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					2008 AnNual report


   Reserve Bank of Fiji




        “ New Coins For Our Future ”
Era              Coin circulation in Fiji


1860s to 1870s    Variety of gold and silver coins such as British sovereigns,
                  Russian rubles and Turkish gold coins.

1914              English coins.

1934 to 1969     Half penny (1/2d): copper and nickel coins with the
Predecimal       port-raits of Kings George V, VI and Queen Elizabeth II
- First          (QE II).
Fiji Coins

                 One penny (1d): copper and nickel coins with the
                 portraits of Kings George V, VI, Edward VIII and QE II.
                 Fiji is one of the few Commonwealth countries to mint a
                 1936 one penny coin featuring King Edward VIII who
                 abdicated the throne. 1942 half pennies minted during
                 World War II are valuable collectors’ items.

                 Three pence (3d): introduced in 1947. A 12-sided nickel
                 and brass coin feature portraits of King George VI and
                 QE II on the obverse and a Fijian bure (house) on the
                 reverse of the coins.

                 Six pence (6d): silver coins with the portraits of Kings
                 George V, VI and QE II on the obverse and a turtle on the
                 reverse of the coins.

                 One shilling (1/-): silver coins with the portraits of Kings
                 George V, VI and QE II on the obverse and a traditional
                 Fijian canoe on the reverse of the coins.

                 Florin or two shillings (2/-): silver coins with the port-
                 raits of Kings George V, VI and QE II on the obverse and
                 Fiji Coat of Arms on the reverse of the coins.

1969 onwards     1 cent (1c): copper, tin and zinc coins featuring QE II on
Decimal          the obverse and a tanoa (yaqona bowl) on the reverse. A
Currency         special 1c coin with a rice stalk design to commemorate
                 the Food and Agricultural Organisation’s (FAO) “Grow
                 More Food” Campaign was issued in 1975. The metallic
                 content changed to copper plated zinc and steel in 1990.

                 2 cents (2c): copper, tin and zinc coins featuring QE
                 II on the obverse and an iri (Fijian fan) on the reverse.
                 The metallic contents changed to copper plated zinc in
                 1990.

                 5 cents (5c): copper nickel coins featuring QE II on the
                 obverse and a lali (Fijian drum) on the reverse. A special
                 5c coin with a fish design to commemorate FAO’s “Harvest
                 from the Sea” Campaign was issued in 1995. The metallic
                 content changed to nickel plated steel in 1990.

                 10 cents (10c): copper nickel coins featuring QE II on
                 the obverse and a wau (Fijian war club) on the reverse.
                 The metallic content changed to nickel plated steel in
                 1990.

                 20 cents (20c): copper nickel coins featuring QE II on
                 the obverse and a tabua (whale’s tooth) on the reverse.
                 The metallic content changed to nickel plated steel in
                 1990. A special 20c coin to commemorate the South Pacific
                 Games (SPG) in Fiji was issued in 2003 with the SPG
                 logo on the reverse.

                 50 cents (50c): The 50c note was coined in 1975. The
                 50c coin was made from copper and nickel featuring QE
                 II on the obverse and a drua (Fijian double-hulled canoe)
                 on the reverse. The metallic content changed to nickel
                 plated steel in 1990. A special 50c coin with a sugarcane
                 stalk to commemorate the FAO’s “Sugar for the World”
                 Program and “100th Anniversary of Arrival of the Girmits
                 in Fiji” was issued in 1979.

                 1 dollar ($1): The $1 note was coined in 1995 and was
                 made from copper, aluminium and nickel featuring QE
                 II on the obverse and a saqamoli (drinking vessel) on the
                 reverse.

2009             A new set of Fiji coins, including 5c, 10c, 20c,
                 50c and $1, the first since the changeover to
                 decimal currency in 1969, will be issued on 16
                 February 2009. These new coins will retain the
                 existing designs but will be smaller, lighter and
                 shinier than their current counterparts. The 1
                 and 2-cent coins ceased circulation on 13
                 October 2008.

                 The underlying theme of this Annual Re-
                 port commemorates the new Fiji coins.
                     Contents


Letter to the Minister                                                           01
Our Functions                                                                    02
Governor’s Foreword                                                              03
Organisation Structure                                                           06
Board of Directors                                                               08
Executive Management                                                             09
Corporate Governance                                                             10
Economic Overview                                                                13
Conduct Monetary Policy to Foster Economic Growth                                16
     • Monetary Policy Formulation                                               16
        - Chronology of Monetary Policy Actions                                  16
        - Monetary Policy Outcomes for 2008                                      17
     • Monetary Policy Implementation                                            18
        - Open Market Operations                                                 18
        - Foreign Reserves Management                                            18
        - Exchange Rates                                                         19
        - Forward Facility                                                       20
        - Foreign Currency Payments                                              20
        - Exchange Control                                                       20
Develop an Internationally Reputable Financial System                            21
     • Financial System Regulation and Supervision                               21
        - Supervisory Developments                                               21
        - The Financial System                                                   21
        - Performance of the Banking Industry                                    22
        - Credit Institutions                                                    24
        - The Insurance Industry                                                 25
        - Fiji National Provident Fund                                           26
        - Meetings                                                               26
     • Combating Money Laundering                                                27
     • Currency                                                                  30
     • FIJICLEAR                                                                 34
Enhance our Role in the Development of the Economy                               35
     • Assistance to the Export Sector                                           35
     • IMF Staff Visit                                                           35
     • Secondary Bond Market                                                     35
     • Equities Market                                                           35
     • Remittances                                                               35
     • Small and Micro Enterprises (SME)                                         36
     • RBF in the Community                                                      36
Provide Proactive and Sound Advice to Government                                 37
     • Policy Coordination                                                       37
     • Registry and Banking Services                                             37
Disseminate Timely and Quality Information                                       39
     • Financial Performance                                                     39
     • Publications/Press Releases                                               40
     • Information Technology, Records Management, Library, Domestic Relations   40
     • International Relations                                                   40
Recruit, Develop and Retain a Professional Team                                  42
     • Staffing, Staff Development                                               42
     • Employment Relations Promulgation, Health and Safety in the Workplace     42
     • Salary Administration, Service Recognition                                43
     • Quality Performance Management, General Services, Plant and Building      43
     • Acknowledgement                                                           43
The Year Ahead                                                                   44
Financial Statements                                                             45
Selected Events in 2008                                                          71
Fiji: Key Economic and Financial Indicators                                      72
Glossary                                                                         73
                                                        Our Vision
                                             Leading Fiji to Economic

                                             Success
Our Mission                                                             Our Values
• Enhance our role in the development of the economy
                                                                        • Professionalism in the execution of our duties
• Provide proactive and sound advice to Government
                                                                        • Respect for our colleagues
• Develop an internationally reputable financial system
                                                                        • Integrity in our dealings
• Conduct monetary policy to foster economic growth
                                                                        • Dynamism in addressing our customers' needs
• Disseminate timely and quality information
                                                                        • Excellence in everything
• Recruit, develop and retain a professional team




The principal purposes of the Reserve Bank shall be
to regulate the issue of currency, and the supply, availability and international exchange of money; to promote monetary stability; to
promote a sound financial structure; and to foster credit and exchange conditions conducive to the orderly and balanced economic
development of the country.
Section 4, Reserve Bank of Fiji Act (1983)
                                         LETTER TO THE MINISTER




                                         RESERVE BANK OF FIJI


    Governor

                                                                                                               30 July 2009

    Commodore Josaia Voreqe Bainimarama
    Minister for Finance and National Planning
    Ministry of Finance and National Planning
    Ro Lalabalavu House
    Victoria Parade
    SUVA


    Dear Minister

                                       RBF Annual Report and Accounts 2008

     In terms of Section 56(1) of the Reserve Bank of Fiji Act, and on behalf of the
     Reserve Bank of Fiji, I submit the following:

          (i)      A copy of the RBF Annual Accounts for the year ended 31 December 2008
                   certified by the Auditors.

          (ii) A report on the RBF’s Operations for the 2008 fiscal year.



                                                         Yours sincerely




                                                          Sada S Reddy
                                                           Governor




Postal: Private Mail Bag, Suva, Fiji    Tel: (679) 331 3611   Fax: (679) 330 1688   Email: info@rbf.gov.fj   Website: www.rbf.gov.fj




                                                                                                                                       Annual Report 2008   01
                                                                                                                                     OUR FUNCTIONS




                      The Reserve Bank of Fiji (RBF) is the country’s central bank. Governing the Bank’s functions is primarily the
                      RBF Act (1983).


                      Monetary Policy

                      Under Section 4(b) of the RBF Act, the Bank is required to promote monetary stability through low and stable inflation
                      and to maintain an adequate level of foreign reserves. The Bank performs this responsibility through the formulation
                      and implementation of monetary policy.

                      The Bank administers exchange control policies under the Exchange Control Act (rev 1985). Other policy tools include
                      open market operations, statutory reserve deposits and credit ceilings.

                      The Bank also manages the country’s foreign exchange reserves.

                      Financial Stability

                      The RBF Act requires the Bank to promote a sound financial structure. In undertaking this, the Bank supervises licensed
                      institutions in the banking, insurance and superannuation industries as well as foreign exchange dealers.

                      In addition to the legislative environment for these industries, licensed institutions are required to comply with prudential
                      policies and guidelines issued by the Bank. These policies and guidelines complement the Bank’s supervisory function
                      with the aim of fostering financial stability through sound licensed institutions. The licensed financial institutions
                      including the Fiji National Provident Fund (FNPF) are required to comply with the Banking (1995) and Insurance
                      (1998) Acts as well.

                      Maintaining financial stability also encompasses the responsibility of combating money laundering and terrorist financing
                      under the Financial Transactions Reporting Act (2004) and the Financial Transactions Reporting Regulations (2006).

                      To achieve these requirements, the Bank registers and licenses financial institutions and uses a risk-based supervision
                      system. The Reserve Bank acts as banker to the commercial banks and provides payment services through FIJICLEAR.

                      Currency

                      Pursuant to Section 22(1) of the RBF Act, the RBF has the sole right to issue currency in Fiji. The Bank is the sole entity
                      responsible for the printing of banknotes and minting of coins and is also responsible for destruction and disposal of
                      used and unserviceable currency. The Bank also determines the denominational structure, design, content, material
                      and composition of Fiji’s currency, with the approval of the Minister for Finance.

                      Other

                      The Bank provides banking and registry as well as foreign exchange services to Government and is a lender of last resort.
                      Policy advice to Government is provided through participation in various committees and upon request.

                      Details of the Reserve Bank Board of Directors are provided on page 8 and the roles of the Board, Management of the
                      Bank and Governance are described on pages 10 and 11. The Bank’s organisation structure is illustrated on page 6.




02   Reserve Bank of Fiji
        GOVERNOR’S FOREWORD




The year under review turned out to be a very difficult and challenging
one both domestically and globally. The sharp escalation of fuel and
commodity prices in the first part of the year and the rapid slowdown
of the world economy in the latter part of the year had significant and
far reaching effects on the Fiji economy.




T
       he Fiji economy is estimated to have grown by 0.2 percent in 2008 after a contraction of 6.6 percent in 2007. In line
       with subdued economic activity, overall labour market conditions remained soft in 2008. The trend for investment
       continued to be weak. The balance of payments continued to be under pressure.

For the Reserve Bank of Fiji, financial stability, external stability and the role of monetary policy continued to be a key focus.
The Bank continually reviewed the stance of monetary policy and formulated appropriate policies to ensure that the financial
system was sound.

Growth in 2008 was mainly supported by the wholesale & retail trade, hotels, & restaurants and transport & communications
sectors. The positive results in these sectors were due to the buoyant tourist arrivals during the year. While the number of
tourist arrivals increased to 585,031 in 2008, the yields were affected due to the shorter length of stay and the discounts given
by the industry which translated to lower tourism earnings. Other sectors that contributed to the economic recovery in 2008
were mining & quarrying; agriculture, forestry, fishing & subsistence; manufacturing and building & construction.

