The Banking System in Fiji

The Banking System in Fiji Size and Structure of the Formal Segment of Fiji’s Financial System (%), (2000-2006) CRm= s1+s2+s3+….+sm, 01 35 3 00 Banks Credit 35 4 02 35 3 03 38 4 04 37 4 05 39 5 06 41 5 Insur. FNPF NBFIs CR2 CR3 9 42 10 77 87 9 43 10 78 88 9 43 10 78 88 9 41 9 79 88 9 41 8 78 87 9 39 8 78 87 8 38 8 79 87 Size and Structure of the Formal Segment of Fiji’s Financial System: HHI(%), (2000-2006) HHI= s12+s22+s32+…+sn2 01 1225 9 00 Banks 1225 Credit 16 02 1225 9 03 1444 16 04 1369 16 05 1521 25 06 1681 25 Insur. FNPF NBFIs Total EQFm 81 1764 100 3186 3.1 81 1849 100 3264 3.1 81 1849 100 3264 3.1 81 1600 81 3222 3.1 81 1764 64 3294 3 81 1521 64 3212 3.1 64 1444 64 3278 3.1 Lecture Outline      Measures of market concentration Commercial Bank control of Gross Assets in Financial System, Performance of Commercial Banks: Asset Growth, Asset Quality; Profitability. Commercial Banking Market in Fiji, Banking Initiatives in Fiji: Modernization of Payment and Settlement Systems, Rural Banking. Overview The banking system comprises of six commercial banks;  Four Australian owned; remainder owned by Indian and PNG.  Commercial Banks include: Westpac Banking Corporation, Bank of Baroda, Australia and New Zealand Banking Group Ltd (ANZ), Colonial National Bank (formerly National Bank of Fiji-NBF), Habib Bank Ltd now taken over by Bank of the South Pacific (BSP,PNG); NBF Asset Management Bank. (Operations of Bank of Hawaii were  taken over by ANZ) Commercial Bank control over Gross Assets in Financial System Year 1995 1996 1997 1998 1999 2000 % 42 41 38 36 38 35 Year 2001 2002 2003 2004 2005 2006 % 35 35 38 37 39 41 Control over Gross Assets…   Control of assets by commercial banks has declined from a high of 42% in 1995 to 39% in 2005, and 41% in 2006; From a low of 35% in 2000, control of assets increased by just over 17% in 2006. Performance of Banks Banking system continues to show improvements in asset quality, profitability and liquidity.  Capital adequacy ratio stood at 11.7% in 2006, a drop of 0.3 percentage points form 2005, but still exceeds the minimum requirement of 8%.  Capital adequacy ratio protects creditors and other debt holders; covers losses and allows bank to continue as a going concern.  Performance - Asset Management Asset classes:  Cash and Balances with RBF,  Placements with Banks and Credit Institutions  Receivables,  Loans and Advances,  Investments/Securities  Others - including fixed assets. Performance.. Asset Growth (1999-2006) Year $Million 2000 2001 2002 2003 2004 2005 2006 1973 1984 2129 2580 2626 3043 3547 Performance.. Asset Growth (2000-2006)   Between 2000-2006 assets have grown by almost 80%; with average annual growth rate of about 11.4%; Growth has been driven by growth in Loans and Advances estimated at 22.2% between 2005 and 2006. Performance - Asset Quality Asset quality has only slightly improved; increase in past due loans but decrease in general provisions; Management of asset quality depends largely on quality of loans portfolio in respect of:  Level and change in total impaired and classified loans,  Adequacy of loan provisions/charge offs,  Growth/aggressiveness of lending activity,  Quality of credit analysis and decision,  Regulatory compliance. Banks’ Profitability ($m) (2000-2006) 2000 2001 2002 2003 2004 2005 2006 Net Int.Inc. Non Int.Inc. Op. Income Op. Expense B4-Tax Prof. ROA 96.1 61.6 93.5 60.3 85.6 67 94.3 76.2 104.2 80.8 185.1 101.4 83.6 3.6% 117 91.6 141.6 89.9 157.7 153.8 152.6 170.5 101.3 56.3 3% 91.3 62.4 87.2 65.3 90.6 79.9 3.9% 208.6 231.5 105.9 107.1 102.7 124.4 4.0% 4.2% 3.4% 3.5% Income Structure of Banks (%) 2000 01 61 61 39 39 02 56 44 03 55 45 04 56 44 05 56 44 06 61 39 Net Int.Inc. Non Int.Inc. Profitability…. From lowest in 2002 banks’ pre-tax profit increased by 91% in 2006; an increase of 18.2% per annum,  Substantial increase in profits resulted from: higher increases in non interest income, cost control efficiencies, higher overall increase in operating income of 47% over increase in operating expenses of only 6%,  Profitability….  changing income structure of banks suggest growth of non traditional, non interest income products and services.  Non interest income now accounts for almost 44% of total operating income compared to 39% in 2000; and 78% of interest income compared to 64% in 2000,  ROA over the years averaged 3.5%, the highest being 4.2% in 2006. Fiji Commercial Banking Market Gross Assets 2001-2006 (F$ million) 01 WPac ANZ CNB BoB Habib 02 522 830 285 216 40 03 665 917 303 260 29 04 758 951 362 256 28 05 773 1146 491 267 29 06 883 593 306 19* 07 1085 650 366 32* 538 739 246 187 42 1324 1482 Total 1752 1893 2174 2355 2706 3125 3615 Commercial Banks Market Share (%) (2001-2007) 01 02 Wpc 31 28 ANZ 42 44 CNB 14 15 BoB 11 11 Habib 2 2 Total 100 100 03 31 42 14 12 1 100 04 32 40 15 11 1 100 05 29 42 18 10 1 100 06 28 42 19 10 1 100 07 30 41 18 10 1 100 Commercial Banks Market Share (%) (2001-2005)..  Over last 7 years, CNB records market share grew by 28% while ANZ and Westpac are only returning to the 2001 level. Major Banking Initiatives in Fiji   Modernisation of Payment and Settlement Systems - Real Time Gross Settlement System for inter bank transactions in Fiji. Rural Banking in Fiji areas covered include remote villages on Viti Levu, Vanua Levu, and outer islands  2006 Highlights: 48,000 accounts; total deposits accepted $4.3million; small loans $490,000