Banking system liquidity remains high

LIQUIDITY in Fiji’s banking system remains high at $735.8 million as of June 29, the Reserve Bank of Fiji has reported.

In its Economic Review for June 2017, the central bank recorded an increase in liquidity by 27.0 per cent ($152.6m) to $717.6 million in May 2017.

This was led by the increase in foreign reserves ($161.3m) coupled with a decrease in statutory reserve deposits (-$11.7m).

And with Fiji’s high liquidity being driven by increase in foreign reserves, Fiji Institute of Bankers president and ANZ Bank head of country Saud Minam said this was good for the country in the long-term.

“Surplus liquidity means financial institutions will be able to meet loan demands.

“Increase in foreign reserve is good for the country as it increases ability to meet payment of imports for a longer period of time,” Mr Minam said.

” There is good momentum for economic growth and this will be the eighth consecutive year where Fiji GDP has shown positive growth.”

Liquidity, simply put, are excess funds that our commercial banks have at the end of each day that have not been lent out to borrowers.

These funds are deposited by commercial banks with the RBF and do not accumulate any interest.

With Fiji’s economy being mainly driven by consumption, the level of liquidity in the banking system has a bearing on the level of consumption and investment activities in the economy.

In the RBF’s earlier Economic Review for May, it was noted that excess liquidity had also increased by 20.0 per cent ($94.2m) to $565.0 million at the end of April.

The central bank also noted in the review that financial conditions continued to be supportive of economic activity.

Annual growth in private sector credit in the year to May was underpinned at 14.1 per cent ($864.4m) attributed to the increased lending by commercial banks, licensed credit institutions (LCIs), the Fiji Development Bank and Housing Authority.

Looking at interest rates in the same period, the commercial banks’ new lending rate fell, similar to the downward movement in deposit rates.

The weighted average new lending rate declined to 5.80 per cent in May, from 5.93 per cent in April. The new time deposit rate fell to 2.86 per cent in May from 3.23 per cent a month ago. In contrast, both the new lending and time deposit rates for LCIs trended upwards on a monthly basis.

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