stock market value traded to GDP has been on average just 0.3 percent over the period. In addition, the stock market turnover ratio, which measures the efficiency of the stock market, has fluctuated. Between 1997 and 1999 there was an increase in the ratio from 1 percent to 6 percent, however, it decreased to 4 percent in 2001. The Reserve Bank of Fiji (RBF) has continued to develop and strengthen its capacity to supervise the Fiji National Provident Fund (FNPF) and the Fiji Development Fund (FDB). The RBF will continue the consultation process with FNPF on the implementation of further recommendations from the 2006 on-site examination as well as the off-site assessments for the FDB’s monthly and quarterly returns. Given the framework of government’s financial system and capital market reforms, there is a need to place emphasis on the proper supervision of non-bank institutions, while foreign banks have followed prudent parent company regulations, the same degree of financial regulatory compliance should be applicable towards the operations of state-owned non-bank financial institutions. In addition, the expansion of Fiji Development Bank (FDB) into commercial banking will need to be closely monitored to ensure that it does not conflict with its established mandate of development banking. The insurance industry plays an important role in Fiji’s financial markets. Prescribed ratio controls (as per the Life Insurance Act and the Insurance Regulations) have tended to limit investments by life insurance companies thus there is a need to establish a mandatory framework to detail investment requirements for life insurance companies and at the same time, provide for closer supervision of the industry. Issues
Fiji savings rate is very low. This may be because the real rate of return on savings accounts has often been low as well. For investment to happen, we need to generate more savings. Successful countries are normally associated with higher savings rate. In addition, with diversified sources of funds, more investors can emerge or more investments are made.
Further development is needed for the extension of formal retail banking services to rural and outer areas. This will increase the efficiency of the rural population access to financial services and their ability to establish and expand businesses and to meet social needs.
The absence of an independent body listening to grievances of the customers is also an issue. A Financial Service Commission for the entire financial system in the country could be established in order to look at customers’ grievances, to introduce and manage a comprehensive program of consumer awareness and education, as well as providing information and guidance on the financial institutions and instruments. The review of the financial services sector is to examine all possible avenues in order to achieve a vibrant financial services sector, which will subsequently open opportunities and allow each member of society to access a wide variety of services that will contribute to improving the quality of life. The achievement of a vibrant financial services sector will focus on the following:
Currently, banks are reluctant to lend to any but the larger companies and will not lend to sole proprietorships at all. The WG could consider reviewing reforms for the financial services Secured Transaction Framework to encourage lending to Sole proprietorships. In the last five years there has been an emergence of micro-finance based institutions such as: Cooperative, Credit Union League, Micro Finance Unit, and Women Small Enterprise Development Units. Despite their concentration on a specific segment of the credit market, there is still a requirement for regulations to be put in place to ensure that the interests of these institutions and borrowers are protected. Finally, as the financial markets become more developed and competitive so must the financial regulatory environment. The Reserve Bank’s role in monitoring and supervising the financial system must be increased to avoid unnecessary exposure to economic or financial shocks. This will ensure that the financial system is operating under a sound and stable environment with an appropriate level of funds management and improved disclosures of financial statements. Tasks
Composition The Working Group is to comprise up to 20 members: of whom at least four are NCBBF members plus up to sixteen others from government and non-government sectors. Additional members are from the non-government sector. The Working Group has the power to co-opt additional members as it sees fit. Timeframe It is anticipated that the Working Group be established and operational within a fortnight. In consultation with Head of TASS, the Working Group may request the preparation of literature reviews and commission Issues and Discussion Papers (IDPs) to assist in its deliberations. The Working Group shall report back to the NTT 2 at the latest by mid-March 2008 with its reports and recommendations to assist in the preparation of the State of the Nation and Economy (SNE) Report. Literature Review There has been some documented studies undertaken with regards to the Financial Services Sector in Fiji, this includes the Asian Development Bank appraisal on Private Sector Assessment for Fiji Islands titled “Promise Unfulfilled”. In addition the Reserve Bank of Fiji documented two Working Papers focusing on the ‘Financial Sector Development and Reform in Fiji’ and ’Financial Development and Economic Growth in Fiji’. The WG may consider perusing the proposed documents suggested below as supporting materials which may assist in their discussion with regards to the priority areas or issues. References FIBOS Publications.
Van Tien, Dr. T (2003), “Social Health Insurance in Fiji”, Ministry of Health. Waqabaca, C. (2004) “Financial Development And Economic Growth In Fiji”, Working Paper 2004/03 December 2004 Economics Department Reserve Bank Of Fiji Suva Fiji Www.Reservebank.Gov.Fj/Docs/2004_03_Wp.Pdf.
Waqabaca, C. (2000)“Financial Sector Development And Reform In Fiji”. Working Paper. 2000/05. September 2000. Economics Department. Reserve Bank Of Fiji Financial sector governance in micro-states : issues and challenges for Fiji / by Pramendra Sharma and Mahendra Reddy..[S.l. : s.n., 2003]. Held at: Pacific Collection - General.
“Private Sector Assessment For Fiji Islands – ‘Promise Unfulfilled”, (2006) ADB “Strengthening Public Sector Financial Governance”, ADB TA 35491 (Financed By The Japanese Special Fund) August 2003. Contributions of exports of services towards Fiji's output / Sanjesh Kumar and Biman Chand Prasad. Suva, Fiji : School of Economics, The University of the South Pacific, 2007. Taking a cue from Siwa : the economy looks good, but as international financial expert, Savenaca Siwatibau points out, there is potential to do even better, if Fiji can apply the will . In: Review (July 1993).
Governor of Reserve Bank Speeches at the official opening of the following institutions:
Press release on ‘Government wants to improve competition in the Financial Sector’ 26th September 2007, news article from the Government Website: www.govnet.gov.fj.
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