High interest margins

 Foreign exchange controls in Papua New Guinea have affected higher net interest margins for Westpac Pacific’s first half results of the year, according to the 

bank.

This has led to Westpac having recorded an overall group result of A$3.78 billion (K8.03bn) cash profit in the period.

Its Pacific division represented by Papua New Guinea, Fiji, Samoa, Solomon Islands, Vanuatu and the Cook Islands, generated cash earnings up A$2 million (K4.2m) with most of the increase due to movements in exchange rates.

While growth in loans, deposits and higher net interest margin in the region were partially offset by the impact of foreign exchange controls introduced in PNG last July.

Bank of Papua New Guinea last year made regulations on the trading of the kina with an aim to stabilise the country’s currency.

“These controls reduced the supply of foreign currency and the spreads on foreign currency transactions,” Westpac says.

“Non-interest income was A$9 million (K19.3m) or 14 per cent lower (18 per cent excluding foreign currency translation impacts) driven by reduced foreign exchange income following the introduction of foreign exchange controls in PNG.

“Net interest income increased 19 per cent (9 per cent excluding foreign currency impacts) from higher returns on the PNG Government securities portfolio, margin management and growth in both deposits and loans.

“Excluding currency movements, deposits rose 6 per cent, largely in PNG, while loans rose 1 per cent, mostly in Fiji.”

Westpac said the Pacific countries contributed to nearly 14 per cent of cash earnings and approximately A$360 million (K775.7m) of loans from overall group results for the first half.