Lower rates, bank told

 A CALL was made for commercial banks to reduce their interest rate margins especially for loans and deposits. 

Bank of PNG (BPNG) Assistant Governor Dr Gae Kauzi (pictured), speaking as an individual during a recent workshop, said commercial banks have been making large profits.

Hosted by the National Research Institute (NRI) and BPNG, the workshop followed a study, “Bank interest rate margins in Papua New Guinea”, done by NRI.

Prof Satish Chand highlighted during presentation main findings, one of which was that interest rate margins for financial institutions in PNG were very high when compared with countries of similar development level to PNG, and neighbouring countries.    

However, Kauzi acknowledged that the cost of doing business in the country was very high as noted in the findings.   

“As the paper (study) pointed out, and I think that the cost of doing business in PNG is very high,” he said. 

“But if you look at the bottom line, the profitability of commercial banks has been very high too,” he said. 

“Given the point on profitability, my personal comment is this – while commercial banks say that cost of doing business is high in PNG, there are risks and so on, can the banks reduce interest marginal rates on lending and deposits? 

“You can still reduce it a bit and still make profit.” 

Dr Charles Yala of NRI said: “There are many issues in this basket of high cost of doing business in PNG. 

“They are not Bank of PNG matters, they are not commercial banks’ matters, they are government policy matters.”

Yala said some of the issues contributing high cost of doing business in PNG included deteriorating infrastructure and high cost of different mediums of communication. 

“There is money sitting there. There is no profitable and viable business coming up demanding for this money. Why? Because of cost of business,” he said.