l wilson kamit : financial sector improvements in papua new guinea speech by mr l wilson kamit, cbe, governor of the bank of papua new guinea, at the official opening of the nambawan super ’ member services centre, port moresby, 11 july 2008. * * * distinguished guests, ladies and gentlemen. i am pleased to be able to address you this afternoon, on this special occasion for nambawan super. since the commencement of the financial sector reforms including the superannuation industry through the superannuation ( general provisions ) act 2000, we have seen many improvements in the financial sector and within the superannuation industry. some of the significant changes include : • the appointment of the bank of papua new guinea as the regulator of the superannuation industry, • the separation of functions of the authorised super funds ( asfs ) from the trustees, investment managers and fund administrators ; and • the introduction of fit and proper person ’ s test requirements for the board and senior management of the licence holders under these reforms the improved performance of the whole financial system has seen growth in assets of banks, finance companies, savings and loan societies and life insurance companies. the growth in the superannuation funds has been particularly remarkable, and this has translated to high rates of returns to the members over the last few years. for example, the industry ’ s total assets have more than doubled since 2002 from k1, 273 million in 2002 to k4, 086 million in 2007. total assets of the superannuation industry – k ’ million total 4, 087 2, 837 2, 584 1, 882 1, 577 1, 273 we have also seen significant improvements in governance, as well as operational effectiveness in the delivery of superannuation services for the benefit of the members. while making this remark, i should stress that there lies ahead a lot of challenges to further improve and enhance their operational capacities in order o provide the best superannuation service for all stakeholders. this reform process has however brought with it other challenges and responsibilities that the asfs will need to manage and address going forward. one challenge facing us in this reform process is the issue of financial inclusion and financial literacy ( financial education ). this is a subject many central bank governors and regulators have discussed in various forums. let me elaborate : the high rates of return on members ’ savings will have had the impact of raising members ’ expectations of receiving high return all the time and the asfs have a

in asset quality with nonperforming loans as a percent of total assets declining from 2. 3 percent in 2000 to 1. 1 percent in december 2005. return on assets of the banking system, which was negative 1. 1 percent in 2002 reversed sharply to over 4. 2 percent at the end of december 2005. as a result return on equity has improved significantly to 50. 5 percent in 2005, making it amongst the highest in the region. these indicators reflect that the banking system is financially sound and provides a strong foundation for sustained macroeconomic growth. in the superannuation industry, the reforms have improved the overall performance of the industry. the total assets of the industry, which increased by 6 percent to k992 million in 1999, grew significantly over the years to k2, 583 million in 2005. one of the major superannuation funds, nasfund, which suffered a contraction in total assets in 1999 to k169 million, from k209 million in 1998 reversed sharply to k753 million in 2005. the rapid growth in total assets over the last few years reflects prudent and good management. as a result profitability of the industry has also increased sharply over the years. similarly, improvements are continuing to be instilled in the life insurance industry, whose total assets have grown steadily from k108 million in 2000 to k126 million in 2004. in the savings and loans societies, the contributors have benefited from improved management and stringent supervision including the fit and proper person requirement by the bank of papua new guinea. this has enabled the industry to record improvement in its overall performance. between 2000 and december 2005 total assets increased by over 139 percent to k312 million. the number of societies contracted during this period from 121 to 20 as the bank de - licenced and liquidated dormant societies. consistent with ensuring stability of the financial system, the rapid growth of fast money scams is a concern to the bank of papua new guinea. in response, the bank took measures to close their operations, periodically place advertisements in the media about the dangers in investing in such scams. the bank and law enforcer ’ s actions are limited against fast money scheme operators but we continue to warn the public to take necessary precaution and refrain from taking unnecessary risks through expectations of abnormally high rates of return. the public is urged that if you have paid any money to a fast money scheme operator, go and demand the immediate return of your money.