base societies. a new feature of the industry involves the establishment of contributor - based societies. the achievements as mentioned earlier, the savings and loan industry in papua new guinea today consists of 20 savings and loan societies. five ( 5 ) are provincial based while the rest are industrial based societies. total assets of the industry were approximately k172. 8 million with loans and advances forming about 48. 74 % of total assets at end june 2004. members ’ savings deposits were about k133. 8 million from 127, 276 members. the overall health of the industry is satisfactory. capital, asset quality and liquidity are satisfactory, while earnings are relatively fair. a. capital adequacy the capital of the industry is satisfactory. accumulated profits increased from k12. 9 million in june 2003 to k21. 9 million in december 2003 and slightly decreased to k20. 8 million at end - june 2004. however, capital funds to total assets increased to 18. 9 % from 12. 4 % in the same period last year. the capital of the industry is not threatened by non - performing loans ( npls ) as npls as a ratio of capital funds improved from 30. 0 % in june 2003 to 10. 8 % in june 2004. b. asset quality asset quality of the industry is satisfactory. loans and advances increased to k85. 9 million in june 2004 from k80. 5 million in june 2003, of which only 4. 6 % of the loan portfolio is non - performing. provision to total loans decreased to 4. 2 % in june 2004 from 7. 0 % in the same period last year. however, provisioning level is sufficient to cover up to 89. 8 % of non - performing loans. c. earnings earnings of the industry are less than satisfactory. net income decreased to k2. 7 million in june 2004 from k4. 8 million in june 2003. return on assets decreased to 3. 0 % from 6. 2 %, while net interest margin decreased to 3. 0 % from 3. 6 % in the same period last year. this is due to decline in treasury bill interest rates, where most of the industry ’ s unlet funds are invested. d. liquidity liquidity is adequate to cover for day - to - day liquidity requirements. liquid assets decreased to k32. 9 million in june 2004 from k41. 4 million in june 2003, while loans to deposits increased to 64. 2 % from 58. 9 %

industry, which can aspire to promote solvency and innovation in the operation of all societies. the societies, which are now operating do not compete with each other as they have been set up to serve specific interest groups. they have therefore the opportunity within them to talk to each other and to be able to resolve very simple administrative matters, which could be commonly faced by them. i have come across different societies, which have turned to the regulator for solutions to very similar questions and situations. while these societies are not discouraged to do so, it would be preferable that they first share their experiences and problems amongst themselves to find solutions. there is potential for the movement to grow and offer the services the members need. corporate governance and the requirement to ensure ‘ fit and proper ’ persons hold the positions on the board and management cannot be emphasized enough. it should be a challenge for every society, and more importantly every member, to ensure that credible people get to hold those responsible positions. as part of enforcing good corporate governance, the bpng established the industry code of conduct thus requiring all directors and management to sign up before assuming responsibilities. furthermore the bank instituted ‘ fit and proper ’ requirements to ensure all directors undergo these tests before taking up their roles. as part of this initiative they need to undergo certain training courses conducted by the federation of savings and loans societies and bpng. good corporate governance is the key to enhancing strong reporting system, efficient internal controls and risk management systems. good governance is synonymous to an effective compliance culture. this should be the dream of all societies to achieve. we need to move from the dreaming stage, to the belonging stage and finally to the achieving stage. i hope the federation ’ s strategic planning workshop would deal with and address the issues i have raised. it is important that we all work together to ensure that the savings and loan industry achieve its full potential for the benefit of its members. with these remarks, i would like to thank the organisers of the credit union day celebrations. i now declare the strategic planning workshop of the federation of savings and loan societies limited open. thank you!