On the inflation front, developments were challenging but mixed. Driven mainly by soaring crude oil and food prices, domestic
inflation hovered at around 7.0 percent in the early part of 2008. After easing somewhat to 5.8 percent in May, prices climbed
sharply to a 20-year high of 9.8 percent in September. Prices, however, eased in October as concerns of a global recession brought
prices of oil and food down. By the end of 2008, inflation eased to 6.6 percent, higher than the 4.3 percent registered at the
end of 2007. The underlying inflation, measured by the trimmed mean method, was 2.8 percent.

Investment remained subdued in 2008 and was estimated at about 15 percent of GDP, similar to 2007. While partial indicators
of investment like imports for investment and lending for investment grew during 2008, overall investment was low. However,
the Bank stood ready to assist investment projects by approving lending to priority sectors above the credit ceiling limit.

In 2008, monetary policy continued to focus on dampening domestic demand to address the widening trade deficit. The credit
ceiling that was introduced in December 2006 remained in place during 2008. However, the Bank’s open market operations
remained suspended in 2008. Exchange control policies were reviewed and several policy announcements were made to increase
the delegation of authority to authorised dealers to speed up processing times. The Bank stood ready to provide liquidity when
required. The weighted average lending rate was 7.7 percent compared with 8.5 percent in 2007.

The Bank is pleased to report that Fiji’s financial system is sound and stable. Total assets of the financial system (excluding
Reserve Bank of Fiji) increased by 2.9 percent to $9.6 billion. The Reserve Bank took controllership of Asset Management Bank
in April 2007 and continued working towards winding down its operations. During the year, commercial banks opened 10
new branches/agencies bringing more services to the people of Fiji. With an economy that was declining, the Bank was vigilant
in its monitoring of loans extended by commercial banks. While the credit ceiling dampened demand, special approvals for
loans above the ceiling were approved for investment related projects. The insurance industry’s performance was also satisfactory
in 2008 as most insurance companies continued to be well capitalised and adequately met their solvency requirements.

The Bank is aware that the Fiji National Provident Fund continues to be an issue in terms of its influence in the market due to
its sheer size in the financial system. A study is being done to see how best to reform the FNPF for the long term growth of
the financial system. The Bank will now work closely with FNPF on the possible deregulation of the superannuation industry.

The Reserve Bank collaborated closely with FNPF’s board and management to ensure that corporate governance policies are
in place as well as developing appropriate technical polices to safeguard the assets of the Fund. The Bank is appreciative of the
continued technical assistance from the IMF to strengthen the Bank’s supervision techniques in superannuation matters.



                                                                                                                           Annual Report 2008   03
                                                                                                                            1930s
                                                                                                                            Half Penny coin dated 1934.




                      FIJICLEAR, Fiji’s Real Time Gross Settlement System was            IMF in September 2008 to update the Report. We are also
                      formally launched in October 2007. Over the year, the              appreciative of the technical assistance provided by the IMF
                      number and value of payments increased. The Bank worked            in the areas of supervision and monetary statistics.
                      closely with the Association of Banks in Fiji and other
                      stakeholders to increase awareness of the use of FIJICLEAR         After Fiji’s voluntary participation in the joint IMF and World
                      amongst the business community and the general public. As          Bank Financial Sector Assessment Program in 2006, the Bank
                      part of this effort a value based fee structure which is lower     continues to monitor the progress and implementation of the
                      than the current transactions fees will be implemented in          recommendations of the Aide Memoire with stakeholders in
                      2009.                                                              the financial sector as well as its own performance.

                      After nearly 3 years of review and planning, Fiji’s bank notes     In 2008, the remaining provisions of the Financial Tran-
                      and coins have been modernised. Fiji’s new currency notes,         sactions Reporting Act were brought into force. Detailed
                      including the new $100 note, were put into circulation in          guidelines on FTR Regulations concerning implementation
                      April 2007. The new coins program commenced in the                 of customer due diligence and other measures for financial
                      second half of 2008. In October 2008, the Bank ceased the          institutions were also introduced in 2008. The Financial
                      issue of 1 and 2-cent coins. The new coins; 5, 10, 20, 50          Intelligence Unit worked closely with financial institutions
                      cents and $1, were unveiled in December 2008. These coins          to ensure compliance. The Unit also provided training, advice
                      which are minted by the Royal Canadian Mint are smaller,           and guidance to its stakeholders to inform them of their
                      thinner, lighter and round and with varying edge treatments        obligations under the Act. Memorandum of Agreements
                      will provide additional security as well as assistance to the      were signed with the Ministry of Justice, the Fiji Islands Trade
                      visually impaired. The new coins were issued to the public         and Investment Bureau and the Fiji Police Force. Anti-money
                      in February 2009. The old and new coins co-circulated until        laundering coordination was strengthened with the
                      30 April 2009, after which only the Reserve Bank can give          establishment of the National AML Council of which the
                      value for the old coins. There is now a mammoth task to            Governor of the Bank and Director of the FIU are members.
                      facilitate the collection of the old coins from around Fiji. The
                      Bank is grateful to the commercial banks, the public and the       The website of FIU was formally launched in February 2009
                      Police Force for their continued support, cooperation and          at the first National AML Conference. Measures for detecting
                      assistance as we collect the demonetised coins.                    currency smuggling at Fiji’s borders were strengthened as
                                                                                         travelers into and out of Fiji were required under the FTR Act
                      Another milestone in the Bank’s history was the comm-              to declare if they were carrying currency or negotiable bearer
                      issioning of the new note processing machine in May 2008.          instruments of $10,000 or more to Customs officials. The
                      This machine is capable of counting 1,500 notes per minute,        Fiji FIU Information Management System Online was rolled
                      five times faster than the machine that it replaced. This          out in 2008 to receive information online and also to
                      investment will improve the quality of notes in circulation        effectively manage the database of FIU. A membership
                      and also speed up the processing of soiled notes.                  application was lodged with the Egmont Group in 2008 and
                                                                                         Fiji subsequently became a member in May 2009.
                      During the year, the Bank also updated its IT software to
                      ensure that processes and information including the database       The Bank recognises the potential of the Medium, Small and
                      was captured efficiently and effectively.                          Micro Enterprises in providing employment and improving
                                                                                         welfare of the citizens of Fiji. The Bank currently collects
                      The Bank participates in the General Data Dissemination            data on this sector from the commercial banks, credit
                      System and uses its website and publications to inform its         institutions and the Fiji Development Bank. We continue to
                      stakeholders about the policies of the Bank. It is pleasing to     sponsor the Fiji Development Bank’s Small Business Awards
                      note that the Bank’s 2006 Annual Report was awarded first          and the Fiji Islands Trade and Investment Bureau’s Prime
                      prize in the Statutory Authorities, Government Bodies and          Minister’s Exporter of the Year Award for Agriculture.
                      Unlisted Trusts category of the 2008 South Pacific Stock
                      Exchange Annual Report Competition. The Bank has won               We also realise the importance of education and sponsor the
                      this award a number of times over the years.                       chair of Associate Professor/Senior Lecturer in Monetary
                                                                                         Economics at the University of the South Pacific. The Bank
                      Under Article IV of the IMF’s Articles of Agreement, the           also awards a prize to the outstanding graduate in Economics
                      IMF holds bilateral discussions with its members. In Fiji’s        at USP.
                      case, discussions are held bi-annually and a team from the
                      IMF was in Fiji in late 2007. The IMF Executive Board has          In recent years, remittances were an important foreign
                      yet to discuss Fiji’s Report. There was a Staff Visit from the     exchange earner for Fiji. A database on remittances is being

04   Reserve Bank of Fiji
          Governor’s FOREWoRD




                                                                                                                   1930s
                                                                                                                   One Penny coin dated 1935.




built with assistance from commercial banks and other              million, which represents one fifth of the Revaluation Reserve.
institutions to better track this very important source of         The profit for 2007 was $20.4 million. The level of profit
foreign currency. The Bank is also participating in a regional     was a direct result of the higher interest rates abroad through
project with the World Bank’s office in Australia and hosted       to the third quarter of 2008. The average level of foreign
a round-table discussion in Fiji. However, with the adverse        reserves was also higher during most of 2008 than in 2007.
developments in the global environment, a substantial decline      However, by the end of 2008, foreign reserves had fallen to
in remittances by 27 percent was noted over the year to $188       $558.7 million compared with $804.6 million at end 2007.
million in 2008.
                                                                   Early indications show that 2009 will be another challenging
A Strategic Plan for the Bank for the period 2009-2013 was         year. Much of Fiji’s performance will depend on the duration
produced in-house in 2008. This Plan will be reviewed              and depth of the global recession. Most countries have revised
annually as circumstances change. The Bank’s Contingency           their growth rates for 2009 and Fiji is in the process of doing
Plan was also strengthened as construction work on the Bank’s      the same. While oil and commodity prices have declined,
Business Resumption Site commenced in June, 2008. The              circumstances can affect their movement rapidly.
BRS is expected to be functional in the fourth quarter of
2009. This site will provide back up to the Bank’s critical        In 2009, the Fiji economy is expected to contract by 0.3
operations if the headquarter’s building is inaccessible due       percent. The floods in early 2009 have negatively affected
to any business failures.                                          the growth prospects that were anticipated. The economic
                                                                   outlook remains uncertain given the developments in the
I am grateful to the International Monetary Fund, World            global economy. However, we must rally together to ensure
Bank, Asian Development Bank, Pacific Financial Technical          that everyone does their bit to lift the economic performance.
Assistance Centre, Australian Prudential Regulation                The balance of payments remains fragile and we must do all
Authority, AUSTRAC and other international organisations           we can to preserve foreign reserves. Monetary policy will be
for technical assistance provided in 2008. In turn, the Reserve    kept under constant review to ensure that it meets the needs
Bank is doing its part in assisting central banks in the Pacific   of the economy as we move forward. Various reforms
by hosting attachments from staff of regional central banks.       identified by the Government need to be addressed and
We were pleased to be given the honour to host the SEACEN          implemented with some urgency. We need the cooperation
Directors of Research and Training meeting in Fiji in October      and support of Government, financial institutions, relevant
2008. With the IMF, PFTAC and ADB, the Bank also assisted          stakeholders and the citizens of Fiji to work together so that
in hosting the Regional Workshop on Financial Soundness            we can achieve better growth for Fiji and a higher standard of
Indicators.                                                        living.

Capacity building of Team Reserve Bank is a priority for the       I would like to thank my predecessor, Mr. Savenaca Narube,
Bank. In 2008, the Bank continued to train staff locally as        for his 29 years of dedicated service, commitment and
well as abroad. The Bank also provided job rotation and on         contribution to the Bank and Fiji. I would also like to take
the job training to its staff. A training needs analysis is done   this opportunity to thank the Board of Directors for their
for each staff annually and the benefits of training must be       support and guidance during 2008. I wish to acknowledge
demonstrated in the performance of outputs.                        the cordial relationship that we have had with the Fiji Bank
                                                                   and Finance Sector Employees Union in all our industrial
The Bank fully engages in activities in the community. Apart       relations matters.
from official donations to charitable organisations, it is very
encouraging to see Team Reserve Bank participate and               Finally, I extend my deep appreciation to Team Reserve Bank
contribute to the community using its own time and                 for their hard work, commitment and cooperation in 2008.
resources. The Team took part in national campaigns, business
house competitions and committees as well as gave donations
in cash and in kind to charitable organisations.

In accordance with the Reserve Bank of Fiji Act, the Bank
submitted its audited accounts and operational report for
the year ended 2008 to the Minister for Finance on 31 March                          Sada S Reddy
2009. On 30 March 2009, the Bank transferred a total of                     Governor and Chairman of the Board
$33.0 million to Government. This consists of its entire
profit of $30.4 million for the financial year 2008 and $2.6

                                                                                                                             Annual Report 2008   05
                                                                                        ORGANISATION STRUCTURE




                                                                                          Corporate compliance and assurance,
                                                                          Corporate       coordination of annual workplan and
                                                                          Planning
                                                                        and Assurance     budget, local and international lia-
                                                                                          ison and settlements.


