Tuesday, May 04, 2010

Fiji commercial banks required to keep 12% capital in the country

Fiji Times - 04 May 2010

All banks are now required to keep 12 per cent of their capital in the country as opposed to the previous requirement of eight per cent.

This was announced by the Reserve Bank of Fiji (RBF) who said the recent global financial crisis and the uncertainties related to a sustained recovery required a more conservative approach in ensuring that banks and credit institutions had sufficient capital to mitigate the risks they faced in their operations at all times.

“The review of the minimum requirements for capital adequacy is also in line with the Reserve Bank of Fiji's continuous effort to strengthen the safety and soundness of licensed financial institutions and overall, enhance the resilience of the financial system,” the central bank.

Last week, the bank raised the statutory reserve deposits which it said was to control the liquidity levels that had remained high since last December at about $345million.

“An increase in the SRD is a policy measure taken by the Bank to ensure that liquidity in the banking system is maintained at an acceptable level, to safeguard Fiji's foreign reserves and restrain any inflationary pressure that could emanate from an unexpected pick-up in demand for funds

This will ensure that external and financial stability is maintained. Bank liquidity is expected to decline as banks raise their reserve requirements to meet the higher SRD ratio."

Comments posted on Matavuvale.com
  • It's a case of "what you can find, hold on to" as opposed to the refreshing security of income gained through export dollars and investor's contributions. The RBF is in a desperate situation that it has moved the 8% to 10% hold on capital from commercial banks within a week, so where is the reassuring message that Fiji is getting out of the hole now Sada Reddy?
  • I refer to your posting on the RBF Board decisions to raise the Minimum Capital Adequacy Requirement (CAR) from 8% to 12% for licensed commercial banks and from 10% to 15% for licensed credit institutions; and the Statutory Reserve Deposit Requirement (SRD) from 7% to 8.5%.
  • The CAR is simply a "cushion" for potential losses and is there as protection for bank depositors especially in case of a run. The SRD is the minimum reserves that each commercial bank must hold to customer deposits and notes. These are held with the central bank. The SRD is more a monetary policy tool, and is used to influence any country's economy, borrowing, and interest rates. Western central banks rarely use these tool because of volatility in the market but instead use the more common open market operations to implement monetary policy (buying and selling government bonds).
  • What is to be understood however is that by raising these ratios, the RBF has on hand a significant amount of money that they can utilise or put at suguraki's disposal for whatever purposes he wishes to use it for. These millions will remain as liabilities in the RBF's balance sheet until these commercial banks decide to close down and leave Fiji, and then they are repaid.
  • So these two requirement or ratio increases are very important in terms of 'fundraising' efforts by this illegal and corrupt military government. I won't be surprised therefore if Sada Reddy continues to tweak these ratios upwards regularly.

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