Interests rates too high

 By SHIRLEY MAULUDU

INTEREST rate margins for financial institutions in PNG are very high, the National Research Institute (NRI) says. 

A study done by NRI found the margin between average interest charged on loans and that offered for deposits had been high over the last 10 years. 

Research associate Prof Satish Chand (pictured), in presenting the findings of “Banks interest rates margins in Papua New Guinea”, during a workshop to concerned financial institutions yesterday highlighted among other findings that interest rate margins were high when compared with countries which shared similar level of development, and neighbouring countries as well.

Chand defined the interest rate margin as the difference between interest income and interest expenditure as a share of total interest bearing assets. 

He presented data from International Monetary Fund for last April, which highlighted interest rate margins for PNG, Malaysia, Indonesia and Australia to be about 9.9 per cent, about 1.9 per cent, about 4 per cent and 3.5 per cent respectively. 

Chand said another finding was that most competitive rates on savings and on loans were offered to large fixed deposits and loans. 

“If you have large amount of savings and if you want to fix this over a period of time, you tend to get a much better rates than what you do if you are a small saver. Similarly for loans, large borrowers get a much better rate,” he said. 

Chand highlighted the study noted reasons for high interest rate margins in the country which included high cost of doing business in PNG, lack of competition and high risks of lending by the financial institutions. 

The findings were preliminary and final recommendations would be put together following the workshop after getting comments and views from individuals and institutions.