                                                                                          Currency, accounting, human resou-
                                                                        Currency and      rces, information technology, general
                                                                         Corporate        services, records management, library,
                                                                          Services        corporate projects, security and plants
                                                                                          & properties.


                                                                                          Economic analysis and research, mon-
                                                                                          etary and macroeconomic policy, pu-
                                                                         Economics
                                                                                          blications, forecasting financial and
                                                                                          economic statistics.


                                                                                         Provide advice to the Governors on
                                            Governor and
                               Board                          Deputy      Executive      economic, financial and other Bank
                                           Chairman of the
                            of Directors                     Governor     Services       policy matters and board secretariat
                                                Board
                                                                                         services.


                                                                                         Financial system supervision, deve-
                                                                                         lopment and implementation of pru-
                                                                          Financial      dential supervision policies, licensing
                                                                         Institutions
                                                                                         and examination of licensed financ-
                                                                                         ial institutions.

                                                                                         Financial intelligence policy advice,
                                                                           Financial     formulation, compliance, supervis-
                                                                         Intelligence    ion, training implementation and mo-
                                                                              Unit       nitoring, national and international
                                                                                         liaison.

                                                                                         Exchange rates, foreign exchange deal-
                                                                                         ings, market monitoring, foreign exch-
                                                                          Financial      ange reserves management, exchange
                                                                          Markets
                                                                                         control, open market operations, reg-
                                                                                         istry, liquidity forecasting and paym-
                                                                                         ent services through FIJICLEAR.



06   Reserve Bank of Fiji
“While we have changed our currency notes several times,
it is almost 40 years since we changed our coins and this
 was from the pennies and shillings to decimal currency
                  on 13 January 1969.”

“We are changing our coins
basically to reduce the cost of
minting and handling. These
costs continue to increase as
demand for cash continues to
rise.”
“I believe we have an excellent
set of currency notes and coins
which can fully serve our needs
well into the future. The new
currency notes have been well
received. I am confident that our
new coins will also receive the
same acceptance.”
     Excerpt from the address at the official launch of Fiji’s new
         coin series by Mr. Savenaca Narube, former Governor,
                     Reserve Bank of Fiji on 11 December 2008.




                                                                     Annual Report 2008   07
                                                                 BOARD OF DIRECTORS




                                     Sada Reddy                         Peceli Vocea                      Ioane Naiveli                    Kanti Tappoo OBE
                                    Governor and                    Permanent Secretary
                                Chairman of the Board              Ministry of Finance and        Member since 1 January             Appointed to the Board 14
                                                                     National Planning            2000. Term expires on 31           February 2002. Term expired
                            Governor since 15 April 2009                 (ex-officio)             December 2009. Chairman of         on 31 December 2008. Mem-
                            for a 3-year period. Alternate                                        the RBF Board Audit Commit-        ber of the Performance Review
                            Governor for Fiji in the Intern-   Appointed as Permanent Secre-      tee and member of the Staff        Committee of the Board. Exec-
                            ational Monetary Fund and          tary for Ministry of Finance       Sub-Committee and Perform-         utive Chairman Tappoo Gro-
                            in the Asian Development Bank.     and National Planning on 19        ance Review Committee of the       up of Companies. Former
                            Also, Chairman of Fiji School      March 2007. He was the Cha-        Board. Sole partner of I. Nai-     Chairman of Amalgamated
                            of Medicine Council and Dep-       irman of the Performance           veli & Company Chartered           Telecom Holdings Limited.
                            uty Chairman of Capital Ma-        Review Committee of the RBF        Accountants. Board member
                            rkets Development Authority.       Board. Board Chairman of           of Fijian Holdings Limited.
                                                               the Fiji National Provident        Former Chairman of the
                                                               Fund and subsidiaries in           External Audit Committee of
                                                               2007. Board member of the          the International Monetary
                                                               Fiji Islands Revenue and Cust-     Fund. Council member of Fiji
                                                               oms Authority and Fiji Islands     Institute of Accountants, Fina-
                                                               Trade and Investment Bureau.       ncial Advisor to the Fijian Aff-
                                                                                                  airs Board and Director Fina-
                                                                                                  nce - Fiji Rugby Union.




                                 Savenaca Narube                      Robin Yarrow                       Adish Narayan                   Dr. Chandra Dulare

                            Governor since 15 May 2000         Member since 5 August 2005.        Appointed to the Board on 3        Appointed to the Board for a
                            to 10 April 2009. Served as        Term expires on 6 August           August 2007. Term expires on       3-year term on 11 January
                            the Permanent Secretary for        2009. Chairman of the RBF          3 August 2010. Member of           2008. Member of the Board
                            Finance from 1997 to 2000.         Staff Sub-Committee, member        the RBF Staff Sub-Committee        Audit Committee and Perfor-
                                                               of the Board Audit Committee       and Performance Review Co-         mance Review Committee of
                                                               and Performance Review             mmittee of the Board. Lawyer       the Board. Dr. Dulare is the
                                                               Committee of the Board. Reti-      by profession and sole prop-       Director of the Fiji Institute of
                                                               red from the Fiji Government       rietor of AK Lawyers.              Applied Studies. His work
                                                               in 1999 after 30 years of serv-                                       experiences include lecturing
                                                               ice which included senior                                             at the University of Fiji, Unive-
                                                               positions with the Ministries of                                      rsity of Queensland and Univ-
                                                               Agriculture, Tourism, Foreign                                         ersity of the South Pacific.
                                                               Affairs and National Pl-
                                                               anning. Currently serves on a
                                                               number of Non-Government
                                                               Organisations and Boards
                                                               /Councils including the Fiji
08   Reserve Bank of Fiji                                      Red Cross Society and the
                                                               National Trust.
                                                           EXECUTIVE MANAGEMENT



                                                                                                                                     1930s
                                                                                                                                     Three Pence coin
                                                                                                                                     dated 1935.




       Barry Whiteside                      Lorraine Seeto                Esala Masitabua
    Acting Deputy Governor/                 Chief Manager                  Chief Manager
        Chief Manager*                     Corporate Planning              Currency and
      Financial Institutions                 and Assurance                Corporate Services




                                             Razim Buksh                      Ariff Ali
                                                 Director                  Chief Manager
                                                Financial                Financial Markets**
                                             Intelligence Unit




                                            Jitendra Singh                  Uday Singh
                                             Chief Manager          Secretary to the Bank/Advisor
                                              Economics***                Corporate Affairs




                                             Annie Rogers                Shajehan Hussein
                                        Advisor to the Governors          Chief Manager
                                         (Until October 2008)            Financial Markets
                                                                       (Until November 2008)



*   Appointed as Acting Deputy Governor on 15 April 2009           ** Confirmed as Chief Manager Financial Markets on 1 April 2009
                                                                   *** Confirmed as Chief Manager Economics on 15 April 2009




                                                                                                                                            Annual Report 2008   09
                                                                                                 CORPORATE GOVERNANCE




                                                                                The Reserve Bank of Fiji is fully owned by the Government
                                                                               of Fiji. The functions and duties of the Reserve Bank are
                                                                              specified in the Reserve Bank of Fiji Act (1983), the Banking
                                                                             Act (1995), the Insurance Act (1998), the Exchange Control
                                                                          Act (rev 1985) and the Financial Transactions Reporting Act
                                                                      (2004). These legislations define the boundaries of the Bank’s
                                                               responsibilities and accountabilities.

                                                             The Reserve Bank’s performance is documented in an Annual Report and
                                                             tabled in Parliament every year. Under Section 56 of the RBF Act, the
                                                             Annual Accounts and a Report of Operations of the Bank must be submit-
                                                             ted to the Minister for Finance no later than 31 March of the following
                                                             year. Moreover, under the Insurance Act (1998) the Bank’s Insurance
                                                             Annual Report has to be submitted to the Minister for Finance by 30 June
                                                             of the subsequent year and is also tabled in Parliament. In 2008, the
                                                             Financial Intelligence Unit published its first Annual Report, however,
                                                             this is not mandatory.

                                                             The Bank has a Vision statement – “Leading Fiji to Economic Success” –
                                                             and also subscribes to Mission statements and Values which are on the
                     The Governor                            inside cover of this Report.



                     T       he Governor is appointed for a 5-year term by
                             the Constitutional Offices Commission (COC),
                             in consultation with the Minister for Finance
                     and the Board of the Reserve Bank. The COC is appo-
                                                                                  Vocea. Mr. Deo Saran was appointed to the Board for
                                                                                  a 3-year term on 11 February 2009.

                                                                                  Board Meetings
                     inted by the President. The Governor, who is the Bank’s
                     Chief Executive Officer, is responsible to the Board         Under the RBF Act, the Board is required to meet at
                     for the management of the Bank and the execution of          least 10 times in a calendar year. During 2008, the
                     its policy. The current Governor, Mr. Sada Reddy was         Board met on 12 occasions - there were 10 ordinary
                     appointed on 15 April 2009 for a period of three years,      board meetings and two special board meetings. Four
                     following the abrogation of Fiji’s Constitution which        Directors form a quorum for a meeting of the Board.
                     made the former Governor, Mr. Savenaca Narube’s              In the absence of the Governor, the Deputy Governor
                     post vacant.                                                 may participate in Board meetings and is entitled to
                                                                                  exercise a vote.
                     Board of Directors
                                                                                  Board Committees
                     The Board comprises the Governor, who serves as
                                                                                  The Audit, Staff and Performance Review Sub-Commi-
                     Chairman, the Permanent Secretary of the Ministry
                                                                                  ttees of the Board also held meetings during the year.
                     of Finance and National Planning, as an ex-officio           The Board Committees consist of non-executive mem-
                     member, and five other non-executive members.                bers. Decisions of the Committees are submitted to
                     Under the RBF Act, the Minister for Finance appoints         the full Board for ratification.
                     the Directors. Directors may hold office for a period
                     not exceeding three years but are eligible for reap-         The function of the Staff Sub-Committee is to review
                     pointment. Board Directors, Mr. Kanti Tappoo’s OBE           and approve strategies on terms and conditions of
                     and Mr. Ioane Naiveli’s terms ended on 31 December           employment for executive management and staff and
                     2008, however, Mr. Naiveli was reappointed for               to review and approve strategies on the remuneration
                     another year. Dr. Chandra Dulare was appointed as a          policy for all staff.
                     Director from 11 January 2008.
                                                                                  The Performance Review Sub-Committee reviews the
                     Other Board Directors holding office in 2008 were            performance of the Governor and the Deputy Gov-
                     Mr. Robin Yarrow, Mr. Adish Narayan and Mr. Peceli           ernor. One meeting took place in 2008.

10   Reserve Bank of Fiji
                                                                                                     1930s
                                                                                                     Six Pence coin dated 1934.




