L Wilson Kamit: Opening up opportunities for agriculture and rural
development
Address by Sir L Wilson Kamit, CBE, Governor of the Bank of Papua New Guinea, to the
Consultative and Implementation Monitoring Council (CIMC), 2009 National Development
Forum on "Opening Up Opportunities for Agriculture and Rural Development", Port Moresby,
5 August 2009.
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Distinguished guests,
Ladies and gentlemen
May I firstly thank the organizers of this conference for the invitation to speak on the financial
sector in Papua New Guinea. I was asked specifically to comment on the financial sector's
outreach to rural areas and low income households.
Let me start by briefly talking about the macro economy. Acting Secretary Tosali has already
mentioned most of these developments.
Macro economy
Papua New Guinea has, over the last five years, benefited significantly from the export
commodity price boom as it resulted in fiscal surpluses, record international reserve levels,
reduced total public debt and sustained real GDP growth. In the same period there was a
substantial financial sector reform, which commenced in 2000, that contributed to a sound
and prudently managed financial system and aided economic growth.
The sound and prudent management of our financial institutions is reflected by the high
capital adequacy ratios, a liquid banking system, low level of non-performing loans, and
funding of loans by the banking system from deposits rather than from borrowings from
overseas. The Central Bank authorized financial institutions also remained highly profitable.
Prudent monetary and fiscal policies between 2003 and 2007 and a co-ordinated approach in
their management also contributed to stable exchange rates and price stability (low inflation)
and improved confidence in the domestic economy. Together with the low interest rate
environment, this led to a significant increase in lending to the private sector, with a growth of
between 30-40 percent during the period. The removal of foreign exchange controls,
particularly on lending to non resident companies also supported the strong growth.
Agriculture sector
The agriculture sector continues to be an important one for Papua New Guinea, providing
employment and income-earning opportunities for a large number of our people, sustaining
the livelihood of many and providing foreign exchange inflows. This sector contributed 33
percent to the country's overall GDP, according to the most recent official National Accounts
from the National Statistical Office, which is for 2006 (see chart 1). The value of agricultural
exports in the March quarter of 2009 was K406.8 million, 16.4 percent of total exports (see
chart 2). This is down from K659.0 million or 17.3 percent in March 2008, and partly reflects
the impact of the global financial crisis and the economic recession in the major industrialised
countries.
Despite its significance to the local economy, financial resources channeled to the agriculture
sector remains dismal. Commercial banks' lending to the agriculture sector, excluding
forestry and fisheries, totaled K147.7 million in the March quarter of 2009, which was 3.1
percent of total lending. This compares to K104.1 million and 4.0 percent of total lending in
March 2008. These amounts compare poorly against lending to the other sectors of the
economy, including commerce (retail and wholesale trade), manufacturing, transportation,
construction and services such as hotel and real estate (see chart 3).
The financial sector reforms have created the foundation for an efficient and sound financial
system that assist the course for stability and growth, which provides an opportunity for the
financial sector to introduce new financial products that are suitable for the Papua New
Guinean economy. The new area of banking that has been successful in several developing
countries is electronic or mobile money banking. Electronic banking products have enabled
banks to capture the un-banked population, provide financial literacy and significantly reduce
the cost of banking. Mobile phone banking and branchless banking operating through agents
have become a norm to bring banking services to the rural areas. The fragmented
characteristics of the PNG economy suggest that mobile money or electronic banking is the
way forward to provide financial services to the mass in the rural areas.
The rapid economic growth in the last five years has created opportunities for bank
expansion. The increase in business activities requires commercial bank presence in
respective regions of the country. The presence of a fully licensed conventional bank can
increase the efficiency of the financial intermediation process and promote economic
development. However, many banks have indicated that some of the branches are
unprofitable due to the high cost of operations. To circumvent the high cost of running full
branches, the commercial banks have expanded the net work of ATMs and EFTPOS, which
has complemented branch net work and in some instances have become substitutes for
branches to a limited extent. The existences of ATMs and EFTPOS have made banking
easier and efficient in the rural areas.
However, these developments will not succeed if:
•
Infrastructure is not in place for investors to build on. Mobile banking and branchless
banking requires transport, power, and communication infrastructure. E.g.
Namatanai sub-branch of a bank closed down due to communication and power
problems and failures. I recently visited Dogura. There is no mobile phone
communication link between Dogura and Alotau in the Milne Bay province.
•
Law and Order/Security issues are a serious concern. The law and order problems
have caused the banks to reduce the size of their representations throughout PNG.
Over the years, banks had to close down in provincial centres. The closure of
branches in Popondetta twice in the last few years is an illustration.
• An alarming law & order issue is the threat to staff of financial institutions. Officers
and families of staff employed in the financial system should not be placed in
situations of psychological stress and anxiety caused by unsavoury elements of our
society. The cases of kidnapping and threatening staff and their families is a
problem that must stop. Bank staff must be allowed to contribute to the development
of our nation without threat or intimidation in carrying out their duties.
Microfinance
Microfinance institutions and development orientated institutions are important vehicles for
involving those at the bottom of the pyramid to become financially included. The rapid growth
of microfinance institutions over the last few years have began to make a positive
contribution to providing banking services to those in the rural area and the informal sector of
the economy. Under the BFIA, 2 microbanks were licensed by the BPNG and they continue
to expand their branch network and outreach to rural areas and informal sector, which were
previously under-banked. To expand this outreach further into the remote rural areas, the
PNG-ADB Microfinance Project is piloting linkages of 3 rural groups to the Nationwide
Microbank. This linkage involves provision of financial literacy and banking services to the
members of these 3 groups, and will form the basis for expanding these arrangements to
other areas of the country.
Traditionally, savings and loans societies in Papua New Guinea have been the vehicle for
providing financial services to members who do not have access to banking services in the
rural areas. Two types of savings and loans societies; provincial based societies and
employer based societies. The provincial based societies have extensive branches at the
provincial level, particularly to those in rural areas, while the employer based societies
provide least expensive financial services to members of that institution.
The savings and loans movement in Papua New Guinea have grown significantly over recent
year in assets value. Total assets increased to K730.3 million as at end of March 2009, from
K232.9 million as at end of December 2004. The growth in asset values reflects good
performance by the Board and Management of those institutions and on-going supervision
by the Central Bank. Membership also increased significantly from 131,000 in 2004 to
216,000 as at end of March 2009.
The National Development Bank (NDB) is an important development institution that provides
credit to development projects such as those in the agriculture sector. Development lending
is usually targeted towards individuals with low capital and longer grace periods for the
repayment of loans. Efforts to commercialize the NDB from its mandated function may not
assist in achieving the developments objectives of the Government.
Payments system
The Central Bank is also undertaking a strategic project to improve the payments system of
Papua New Guinea. An efficient payment system is therefore a vital component of a modern
economy and society.
Conclusion
Ladies and gentlemen, in an environment where many banks and financial institutions
around the world affected by the global financial crisis are contracting, it is pleasing to note
that we in Papua New Guinea are still expanding. Our banking system is sound, liquid and
prudentially managed and is prepared to take on the challenges offered in the advent of
global financial crises, the fast pace of private lending growth, development of the LNG
project and a changed risk landscape of PNG. Everyone must play its part in upholding these
hard fought gains.
Thank you.