Domestic liquidity decreases


DOMESTIC liquidity across the banking system has decreased from K21 billion in January last year to K19.9 billion at the end of May this year, Bank South Pacific (BSP) chief executive officer Robin Fleming, pictured, says.
Fleming told The National that there were a number of contributing factors causing the reduction which was worth over K1 billion in deposits.
“There have been a couple of contributing factors to the depletion of deposits with the biggest factor being the unavailability of foreign currency,” he said.
“The Bank of Papua New Guinea has made foreign currency more readily available by way of regular interventions.
“As a result, companies that had built up kina reserves in the country over the past few years have repatriated kina offshore to pay foreign creditors, service providers and, in some cases, dividends.
“Given the funds had built up over time, deposits are not replenished as quickly from normal trading activities.”
Fleming said another contributing factor had been the introduction of the Public Money Management Regularisation by the Finance Department.
“This had the objective of marinating more government deposits with the Bank of PNG rather than commercial banks, which has meant that deposit growth for the Government sector has been flat,” he said.
“There has also been an absence of larger foreign direct investment which can contribute to system growth as inward flows of foreign currency are converted to kina.”
He said, however, BSP like all banks, had a liquidity management plan in place to allow changes in system liquidity.
“In BSP’s case, we have allowed some of our investments in government securities such as Treasury Bills and Inscribed Stock to mature in order to fund lending growth,” Fleming said.
Domestic liquidity is the amount of cash and equivalent securities circulating within the nation’s economy.