The Board Audit Committee monitors the adequacy             Delegation of Authority
of the audit function in the Bank and assists the Board
in fulfilling the requirements of the RBF Act in relation   The Delegation of Authority sets out the framework
to the Bank’s accounting and reporting practices. In        for the Governor’s delegation in the operations of the
carrying out these functions, the Committee:                Reserve Bank together with the associated accountabil-
                                                            ities. All activities and expenditure in the Bank must
• reviews the audit plan of the external and internal       be authorised in accordance with the respective dele-
  auditors;                                                 gations, policies and procedures. The Internal Rules
• evaluates the Bank’s accounting control system by         and Orders of the Bank and the Code of Ethics and
  reviewing audit reports and monitoring manage-            Business Conduct policy provide guidance on compli-
  ment’s responses and actions to correct any noted         ance on ethical standards. The Declaration of Compli-
  deficiencies;                                             ance, signed annually by staff, ensures that they have
• reviews the annual financial statements of the Res-       complied with the Code of Ethics; Delegation of Auth-
  erve Bank; and                                            ority; Internal Rules and Orders and IT policies of the
• reviews accounting policies to ensure compliance          Bank.
  with laws, regulations and accounting standards.
                                                            Strategic Plan
The Board Audit Committee met on six occasions in
2008.                                                       In 2008, the Bank produced a 5-year Strategic Plan for
                                                            the period 2009-2013. A bottom-up approach was
Bank Management                                             adopted in the formulation of the Plan. This is the first
                                                            time that such a Plan has been produced in-house. The
The executive management of the Bank comprises the          Plan is posted on the Bank’s Intranet and is available
Governor, Deputy Governor, Chief Managers and an            to all staff. The Plan will be reviewed annually.
Advisor to the Governors. The Governor is advised by
a number of internal committees within the Bank.
                                                            Corporate Plan
These are:
                                                            Corporate planning is carried out annually in the Res-
• the Executive Management Committee, which
  meets weekly to consider the management and               erve Bank. The formulation of the Bank’s workplan
  day-to-day operations of the Bank;                        for the following year commences as early as May, with
• the Monetary Policy Committee, which meets mo-            a review of its Vision and Mission statements. Group
  nthly to discuss economic and monetary develop-           strategies are reviewed accordingly. All Groups review
  ments;                                                    their progress for the first six months of the year and
• the Market Operations Policy Committee, which             submit a report to the Board in July. Extensive discuss-
  meets monthly to discuss the Bank’s foreign reser-        ions are held during the interactive planning workshops
  ves and domestic investment management strat-             and feedback is obtained from internal and external
  egies;                                                    stakeholders in August. The output and the resources
• the Financial System Policy Committee, which              are matched and the workplan and budget are present-
  meets monthly to review financial system develop-         ed to the Board for approval in November.
  ment and consider policy issues on the soundness
  and efficiency of the system;                             The workplan is presented according to the Mission
• the Currency and Corporate Services Policy Com-           statements of the Bank. Every strategy, output and
  mittee, which meets monthly to discuss issues rela-       process must identify with a Mission statement which
  ting to currency and all services provided internally;    will lead to the achievement of the Vision of the Bank.
• the Information Technology (IT) Steering Comm-            Each Mission statement has a list of key performance
  ittee, which meets quarterly to discuss IT develop-       indicators (KPIs). Resources are applied to the work-
  ment and operations; and                                  plan. The Bank uses zero based budgeting for its finan-
• the Business Continuity Plan (BCP) Committee,             cial resources. Chief Managers are responsible and
  which meets quarterly to formulate and initiate           accountable for their respective Group’s KPIs and bud-
  strategies to address risks faced by the Bank.            gets. These indicators are monitored quarterly by the



                                                                                                                     Annual Report 2008   11
                            CORPORATE GOVERNANCE




                                                                                                                                                      1930s
                                                                                                                                                      One Shilling coin dated 1936.




                            Governors and six monthly by the Board. In November                            • small organisations such as loss of staff due to emi-
                            2008, the Board approved the annual workplan and                                 gration;
                            budget for 2009.                                                               • currency such as counterfeit, adequacy and safety
                                                                                                             issues; and
                            Annual Planning Cycle
                                                                                                           • the operations of Fiji’s payments system, FIJICLEAR,
                                                                                                             due to technical issues.
                                                     Review Of       Presentation
                                                  Vision & Mission   Of Workplan

                                                       May           January-                              The BCP that was approved by the Board in 2007
                                                                     following year
                               Review Of Group                                        Board Approval For   continued to be rolled out during 2008. There was a
                                  Strategies                                          Workplan/Budget
                                                                                                           simulation exercise for fire evacuation. Other initiatives
                                    June                                               November

                                                                                      Develop & Finalise
                                                                                                           that have been developed include planning for a
                               Approval Of New
                               Group Strategies
                                                                                         Next Year’s
                                                                                      Workplan/Budget
                                                                                                           possible avian influenza pandemic and documenting
                                                                                                           procedures for reference as well as strengthening
                                   July                                                    September/
                                                  Review Of Work      Interactive
                                                                      Workshop
                                                                                            October        procedures in case of natural disasters. Work on the
                                                     Progress

                                                       July           July/August
                                                                                                           Bank’s Business Resumption Site (BRS) commenced
                                                                                                           with the ground breaking ceremony in late 2008. The
                                                                                                           project is expected to be completed in late September
                            Risk Management                                                                2009. The BRS will act as a backup for critical oper-
                            Risk management is an integral aspect of the Bank’s                            ations if the Reserve Bank’s main building is, for some
                            daily operations. The Bank faces many risks - some                             reason, inaccessible. Critical operations include foreign
                            general while others are unique to central banks. Exten-                       reserves management, settlements and some domestic
                            sive use of committees set up in the Bank ensures that                         market operations including FIJICLEAR operations.
                            all risks are accounted for in the Bank. The Bank needs
                            to be vigilant in its monitoring of economic develop-                          The Middle Office monitors the performance and
                            ments and pre-emptive in its formulation of monetary                           operational procedures of the Bank with regard to its
                            policy and ensure that the financial system is sound                           external and domestic investments. An outsourced
                            and stable to minimise risks to the economy and the                            internal audit function provides the Bank with inform-
                            Bank’s reputation and credibility. Other more specific                         ation on risk areas which need to be addressed. The
                            risks include those associated with:                                           Board and the Board Audit Committee also contribute
                             • the holding of foreign reserves like credit, interest                       to the review and strengthening of the Bank’s risk
                                 and exchange rate risks;                                                  management process.




12   Reserve Bank of Fiji
ECONOMIC OVERVIEW




International Economic Developments

The global economy is estimated to have slowed sharply in
2008, as the impact of the financial crisis, the largest financial
shock since the 1930’s Great Depression, spilled over to the global
financial system. The shock that started off as the United States of
America’s (US) subprime mortgage crisis in 2007, had unfolded into a
world-wide financial crisis, leaving behind a trail of economies in recession,
banks and financial institution failures, dwindling global demand, falling
commodity prices and plummeting stock market prices.

The International Monetary Fund (IMF) estimates world growth in 2008
at 3.2 percent compared with 5.2 percent in 2007. The outlook for 2009 is
expected to be even more bleak as IMF expects the world economy to contract
by 1.3 percent. In emerging and developing economies, as well as in low-
income countries, the IMF estimates that growth will continue to be impeded
by financing constraints, lower commodity prices, weak external demand
and associated spillovers to domestic demand.


          onetheless, global actions to support financial

N         markets, such as fiscal stimulus packages and
          monetary easing, could calm financial
          markets and mitigate global output losses in
                                                                                                       World GDP Growth Rates

                                                                                                                      6
                                                                                                                      5
                                                                                                                      4
                                                                                                            Percent




2009. As a coordinated effort, central banks have cut
                                                                                                                      3
interest rates aggressively and also injected substantial                                                             2
amounts of liquidity into their respective banking                                                                    1
systems. In addition, major Governments have                                                                          0
                                                                                                                                 2002




                                                                                                                                                                           2008(e)
                                                                                                                          2001




                                                                                                                                        2003

                                                                                                                                               2004

                                                                                                                                                      2005

                                                                                                                                                             2006

                                                                                                                                                                    2007




approved billions of dollars in rescue packages in the
form of loan and deposit guarantees, as well as capital
to bolster the banking system. These are expected to                                               Source: IMF World Economic Outlook (April 2009)

limit the effects of the financial stress, revive confi-
dence and support demand.                                                                          The US economy, which is expected to have slipped
                                                                                                   into recession in the fourth quarter, is estimated to
Furthermore, at the recent G-201 summit, world                                                     have grown by 1.1 percent in 2008, largely underpin-
leaders have agreed on a set of actions to stabilise the                                           ned by the slowdown in private consumption, invest-
financial system, stimulate demand, strengthen the                                                 ment and industrial production. The Japanese econ-
regulatory framework and help the emerging and                                                     omy was also in recession from the third quarter and
developing economies endure the crisis.                                                            is estimated to have contracted by 0.6 percent in 2008,
                                                                                                   attributed to lower domestic demand and industrial
All of our major trading partner economies also low-                                               production. The Euro zone and New Zealand econom-
ered their key interest rates progressively throughout                                             ies are estimated to have slipped into recession and are
the year to record lows, in response to the financial                                              estimated to have expanded by 0.9 percent and 0.3
crisis and the resulting waning global demand. The                                                 percent, respectively in 2008. The slower growths are
lower interest and mortgage rates, tax breaks and fiscal                                           mainly attributed to the declines in investment and
payments are aimed at boosting household incomes                                                   the lower growth in private consumption. In 2008,
and, consequently, demand in the following year.                                                   Australia’s economy is estimated to have grown by a

1   The G-20 (more formally, the Group of Twenty Finance Ministers and Central Bank Governors) is a group of finance ministers and central bank Governors from 20 economies: 19 of the world's
    25 largest national economies, plus the European Union (EU). It is a forum for cooperation and consultation on matters pertaining to the international financial system.




                                                                                                                                                                                         Annual Report 2008   13
                     ECONOMIC OVERVIEW




                     slower 2.1 percent, underpinned by smaller gains in                                                      below the buoyant 2006 period. A very small recovery
                     consumption and business investment.                                                                     in business and investor confidence following the
                                                                                                                              events of December 2006 is one of the principal
                     Economic Developments in Fiji                                                                            reasons for the low investment rate.

                     Fiji’s economy is estimated to have grown marginally                                                     In 2008, Government continued its path of fiscal
                     in 2008 by 0.2 percent following a contraction of 6.6                                                    consolidation. The Government made a consolidated
                     percent in 2007. Growth in 2008 was mostly sup-                                                          effort to restrain spending, resulting in an underlying
                     ported by the wholesale & retail trade, hotels & rest-                                                   fiscal deficit of $92.0 million, or 1.5 percent of GDP,
                     aurants; and transport & communication sectors. The                                                      lower than the 2.0 percent of GDP announced in the
                     good performances in these sectors resulted from                                                         2008 Budget. The relatively lower fiscal stimulus also
                     buoyant tourism arrivals during the year.                                                                affected growth in 2008.

                     Other sectors that also contributed to the economic                                                      In line with subdued economic activity, overall labour
                     recovery in 2008 were mining & quarrying and finance,                                                    market conditions remained relatively weak in 2008.
                     insurance, real estate & business services sectors. While                                                The Fiji Islands Revenue and Customs Authority (FIRCA)
                     a relatively flat contribution was recorded from the                                                     registered around 16.0 percent fewer new taxpayers
                     agriculture, forestry, fishing & subsistence; and                                                        in 2008 compared with 2007. The mining & quarry-
                     building & construction sectors, negative contributions                                                  ing; electricity & water; agriculture, forestry & fishing;
                     were noted from the community, social & personal                                                         transport, storage & communications and the comm-
                     services, manufacturing and electricity & water sectors.                                                 unity, social & personal services were the major sectors
                                                                                                                              recording lower registrations during the year. Nonethe-
                            Fiji’s GDP Growth Rates                                                                           less, in certain industries, such as mining, some growth
                                       8.0                                                                                    in employment was evident over the 2007 levels, given
                                       6.0                                                                                    the restart of mining operations at Vatukoula.
                                       4.0
                             Percent




                                       2.0
                                                                                                                              Although recruitment intentions improved during
                                       0.0
                                       -2.0
                                                                                                                              2008, with an annual growth of 11.0 percent in Job
                                       -4.0                                                                                   Advertisements, it is likely that this was to fill existing
                                       -6.0                                                                                   jobs left vacant due to workers switching jobs, natural
                                              2001(r)




                                                                                                          2007(p)
                                                        2002(r)




                                                                                                                    2008(e)




                                                                                                                              attrition and emigration. There is a lack of evidence
                                                                  2003(r)

                                                                            2004(r)

                                                                                      2005(r)

                                                                                                2006(r)




