Loi M Bakani: Challenges and developments for a sound and stable
financial system in the Pacific region
Opening remarks by Mr Loi M Bakani, Governor of the Bank of Papua New Guinea, at the
Annual Meeting of the Association of Financial Supervisors of Pacific Countries (AFSPC),
Port Moresby, 22-26 September 2014.
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Acknowledgements
Mr. Gilbert Wongsin - Chairman, AFSPC (Chief Manager, Central Bank Samoa)
Mr. Pierre Seguin - PFTAC Advisor
Mr. Chris Gaskell - Head, International Relations, APRA
Colleague Regulators and Central Bankers
Introduction
Good Morning.
Let me take this opportunity to extend to you and especially our foreign guests a very warm
welcome to Port Moresby. I am informed that apart from participants from the pacific island
countries, and our friend from APRA, the resource person who will be joining us later during
the week has come all the way from the US. I welcome you all and hope that you all had a
good rest last night ready to begin the week-long program. I encourage you to use this
opportunity for meaningful and fruitful discussions during the two-day meeting, and share
with others your experiences and challenges in the 3-day workshop. There is a need to look
towards establishing a strategy going forward in our efforts to make our regions' financial
system sound and stable.
The theme for the 3-day Workshop "Managing a Banking Supervision Department" is
expected to provide you added knowledge on how you can effectively manage with the
limited resources in order to better supervise our financial institutions.
I commend PFTAC (Mr. Pierre Seguin and Ms. Nina Samuel) and Assistant Governor Pidik
and his team for ensuring that all that was required to be done for hosting this event was
done on time.
Importance of AFSPC
Ladies and gentlemen, AFSPC has over the years provided a forum for regulators to
exchange ideas and share information. It is also in such forums that you are able to build
networks. It is increasingly important due to cross-border banking and the
interconnectedness that we identify our vulnerabilities, and as a region, collectively work
towards a strategy as a means of our readiness for unforeseen periods of turbulence or
crisis.
And there is no better forum than AFSPC, for it is through this platform that regulators
exchange ideas, share information and learn from experiences of each other. AFSPC
provides the forum for exchanging and sharing information to:
Firstly, promoting financial soundness of financial institutions within respective
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jurisdiction;
Secondly, ensuring stability of the financial services sector in each jurisdictions; and,
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• Thirdly, promoting and enhancing the supervisory skills and knowledge through
ongoing training and workshops such as this.
In order to continue to obtain the benefits of this forum, we need to finalize the review of the
Memorandum of Understanding (MOU) for AFSPC to strengthen the regional cooperation
between the regulators. I therefore encourage you to pay some attention to this matter.
As Central Bankers and regulators in the region, we must always remind ourselves that we
are part of the global community. On a regional basis, to be aware of the developments on
the international scene and around us so that our best efforts to achieve financial stability
and resilience in our region will stand the test of time.
Cross border banking
Cross border banking is an emerging area with financial institutions operating across our
economic borders. We have seen over the last five (5) years or so that financial institutions
registered in one economic boundary in the region are moving beyond their traditional
comfort zones and moving into other markets. Such moves come with it new risks and
challenges, providing regulators both home and host with equal challenges to better
understand institutions' cross-border risks. To better understand cross-border banking risks
and the institutions' operational activities, I encourage the strengthening of our collaborative
efforts through this forum and other specific initiatives such as the Supervisory Colleges and
more interactions at technical levels. These collaborative efforts would ensure supervisors of
both jurisdictions better understand the risks associated with institutions concerned in both
home and host countries in order to adequately address them.
Risk-based supervision
Another issue that we should work towards addressing is in the area of risk-based
supervision, and the need to look at risks at the systems level or on a macro-prudential policy
basis.
The recent global financial crisis has clearly demonstrated the crucial role of central banks in
safeguarding financial stability and the importance and need for a macro-prudential
approach, including risk based supervision. Many countries have strengthened the
institutional framework for financial stability in light of the experiences from the crisis, and
have incorporated and undertaken a new approach; in particular a macro-prudential
dimension of monitoring interconnectedness in order to design policies to mitigate systemic
risk.
We as central bankers play a key role in the development of policies and regulations for the
stability and soundness of the financial systems in our respective jurisdiction. I encourage
more collaborative discussions also in the areas of macro-prudential and general risk-based
supervision. Such discussions should translate to some initiatives for future capacity building
and implementation of frameworks in our respective jurisdictions.
Financial Inclusion and Financial Literacy
Ladies and gentlemen, we all know that a greater majority of our people in the pacific are
financially excluded or unbanked. There is a clear call for action in the area of Financial
Inclusion and Financial Literacy. Since the setting of the Alliance for Financial Inclusion (AFI),
Central Banks globally, and clearly in our region also, are taking the forefront in leading
efforts to ensure banking services reach the unbanked. Almost all Pacific Islands Central
Banks have announced their commitment to the AFI Maya Declaration with Timor Leste
being the latest in the region to declare its commitment in the recent AFI Global Policy Forum
this month.
It is not the traditional activity of the Central Banks to lead this work but we cannot sit back
and expect something to just happen, for we know that nothing happen in the past. We have
to develop policy frameworks and provide environments conducive for our financial
institutions to bring their banking services to the un-banked. The Central Banks have
succeeded in undertaking lead roles due to their institutional credibility to ensure that the
unbanked populations in the region is included in the monetization of our respective
economies.
Human capacity development
Ladies and gentlemen, in order for us to enhance our supervisory approaches and to
effectively discharge our supervisory responsibilities as mentioned, we need to develop our
human capacity and equip our supervisors well. We have to continue to put emphasis and
resources in this area to ensure our human capital is in tune with constant changes in risk
profiles of our financial sectors. You would have noticed that the skill set required for
supervision has expanded as financial services have become complex. The constant
adoption of technological innovations and enhanced financial products being developed and
offered by our financial institutions means that we also need to train and develop technically
competent supervisors to keep abreast with the changes.
Conclusion
Before I finish, I wish everyone a fruitful week. I am sure that at the end of this week, you will
have discussed issues, challenges and developments in your respective supervisory
jurisdiction and your plans going forward. I presume these discussions and networking with
each other will be very beneficial in our efforts to have a sound and stable financial system in
our region.
Having said that I wish everyone who has travelled in a memorable and enjoyable stay in
Port Moresby. I look forward to further interactions with you at the cocktail which I will host for
you this evening.
Thank you.