                                       -8.0
                                                                                                                              to suggest that the economy experienced new job creat-
                     Sources: Fiji Islands Bureau of Statistics and Macroeconomic Committee                                   ion in the year. Substantiating this, Pay As You Earn
                                                                                                                              collections, a partial indicator of incomes, fell by 6.0
                     Overall, domestic demand remained quite modest in                                                        percent in 2008, although this was influenced partially
                     2008. Although borrowing for consumption purposes                                                        by the increase in the income tax threshold in the
                     showed an annual growth, net Value Added Tax (VAT)                                                       middle of the year.
                     collections fell by 2.9 percent. The lower consumption
                     activity was influenced by weak employment cond-                                                         The income tax threshold was increased to $15,000
                     itions, restrained incomes and falling remittances.                                                      in June by the Government to assist people during a
                                                                                                                              time of rising inflation. Driven mainly by soaring crude
                     Likewise, investment remained subdued in 2008 and                                                        oil and food prices, domestic inflation hovered at
                     was estimated at around 15.0 percent of Gross                                                            around 7.0 percent in the early part of 2008. Growth
                     Domestic Product (GDP), similar to the level in 2007.                                                    in prices eased somewhat to 5.8 percent in May, before
                     Although partial indicators such as imports of invest-                                                   climbing sharply to a 20-year high of 9.8 percent in
                     ment goods and lending for investment purposes grew                                                      September. However, prices eased in October as con-
                     in 2008, overall investment remained low. This is                                                        cerns of a global recession brought prices of oil and
                     substantiated by the developments in certain partial                                                     food down. By the end of 2008, inflation eased to 6.6
                     indicators, such as the value of work put in place in                                                    percent, higher than the 4.3 percent registered at the
                     the construction sector, which remained significantly                                                    end of 2007. The underlying inflation, measured by




14   Reserve Bank of Fiji
                                                                                                                            ECONOMIC OVERVIEW




                                                                                                                                          1930s
                                                                                                                                          One Florin coin dated 1934.




the trimmed mean method, was 2.8 percent.                       Commercial Banks’ Lending & Deposit Rates
                                                                                     Loans      Time Deposit       Total Deposit          Savings Deposit
Government’s response to rising prices was prompt.
                                                                           10
Apart from increasing the income tax threshold,
                                                                                 8
Government reduced duties on certain basic food




                                                               Percent
items and petroleum products, while VAT was elimin-                              6

ated on local eggs from June 2008. In May, the Reserve                           4
Bank had relaxed its Forward Foreign Exchange Cover                              2
Facility to allow importers of some essential food items                         0
to hedge against future price increases. However, with
                                                                                             2005           2006           2007                     2008
the decline in oil prices from the third quarter, Govern-
                                                            Source: Reserve Bank of Fiji
ment reinstated the duty on petroleum products in
December.                                                   Fiji’s overall trade performance deteriorated further
                                                            in 2008. Although there was a respectable growth in
In line with subdued economic activity, money and           exports, this was overshadowed by the strong growth
credit growth were weak during the review year. Broad       (23.0%) in imports. The total exports value was only
money fell by 6.9 percent on an annual basis in             equivalent to cover around 40.0 percent of total
December 2008, driven by a contraction in demand            imports, a massive $3.6 billion, the highest imports
deposits. However, domestic credit expanded by 4.8          level ever. The higher growth in exports of 21.6
percent after rising by 3.2 percent in 2007. The growth     percent, was not sufficient to cover, let alone offset the
in domestic credit was led by private sector credit         higher outflow through imports. The trade deficit in
which grew by 11.2 percent in 2008. Commercial              2008 was enormous, hitting the $2.0 billion mark for
bank credit rose by 11.6 percent in December from           the first time, an increase of around 24.0 percent from
2.1 percent a year ago, attributed to higher lending to     the 2007 levels. The widening of the trade deficit con-
the wholesale, retail, hotel & restaurants; transport,      tinued to exert extensive pressure on the overall balance
communication & storage; real estate; private ind-          of payments.
ividuals and the manufacturing sectors.
                                                                Trade Deficit
                                                                                         0
Commercial bank interest rates generally fell in 2008,
                                                                                      -400
as a result of buoyant liquidity in the banking system.
In December, the commercial banks’ time deposit rate                                  -600
                                                                     $ Million




fell by 145 basis points to 3.00 percent, while the sav-                              -800

ings deposit rate remained the same at 0.64 percent                              -1,200

over the year. Similarly, the commercial banks’ lending                          -1,600

rate fell by 74 basis points to 7.72 percent. However,                           -2,000
as a result of tight liquidity conditions in the final                           -2,400
                                                                                                                                                      2008(p)
                                                                                                                                             2007
                                                                                              2001




                                                                                                                   2004


                                                                                                                          2005


                                                                                                                                   2006
                                                                                                     2002


                                                                                                            2003




quarter of 2008, commercial banks’ time deposit rate
rose by 71 basis points in December, from 2.29 percent
in September.                                               Source: Fiji Islands Bureau of Statistics




                                                                                                                                                                Annual Report 2008   15
                                                                         MISSION :        CONDUCT MONETARY POLICY
                                                                                          TO FOSTER ECONOMIC GROWTH




                                                                                The Reserve Bank of Fiji, as an independent central bank,
                                                                               is entrusted with the conduct of monetary policy in the
                                                                             country. The objectives of monetary policy are formally
                                                                          established in the RBF Act (1983). They are to maintain low
                                                                      inflation and an adequate level of foreign reserves.

                                                               Monetary policy formulation continued to be challenging in 2008,
                                                               exacerbated by the widening trade imbalance and the consequent stress
                                                               on foreign reserves.


                     MONETARY POLICY FORMULATION
                     Chronology of Monetary Policy Actions



                     M
                                 onetary policy formulation became more            for consumption purposes continued to be discouraged
                                 challenging in 2008 for a combination of          as this could affect the balance of payments adversely,
                                 reasons. While it was expected that the           lending for investment purposes was actively supported
                     trade deficit would widen and exert further pressure          by the Bank.
                     on the balance of payments, inflation also rose sharply
                     beyond comfortable levels as a result of higher oil and       With foreign reserves stabilised somewhat at the
                     food prices. In addition, the global financial crisis         beginning of 2008, the Reserve Bank relaxed exchange
                     deteriorated further, impacting the major economies           control guidelines on non-resident borrowings from
                     and forcing a number of downgrades to global growth.          local sources to further encourage private sector
                     The concerns of a further deterioration in the balance        investment. The new policy became effective from 24
                     of payments and rising inflation were central cons-           April 2008, allowing foreign owned companies to borr-
                     iderations in monetary policy decisions throughout            ow up to a certain percentage of their total borrowings
                     the year.                                                     based on their shareholding structure.

                     Although inflation remained above 7.0 percent for             In response to rising inflation, which was influenced
                     most part of 2008, it continued to be driven by high          by high food prices, the Reserve Bank relaxed parts of
                     oil and food prices. Since the primary source of              its Forward Foreign Exchange Cover Facility on 14 May
                     inflation was external, it was neither prudent nor            2008. The policy allowed importers of some essential
                     effective to utilise monetary policy to attempt               food items to hedge against future price increases.
                     restraining it. At the same time, monetary policy was
                     tight throughout 2008. This helped contain price              The policy on local borrowing by non-resident ind-
                     pressures emerging from domestic sources.                     ividuals was relaxed further on 23 June 2008. Non-
                                                                                   residents could from this date, borrow up to 60.0 per-
                     Against this background, the central bank continued           cent locally to build new residences and up to $100,000
                     to focus primarily on preserving the adequacy of foreign      for maintenance and repairs of properties. In addition,
                     reserves through its monetary policy. The credit ceiling,     non-resident controlled companies were also allowed
                     which was introduced in December 2006, remained               to apply for exempted status which would allow non-
                     in place over 2008. Apart from restraining credit             resident individuals investing in their projects to borrow
                     expansion in the economy, this policy also ensured            up to 75.0 percent locally.
                     that credit continued to be directed to priority sectors
                     through the Reserve Bank’s special approvals scheme.          0n 14 August 2008, in line with the Government’s
                     By the end of 2008, the Reserve Bank had granted              policy to encourage and facilitate further participation
                     approvals totalling $361.0 million for investment             of former Fiji residents in the development of the econ-
                     projects, exports and to small businesses. While lending      omy, the Reserve Bank made the necessary amendm-




16   Reserve Bank of Fiji
                                                                          MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH




                                                                                                                                                        1980s
                                                                                                                                                        1 cent coin dated 1982. The
                                                                                                                                                        circulation of 1 cent coins have
                                                                                                                                                        ceased from 13 October 2008.




ents to recognise former Fiji residents with permanent                              come for inflation, relative to the forecast, was mainly
resident visas under the exchange control guidelines.                               due to price pressures easing on the back of a larger-
This provides inter alia the right to these former Fiji                             than-expected fall in oil prices. This was assisted by a
residents to acquire/transfer shares and source funds                               slower-than-anticipated growth in prices of domestic
locally without prior approval of the Reserve Bank.                                 market items towards the end of the year, possibly as
                                                                                    a result of improvements in supply.
Moreover, on 8 September 2008, the approval limits
delegated to foreign exchange dealers for import pre-                                  Inflation Rates (Year-on-Year)
payments was raised to $1.0 million. On 29 Septem-
ber, changes were made to the delegation of foreign                                               10

exchange transactions to Authorised Foreign Exch-                                       Percent
                                                                                                   8

ange Dealers. The changes included the increase in                                                 6

delegated limits in certain categories and delegation                                              4
up to certain amounts for transactions that previously                                             2
required Reserve Bank approval.                                                                    0

                                                                                                              2005              2006          2007           2008
Other relaxation measures in 2008 included: FNPF
funds under emigration; travel allowance; credit and                                Source: Fiji Islands Bureau of Statistics
debit cards; education and medical expenses; merch-
anted imports; charges, fees and service payments; loan                             Aggregate movements of the Fij dollar (FJD) exchange
repayments and court order payments.                                                rate were marginal in 2008. The Nominal Effective
                                                                                    Exchange Rate (NEER) Index, which reflects aggregate
Monetary Policy Outcomes for 2008                                                   exchange rate movements between the FJD and
                                                                                    currencies of Fiji’s major trading partners, contracted
Monetary policy continued to focus on the develop-                                  by 0.3 percent over the year to December 2008. This
ments in its twin objectives of inflation and foreign                               indicates a marginal depreciation of the FJD against
reserves during the course of the year. While inflation-                            the basket of currencies. In contrast, the Real Effective
ary pressures abated somewhat after reaching its peak                               Exchange Rate (REER) Index of the FJD, a gauge of
in September, foreign reserves closed the year at a hold-                           Fiji’s international competitiveness, rose by 1.8 percent,
ing of $558.7 million.                                                              during the same period indicating a slight deterioration
                                                                                    in Fiji’s international competitiveness. This was largely
   Foreign Reserves                                                                 due to higher domestic inflation relative to Fiji’s trading
                                                                                    partner countries, which nonetheless improved as
                 1,000                                                              domestic inflation eased after September.
                  800
                                                                                        REER/NEER             (Monthly Average)
     $ Million




                  600
                                                                                                  112
                  400                                                                             110
                                                                                                  108                                                           REER

                  200                                                                             106
                                                                                                  104                                                           NEER
                                                                                       Index




                    0                                                                             102
                                                                   2008
                                                            2007
                         2002




                                       2004


                                              2005


                                                     2006
                                2003




                                                                                                  100
                                                                                                   98
                                                                                                   96
Source: Reserve Bank of Fiji
                                                                                                   94
                                                                                                   92
Inflation at the end of 2008 was 6.6 percent, lower                                                    2005           2006             2007          2008
than the projection of 7.5 percent. The favourable out-
                                                                                    Source: Reserve Bank of Fiji




                                                                                                                                                                           Annual Report 2008   17
                     MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH




                     MONETARY POLICY IMPLEMENTATION                                                     dollars (NZD). The remaining portion consists of gold
                                                                                                        and Special Drawing Rights (SDR) at the IMF.
                     Open Market Operations
                                                                                                        In 2008, financial markets were characterised by
                     Monetary policy is normally implemented through                                    heightened volatility and uncertainty as a result of the
                     Open Market Operations (OMO). This involves                                        global financial crisis, which saw credit and money
                     auctioning 91-day RBF Notes twice weekly to change                                 markets freeze and major economies move into recession.
                     the level of liquidity in the banking system thereby                               Credit spreads rose to record levels while equity prices
                     influencing short-term market rates in the economy.                                recorded historical declines due to rising risk aversion.
                                                                                                        With access to funding restricted and shrinking capital
                     The Reserve Bank Board announces decisions on the                                  bases due to market losses, major banks and international
                     monetary policy stance after its monthly meetings.                                 financial institutions experienced severe balance sheet
                     This monetary policy stance is expressed in terms of                               distress. This led to banks’ credit ratings around the
                     changes to the policy indicator rate. OMO is then                                  world being downgraded whilst some banks went into
                     conducted to align the 91-day RBF Note rate to the                                 receivership and others required large capital injections
                                                                                                        by their respective Governments.
                     policy indicator rate.
                                                                                                        In response to the deepening financial crisis, central
                     Market operations remained suspended throughout
                                                                                                        banks around the world began cutting interest rates
                     2008. The suspension of OMO has been in place since
                                                                                                        aggressively and injected enormous amounts of liquid-
                     June 2007 following a review of the monetary policy
                                                                                                        ity into the system to help bring back stability and nor-
                     framework.
                                                                                                        malcy in the financial markets. At the same time, Gov-
                                                                                                        ernments around the globe started formulating and
                     Monetary policy costs declined to $2.4 million in 2008                             implementing various targeted fiscal packages worth
                     from $9.0 million in 2007. The marked reduction in                                 billions of dollars to help stimulate demand and sup-
                     cost reflected no cost associated with OMO as it                                   port the declining global economy.
                     remained suspended. In addition, interest paid on
                     Statutory Reserves Deposit (SRD) also fell. The SRD                                In addition to the deteriorating international financial
                     is renumerated at the 91-day Treasury Bills rate plus                              markets, Fiji’s foreign reserves also declined during the
                     50 basis points. In 2008, the weighted average 91-day                              year as rising imports outpaced the growth in exports.
                     Treasury Bills rate fell to 0.19 percent from 5.00                                 As a result, the management of reserves had to be re-
                     percent in 2007.                                                                   viewed. In particular, measures were put in place to
                                                                                                        mitigate liquidity and credit risks. This included hold-
                     Foreign Reserves Management                                                        ing higher balances than usual in the Bank’s cash acc-
                                                                                                        ount and liquidating investments in those institutions
                     The Reserve Bank of Fiji is vested with the powers to                              that had their credit ratings downgraded.
                     manage Fiji’s foreign reserves under the RBF Act
                     (1983). The Act states the form in which the Bank                                  In 2008, investment of external reserves yielded a ret-
                     shall maintain Fiji’s foreign reserves. As custodians of                           urn of 5.97 percent against a return of 7.42 percent
                     national foreign reserves, the Bank is more concerned                              earned on the benchmark portfolio.2 The underper-
                     about safety and liquidity before profitability is consid-                         formance was largely due to two factors. Firstly, the RBF
                     ered. These parameters ensure that the value of Fiji’s                             portfolio being underweight in bonds compared with
                     external reserves are preserved, easily converted to cash                          the benchmark portfolio, in a period when the return
                     at any time and allow for return optimisation within                               on bonds was rising due to the fall in yields.
                     approved investment guidelines.
                                                                                                        Secondly, the RBF’s portfolio was of a shorter duration
                     The bulk of RBF’s foreign reserves holdings are invested                           than the benchmark. In both instances, it was difficult
                     abroad in US dollars (USD), Euro (EUR), Japanese                                   to replicate the benchmark in a period when foreign
                     yen (JPY), Australian dollars (AUD) and New Zealand                                reserves were falling.

                     2      RBF benchmark portfolio uses a customised version of the JP Morgan Index.




18   Reserve Bank of Fiji
                                                                                           MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH




                                                                                                                                                                        1980s
                                                                                                                                                                        2 cents coin dated 1986. The
                                                                                                                                                                        circulation of 2-cent coins have
                                                                                                                                                                        ceased from 13 October 2008.




     Return on Investments                                                                            Under the RBF Act (1983), the Bank is required to
               10
                                                                                                      transfer one-fifth of the RRA balance to Government
                                                                                                      annually. At the end of 2008, the RRA balance was
                8
                                                                     RBF Benchmark
                                                                                                      $12.9 million, of which $2.6 million will be transferred
                                                                                                      to Government in 2009. In 2007, the Bank transferred
                6
     Percent




                                                                     Actual
                                                                                                      $2.8 million for this purpose.
                4
                                                                                                         Revaluation Reserve Account
                2
                                                                                                                        25
                0
                    2005        2006             2007            2008
                                                                                                            $ Million
                                                                                                                        20
Source: Reserve Bank of Fiji


Net interest income earned from offshore investments                                                                    15
in 2008 amounted to $36.5 million, compared to $32.6
million received in 2007. The increase in income was                                                                    10
due to the high interest rates booked during late 2007                                                                       J   F   M   A   M    J     J   A   S   O    N    D
through to the third quarter of 2008, before central                                                                                             2008
banks around the world started slashing interest rates.                                               Source: Reserve Bank of Fiji



     Return on External Reserves ($ Million)                                                          Exchange Rates
                                                             2006       2007      2008
    Net interest income on Investible Reserves              20.1        32.6      36.5                In addition to foreign reserves management, the Bank
    Gains/Losses on Currency Trading                          0.5        0.0      -0.1                also performs other responsibilities relating to foreign
    Gross Income                                            20.6        32.6      36.4
                                                                                                      currency.
    Average Month-End Level of Investible Reserves           464        654       577
    Annual Return on:
                                                                                                      The Bank sets the FJD/USD exchange rate daily. On
    RBF Benchmark (%)                                         4.4        4.4       7.4
    RBF Portfolio (%)                                         5.7        5.7       6.0
                                                                                                      each business day, the prevailing market rates of Fiji’s
                                                                                                      trading partner currencies4 against the USD are sourced
Source: Reserve Bank of Fiji
                                                                                                      from Reuters. The FJD rate against the USD is derived
In order to minimise fluctuations in the monthly reval-                                               by multiplying the prevailing value of those currencies
uation of foreign currency holdings, the Bank continued                                               together with the use of the currency weights as det-
to utilise its approved hedging strategy.3 In 2008, the                                               ermined by the Reserve Bank. This rate, normally ref-
Revaluation Reserve Account (RRA) recorded a gain of                                                  erred to as the mid-rate against the USD, remains un-
$1.7 million compared to the $2.7 million loss incurred                                               changed throughout the day and is sent to commercial
in 2007. The gain in 2008 resulted from the significant                                               banks by 9.00am through Reuters and Bloomberg.
appreciation in the USD, JPY and EUR value against                                                    The commercial banks then use the mid-rate to set
the FJD, which more-than-offset the depreciation in the                                               their own exchange rates for the day, within regulated
AUD, NZD and the SDR against the FJD over the year.                                                   spread limits.




3    Since December 2003, the hedging strategy adjusts the currency composition to take into account the holdings of the SDR portfolio.
4    Fiji’s trading partner currencies include: the USD, NZD, AUD, EUR and the JPY.




                                                                                                                                                                                           Annual Report 2008   19
                            MISSION : CONDUCT MONETARY POLICY TO FOSTER ECONOMIC GROWTH




                                                                                                                                                                                                        1980s
                                                                                                                                                                                                        5 cents coin dated 1983. This will be
                                                                                                                                                                                                        replaced by the new coin series with
                                                                                                                                                                                                        existing design on 16 February 2009.




                            Forward Facility                                                                                      other central banks, statutory bodies, supra-national
                                                                                                                                  institutions6 and the European Union.
                            The Bank continued to monitor the Forward Foreign
                            Exchange Facility to ensure compliance by commercial                                                  Exchange Control
                            banks with the forward guidelines5 which were imple-
                            mented in 2003. During the year, the guidelines were                                                  Exchange controls are administered under the Exch-
                            relaxed to allow banks to write forward sales contracts                                               ange Control Act (rev 1985). The formulation of exch-
                            on certain food items. In general, the volume of new                                                  ange control policy is aimed at supporting monetary
                                                                                                                                  policy by safeguarding the foreign reserves position.
                            contracts written and the number of commercial banks
                                                                                                                                  In 2008, selected exchange control policies were
                            trading under the facility increased during the year co-                                              reviewed in light of the developments in the economy
                            mpared to 2007.                                                                                       as well as to facilitate investment and signal confidence.
                            Foreign Currency Payments                                                                             Compliance with exchange control policy guidelines
                                                                                                                                  continued to be central in the monitoring of trans-
                            The Bank also executes foreign currency payments for                                                  actions undertaken by commercial banks and other
                            specific organisations. These include Fiji Government,                                                stakeholders.




                            5   Commercial banks are allowed to write forward sales contracts only to the extent of their forward purchases; exceptions for additional forward sales cover on investment related projects are
                                available upon application.
                            6    Includes Asian Development Bank, International Bank for Reconstruction and Development and IMF.



20   Reserve Bank of Fiji
MISSION :           DEVELOP AN INTERNATIONALLY
                    REPUTABLE FINANCIAL SYSTEM




FINANCIAL SYSTEM REGULATION AND SUPERVISION
In order to promote a sound financial structure as required
under the RBF Act (1983), the Reserve Bank regulates and
supervises the financial system, which comprises the banking,
insurance, superannuation and foreign exchange dealer industries.

This is achieved through the administration of various other legislations
such as the Banking Act, the Insurance Act and the Exchange Control Act.
These legislations vest the Reserve Bank with various powers, including
the power to license, issue policies and directives to the financial institutions
and to conduct off-site and on-site supervision.

Supervisory Developments



I
   n 2008, the Reserve Bank implemented a supervisory            to provide technical assistance to Reserve Bank on risk-
   policy on the fitness and propriety of insurance              based supervision of the FNPF.
   companies and insurance brokers. The Bank also
began revising the existing supervisory policy overseeing        The Financial System
the placement of insurance business offshore. This
policy is currently in consultation phase with the               The financial system in Fiji comprises the banking, ins-
industry and is expected to be implemented in 2009.              urance, superannuation and restricted foreign exchange
                                                                 dealer industries, money changers, NBFIs and the South
On-site examinations were conducted for nine licensed            Pacific Stock Exchange (SPSE).
institutions in 2008. Spot checks were also conducted
for the eight foreign exchange dealers and three money           In 2008, five banks and three credit institutions were
changers. The Bank assessed each institution’s com-              licensed under the Banking Act (1995) to operate in Fiji.
pliance with the prudential policy requirements and              In the insurance industry, two life insurance companies,
regulatory policies. The institutions’ licences were ren-        eight general insurance companies, four insurance
ewed as compliance with renewal requirements was                 brokers and 378 agents were licensed under the Insu-
met.                                                             rance Act (1998). In addition, the FNPF continued to
                                                                 be the sole player in the superannuation industry. The
The Reserve Bank developed a supervisory framework               FNPF is supervised by the Reserve Bank under the
to guide the implementation of appropriate prudential            Insurance (Amendment) Act 2003. Furthermore, eight
policies and standards to regulate the payments system.          restricted foreign exchange dealers and three money
Work on the supervision and regulation of the payment            changers were licensed under the Exchange Control Act
system is expected to continue in 2009.                          (rev 1985).
                                                                        Licensed Financial Entities including Branches/Agencies (Number)
As part of its role in monitoring the soundness of Fiji’s                                                   2004      2005     2006      2007      2008
financial system, the Bank also assessed the impact of                           Commercial Banks1              6         6         6        6        5
the global financial crisis on licensed institutions. Close                       Branches/Agencies          107       106       108      110      120
supervision of the respective institutions will continue                         Credit Institutions            3         3         3        3        3
in 2009.                                                                          Branches/Agencies             9         9        11       11       11
                                                                                 Life Insurance
                                                                                 Companies                      2         2         2        2        2
In supervising the FNPF, the Bank has continued with
                                                                                 General Insurance
the adoption of a risk-based supervisory approach with                           Companies2                   8(r)     8(r)      8(r)      8(r)       8
both on-site and off-site surveillance as a fundamental                          Insurance Brokers              4         4         5        5        4
part of supervision. This approach relies on the key over-                       Insurance Agents3         318(r) 314(r) 336(r) 385(r)             378
sight functions of the FNPF to effectively manage risk                           Foreign Exchange
                                                                                 Dealers                        8         8         8        8        8
on a day-to-day basis. The Governance of the Board and
                                                                                 Money Changers                 4         4         4        3        3
Senior Management was assessed against the perform-                          1   Excludes Asset Management Bank in 2008 since it is under the controll-
ance of functions to which they provide oversight. The                       2
                                                                                 ership of the Reserve Bank of Fiji.
                                                                                 Includes FAI Insurance (Fiji) Limited, which is currently being wound up.
level of capital and earnings are also considered after                      3   An agent may hold more than one licence to sell various classes of insur-
                                                                                 ance in a calendar year.
assessing net risk. During the year, the IMF continued           Source: Reserve Bank of Fiji




                                                                                                                                                             Annual Report 2008   21
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                     More points of representation for commercial banks                                                    over the year more-than-offset the decline registered
                     were established in 2008. The monitoring of the                                                       in cash and settlement balances with the central bank
                     Insurance Trust of Fiji continued. The Bank also contin-                                              and investments by $292.0 million and $94.2 million,
                     ued the controllership of the Asset Management Bank                                                   respectively.
                     (AMB) in 2008, which is expected to extend into
                     2009.                                                                                                         Commercial Banks’ Assets                          Balances due from Banks
                                                                                                                                                                                     Investments
                                                                                                                                         4,000                                       Other Assets
                     Total assets of the financial system grew by 2.9 percent                                                                                                        Loans, Lease and Advances

                     to $9.6 billion in 2008. The FNPF contributed largely                                                               3,000



                                                                                                                             $ Million
                     to this growth, reflecting an increase in gross assets by
                     7.5 percent to $3.7 billion.                                                                                        2,000


                                                                                                                                         1,000
                     The banking industry, credit institutions and insurance
                     companies comprised 41.7, 3.6 and 8.4 percent of the                                                                   0
                     gross assets of the financial system respectively, while                                                                    2004     2005 2006   2007(r) 2008
                     the remaining balance was held by the FNPF and other
                                                                                                                           Source: Reserve Bank of Fiji
                     NBFIs. The financial institutions (including FNPF)
                     which are regulated by the RBF accounted for 92.2                                                     As at the end of 2008, gross loans and advances stood
                     percent of the total assets of the financial system in                                                at $2.9 billion. This represented an increase of 14.4
                     Fiji in 2008.                                                                                         percent over the year compared to a 1.4 percent increase
                                                                                                                           in 2007. The commercial banks’ consolidated balances
                            Gross Assets of the Financial System ($ Million)                                               due from banks account indicated an increase of 36.9
                                                                  2004      2005       2006     2007(r)      2008          percent to $246.0 million. The growth resulted from
                               Regulated Financial Entities                                                                an increase in the overnight inter-bank activities due
                               Commercial Banks                 2,626 3,043          3,547      3,962     4,008            to tight liquidity levels recorded at the end of 2008.
                               Credit Institutions                293        362       401        370        348

                               Insurance Companies                668        711       705        825        804           The structure of the loan portfolio for banks remained
                               FNPF                             2,937 3,074          3,337      3,437     3,696            relatively similar to that of 2007. Private sector business
                               Total                            6,524 7,190          7,990      8,594     8,856
                                                                                                                           entities dominated the portfolio accounting for 68.8
                               Non Regulated Financial Entities
                                                                                                                           percent of lending assets, followed by private indivi-
                                                                                                                           duals accounting for 28.0 percent. The remainder of
                               Other NBFIs 1                      555        647       736        738        748
                                                                                                                           the portfolio was held by the private enterprises and
                               Total                              555        647       736        738        748
                                                                                                                           statutory bodies.
                               Total Financial
                               System 2                         7,079 7,837          8,726      9,332     9,604
                            1 Includes Fiji Development Bank, Housing Authority and Unit Trust of Fiji but excludes FNPF
                                                                                                                           The banking industry’s total investments declined over
                              and AMB.
                            2 Excludes Reserve Bank of Fiji.
                                                                                                                           the year from $352.2 million in 2007 to $258.0
                     Source: Reserve Bank of Fiji                                                                          million. Cash and settlement balances reduced from
                                                                                                                           $428.7 million to $136.7 million in 2008.
                     Performance of the Banking Industry
                                                                                                                           In terms of the industry’s liabilities, a large decline in
                     The banking industry is assessed to have performed                                                    deposits was recorded over the year, while balances
                     satisfactorily in 2008. The size of the industry                                                      due to other banks in Fiji, Head Offices and branches
                     continued to expand, albeit marginally. Capital levels                                                abroad, money at call and other liabilities increased.
                     remained strong, earnings and asset quality improved                                                  Total deposits declined to $3.2 billion while balances
                     while liquidity levels declined significantly over the                                                due to other banks increased to $126.8 million.
                     year.
                                                                                                                           The decline in deposits was attributed to demand
                     In 2008, the banking industry grew marginally by 1.2                                                  deposits contracting by 18.0 percent to $1.3 billion.
                     percent over the year to $4.0 billion, largely under-                                                 This offsets the increase noted in savings and time
                     pinned by the growth in loans & advances portfolio                                                    deposits of 8.2 percent and 7.7 percent, respectively.
                     ($370.5m), balances due from banks ($66.3m) and                                                       At year end, time deposits totalled $1.2 billion, while
                     other assets ($22.1m). The increase in these assets                                                   savings deposits stood at $0.7 billion.



22   Reserve Bank of Fiji
                                                                                                       MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                                                                     1990s
                                                                                                                                                     5 cents coin dated 1997. A special
                                                                                                                                                     coin to commemorate Food and
                                                                                                                                                     Agricultural Organisation’s “Har-
                                                                                                                                                     vest from the Sea” Campaign.




   Components of Deposits                                                                                   Asset quality has improved over the year as decreases
                                                                             Demand Deposits
                1.800                                                        Time Deposits
                                                                                                            were noted in total impaired accounts, classified acc-
                1,600                                                        Savings Deposits               ounts and past due levels. However, these levels remain
                1,400                                                                                       higher when compared to years prior to 2007.
                1,200
   $ Million




                1,000                                                                                       Total classified exposures declined significantly by
                      800                                                                                   43.5 percent to $86.8 million. Of the classified port-
                      600
                                                                                                            folio, $48.3 million is impaired (a decline of $4.1m
                      400
                                                                                                            from $52.5m). As a result, the total classified ratio has
                      200
                                                                                                            also fallen to 3.0 percent from 6.0 percent in 2007.
                        0
                            2004      2005          2006    2007(r)   2008
Source: Reserve Bank of Fiji                                                                                Total past due levels for the industry also declined by
In terms of sectoral breakdown, private business entit-                                                     $17.5 million to $77.8 million. This was attributed
ies accounted for majority of the total commercial                                                          to a decline of $22.9 million and $9.1 million for the
bank deposits, holding approximately $1.3 billion                                                           1-3 months and 3-6 months categories, respectively.
(40.6%) in December 2008. This was followed by the                                                          However, increases were noted in the 6 months-1 year
private individuals closely at 34.8 percent with the re-                                                    ($6.4m), 1-2 years ($6.7m) and over 2 years ($1.4m).
maining held by non-banks.
                                                                                                            Following the improvement in the commercial banks’
Arising from the increase in profits of banks and capital                                                   classified and impaired exposures, total provisions
injection by one institution, total capital and reserves                                                    declined from $68.8 million to $63.3 million. As such,
rose by $104.6 million to $393.5 million in 2008.                                                           specific provisions covered 21.9 percent of total class-
                                                                                                            ified loans while general provisions covered 1.5 percent
All commercial banks have been assessed to be well ca-                                                      of gross loans.
pitalised and fully compliant with the minimum man-
datory capital adequacy requirement of 8.0 percent.                                                         The private individual’s category accounted for
The aggregate industry capital adequacy ratio was 14.5                                                      majority of the problem loans at 39.3 percent, followed
percent as at 31 December 2008, a 138 basis points                                                          by wholesale & retail entities (26.6%), real estate
increase from end 2007.
                                                                                                            (16.6%), manufacturing (7.6%) and the remainder
                                                                                                            being distributed among other sectors.
The rise largely emanated from a relatively higher
increase in total capital of 32.3 percent which more-
                                                                                                            The industry’s profitability for the 2007-2008 finan-
than-offset the 19.8 percent growth in total risk-
                                                                                                            cial year-end rose as earnings before tax and extra
weighted assets of the commercial banks.
                                                                                                            ordinary items grew by 39.5 percent to $143.5 million.
     Asset Quality
                      160          Total Past Due
                                                                                        8                   Consolidated commercial banks’ before-tax return on
                      140          Impaired Assets                                      7                   average assets for the financial year was 3.8 percent,
                      120
                                   Classified Exposures
                                                                                        6                   an increase of 79 basis points over the year. Under-
                                   Classified as % of Lending
                      100                                                               5                   pinning the relatively higher earnings was a decline in
          $ Million




                                                                                             Percent




                       80                                                               4                   bad debts and provisions expenses by 62.6 percent
                       60                                                               3                   coupled with an increase in net interest income by
                       40                                                               2                   22.3 percent. Operating expenses increased due to a
                       20                                                               1                   rise in personnel expenses and depreciation /amortisa-
                        0                                                               0                   tion expenditure. As a result, the banking industry’s
                            2004      2005           2006       2007(r)      2008
                                                                                                            efficiency ratio improved to 46.9 percent.
Source: Reserve Bank of Fiji




                                                                                                                                                                       Annual Report 2008   23
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                            1
                            Summary of Commercial Banks’ Profitability                          ($ Million)                           Commercial Banks’ Interest Rate Spread
                                                            2004         2005             2006            2007(r)          2008                  10
                            Net interest                                                                                                          9
                            income                        104.2        117.0         142.3                153.3        187.4                      8                  Yield on Earning Assets
                            Add: Non interest                                                                                                     7
                                income                      80.8         91.6             89.2              90.8           96.5                   6




                                                                                                                                       Percent
                                                                                                                                                                                                            Spread
                                   Income from                                                                                                    5
                                   overseas exch                                                                                                  4
                                   -ange transact
                                  -ions                     30.3         32.4             36.4              38.8           44.3                   3
                                                                                                                                                                  Cost of Funding Liabilities
                                  Commission                                                                                                      2
                                  and Charges               48.6         52.1             51.4              48.4           54.2                   1
                                  Other income                1.9          7.0             1.4               3.6           (2.0)                  0
                                                                                                                                                      2004               2005              2006      2007(r)            2008
                            Total operating
                            income                        185.1        208.6         231.5                244.1        283.9       Source: Reserve Bank of Fiji
                            Less: Operating
                            expenses                        91.9         98.3        108.4                121.7        133.0
                            Less: Bad debts
                                                                                                                                   Total liquid assets as at the end of December 2008 was
                            and Provisions                    9.5          7.6            (1.4)             19.5            7.3    $640.7 million, an annual decrease of 9.9 percent.
                            Profit before tax
                            and extraordinary
                                                                                                                                   The decline in liquid assets stemmed from a con-
                            items                           83.6       102.7         124.6                102.8        143.5       traction in the commercial banks’ investments and ca-
                            Less: Tax                       25.6         29.9             36.8              30.1           41.8    sh and balances with the central bank. This caused the
                            Net profit after tax            57.9         72.9             87.7              72.7       101.7       ratio of readily marketable assets to reduce to 20.2 per-
                            Add/Less: Extra-                                                                                       cent from 29.2 percent in 2007. However, large dep-
                            ordinary items                    1.8          0.0             0.0               0.0            0.0
                                                                                                                                   ositors as a percentage of total deposits indicated a
                            Net profit after tax
                            and extraordinary                                                                                      marginal decrease of 3.7 percent from 30.6 percent in
                            items                           59.7         72.9             87.7              72.7       101.5
                                                                                                                                   2007.
                            Average Assets              2,280.8 2,543.0            2,941.0           3,403.0 3,766.7
                            After Tax Return on
                            Equity (ROE) (%)                34.5         38.9             39.7              28.4           32.2
                                                                                                                                   Short-term deposits as at 31 December 2008, were
                            Efficiency (%)                  49.7         47.1             46.8              49.9           46.9
                                                                                                                                   $929.9 million, representing 29.4 percent of total
                            Yield on Earning
                                                                                                                                   deposits. With liquidity tightening by the end of 2008,
                            Assets (%)                        6.1          5.9             7.0               8.8            7.5    interest rates on term deposits are envisaged to rise in
                            Cost of Funding                                                                                        2009, as commercial banks may work towards increa-
                            Liabilities (%)                   0.9          0.8             1.7               3.8            1.9
                                                                                                                                   sing their liquidity levels.
                        1 Financial year-end profits for all commercial banks used.

                     Source: Reserve Bank of Fiji
                                                                                                                                      Deposits Coverage                                               Short-Term Deposits
                                                                                                      1                                                                                               Readily Marketable Assets
                            Banks’ Profitability as a Percent of Average Assets                                                                  40
                                                                                                                                                                                                      15 Large Depositors
                                                          2004        2005        2006            2007(r)           2008                         35
                            Net Interest Income            4.6         4.6          4.8              4.5             5.0                         30
                            Charges for Bad                                                                                                      25
                                                                                                                                       Percent




                            & Doubtful Debts               0.4         0.3        (0.1)              0.6             0.2
                                                                                                                                                 20
                            Non Interest
                            Income                         3.5         3.6          3.0              2.7             2.6                         15
                                                                                                                                                 10
                            Operating
                            Expenses                       4.0         3.9          3.7              3.6             3.5                          5
                                                                                                                                                  0
                            Net Profit Before                                                                                                         2004            2005             2006       2007(r)          2008
                            Tax (ROA)                      3.7         4.0          4.2              3.0             3.8
                                                                                                                                   Source: Reserve Bank of Fiji
                            Net Profit After
                            Tax (ROA)                      2.6         2.9          3.0              2.1             2.7

                            1 Financial year-end profits for all commercial banks used.
                                                                                                                                   Credit Institutions
                     Source: Reserve Bank of Fiji
                                                                                                                                   Credit institutions’ performance was assessed to be
                     The banking industry’s spread widened to 5.7 percent,                                                         satisfactory in 2008. Over the year, despite a con-
                     following a contraction in 2007. While there was a                                                            traction of the balance sheet and a reduction in loans,
                     general decline in both the yield on earning assets and                                                       improved profits were noted. Capital remained at
                     cost of funding liabilities, cost of funds reduced at a                                                       strong levels while asset quality deteriorated and
                     faster pace causing the overall widening of the spread.                                                       liquidity dropped.


24   Reserve Bank of Fiji
                                                                              MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                                             1980s
                                                                                                                             10 cents coin dated 1986. This
                                                                                                                             will be replaced by the new
                                                                                                                             coin series with existing design
                                                                                                                             on 16 February 2009.




The consolidated credit institutions’ balance sheet                                Credit institutions recorded an improved before-tax
registered a contraction of 5.9 percent to $348.1 mill-                            profit of $18.6 million from 2007. This was mainly
ion. The contraction was largely due to a decline in                               led by a growth in net interest income and non interest
balances with banks by $13.8 million and loans & adv-                              income while operating expenses declined.
ances by $14.6 million. The contraction more-than-
offset the growth noted in investments ($4.2m) and                                 Net interest income rose by $6.3 million due to an
other assets.                                                                      increase in interest income (by $2.1m) and a decrease
                                                                                   in interest expenses of $4.1 million. An increase of
Total loans reduced to $289.3 million from $303.9                                  $1.5 million in non interest income was also noted
million in 2007. Similar to the banking industry, credit                           due to income from fees and charges. A decrease in
institutions’ loans were dominated by private sector                               operating expenses was attributed to a decline in
business entities (62.1%) and private individuals                                  personnel expenses.
(37.8%).
                                                  Fixed Assets
                                                                                   Credit institutions also recorded an efficiency ratio of
      Credit Institutions' Assets                                                  31.3 percent, due to the high level of before-tax profits.
                                                  Balances due from Banks
                                                  Investments
                                                  Other Assets
                                                                                   This was largely contributed by one institution
              500                                                                  recording high profits. Interest spread widened over
                                                  Loans, Lease and Advances
              400                                                                  2008 from 6.8 percent to 8.9 percent. This was the
  $ Million




              300                                                                  result of an increase in yield on earning assets (from
              200                                                                  13.5% to 14.3%) while cost of funds declined (from
              100
                                                                                   6.8% to 5.4%).
                0
                    2004       2005   2006   2007(r)      2008                     Liquid assets during the review period reduced by $9.6
                                                                                   million to $37.4 million. The decline mainly resulted
Source: Reserve Bank of Fiji
                                                                                   from a reduction in balances with banks.
In terms of liabilities, the contraction was mainly
underpinned by a decline in total deposits by 25.3                                 The Insurance Industry
percent to $167.3 million while loans from holding
company rose further to $75.9 million from $53.5                                   The insurance industry’s performance in 2008 was
million in 2007.                                                                   assessed to be satisfactory amidst unfavourable
                                                                                   economic conditions. Combined assets fell by 2.6
The capital adequacy ratio for credit institutions                                 percent over the year to $804.2 million (2007:
increased by 2.8 percent to 25.2 percent from 22.4                                 $825.9m). This was the result of a decrease in assets
percent recorded in 2007. Therefore, credit institutions                           for the life insurance sector which continues to hold
are well capitalised against the minimum requirement                               the majority of the market share, accounting for 69.2
of 10.0 percent. The rise is attributed to a 6.1 percent                           percent of the insurance industry’s total assets.
increase registered in total capital when compared to                              Investments continued to dominate the industry’s
a decline of 5.6 percent in total risk-weighted assets of                          asset portfolio with Government securities and bank
the credit institutions.                                                           deposits being the preferred mode of investment by
                                                                                   insurers. The asset distribution pattern remained
Contrary to banks, credit institutions’ asset quality                              unchanged over the year.
deteriorated with increases noted in classified assets
(by 37.1%), impaired exposures (by 48.3%) and past                                 The Insurance Act (1998) requires that all licensed
due accounts (by 20.6%). The increase in past due                                  insurers, hold a minimum surplus level of assets over
accounts was mainly noted for the 1-2 year category.                               liabilities at all times. This requirement is typically
                                                                                   referred to as the required solvency margin. For 2008,
In line with the increase in classified exposures and                              all insurers were assessed to have held adequate capital
past due accounts, total provisions of the credit                                  and were in compliance with the statutory solvency
institutions also grew by 26.0 percent to $20.1 million.                           requirement.
Likewise, specific provision covered 64.1 percent of
classified accounts while general provisions covered                               Total premium income collected by insurers grew by
2.6 percent of gross loans & advances.                                             4.8 percent over the year to $175.4 million. Premium


                                                                                                                                                Annual Report 2008   25
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                     growth was recorded in both the life and general ins-      Investments formed the bulk of the FNPF’s assets
                     urance sectors. Net claims paid, however, registered a     amounting to $3.5 billion compared to $3.1 billion
                     decline of 7.5 percent over the year to $95.4 million      in December 2007. Cash and fixed interest-bearing
                     (2007: $103.2m). This was due to the large decline         securities accounted for 82.4 percent and growth assets
                     in claims paid out by the life insurance sector, whilst    accounting for 17.6 percent of the FNPF’s total assets.
                     the general insurance sector experienced only a slight
                     decline.                                                   Members’ balances grew by 5.5 percent to $2.6 billion,
                                                                                noting a marginal decrease over the year (2007: 5.7%).
                     Though the Bank is not empowered under the Ins-            In 2008, a rise in general reserves resulted in the overall
                     urance Act (1998) to arbitrate in disputes between         increase of reserves by 9.5 percent to $967.4 million.
                     insurers and policyholders, assessment of complaints       On the contrary, in 2007, there was a decline of 3.1
                     received were conducted. The Reserve Bank’s stance         percent for the same.
                     was made clear to both the insurer and the complainant
                     ensuring fair treatment of policyholder complaints         Total contributions collected by the FNPF in 2008,
                     and claimants.                                             fell by 2.9 percent to $289.3 million, compared to a
                                                                                growth of 4.8 percent for the same period in 2007.
                     The Reserve Bank continued to examine and approve          On the other hand, total withdrawals by members
                     insurance cover to be placed with offshore insurers        grew by 0.8 percent to $286.0 million, as compared
                     where cover is not available locally, or where the local   to a growth of 4.8 percent in 2007.
                     premium is 15.0 percent more than that of offshore
                     insurers. The number of approved applicants increased      Meetings
                     from 486 in 2007 to 647 for 2008. The total premi-
                     ums remitted, however, experienced only a slight inc-      Quarterly meetings with the Association of Banks in
                     rease from $23.1 million in 2007 to $24.5 million,         Fiji (ABIF) and the Association of Foreign Exchange
                     indicating a softening of the insurance market offshore.   Dealers continued in 2008. Meetings with the
                                                                                individual commercial banks, insurance companies
                     Fiji National Provident Fund                               and the FNPF were also conducted.

                     As at 31 December 2008, total assets of the FNPF           In June 2008, the Bank facilitated the revival of the
                     stood at $3.7 billion. This represented an annual          collective Insurance Task Force with membership
                     increase of 7.5 percent compared to 3.0 percent for        comprising insurance companies, insurance brokers
                     the same period in 2007. This growth is reflected          and the Reserve Bank. At its quarterly meetings, the
                     mainly in investments comprising customer term             Task Force was further divided into two Sub-Comm-
                     loans, Government securities and quasi Government          ittees focusing on issues that affect the insurance
                     bonds.                                                     industry, directly and indirectly.




26   Reserve Bank of Fiji
                                                  MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




COMBATING MONEY LAUNDERING




Fiji’s primary legislation for combating money laundering
is the Financial Transactions Reporting (FTR) Act (2004).
The FTR Act sets out certain measures that the Fiji Government
and local financial institutions must implement to combat money
laundering in Fiji.
The Financial Intelligence Unit (FIU) is an agency established under
Section 25 of the FTR Act (2004) that is responsible for administering and
enforcing the FTR Act. The FIU is administered and funded by the Reserve
Bank pursuant to the delegation of powers by the Minister for Justice to
the Governor of the Reserve Bank of Fiji.
The FIU is responsible to the Governor of the Reserve Bank in the discharge
of its powers and functions.

Implementation of the FTR Act and Regulations
                                                            institutions to report any suspicious transactions to

A         lthough the FTR Act was enacted in 2004,
          its implementation was staggered over 36
          months. This was to ensure that all
stakeholders were well informed and prepared, in
                                                            the FIU. The FIU receives these suspicious transaction
                                                            reports (STRs) and analyses them for possible money
                                                            laundering activities. Reports which the FIU reasonably
                                                            believes to involve money laundering activities or other
particular the commercial banks and other financial
institutions that are covered under this legislation.       serious offences are referred to the relevant law enfor-
                                                            cement agencies for formal investigations.
Most parts of the FTR Act were implemented on 1
                                                            In 2008, the FIU received 479 STRs from various
January 2006 while the remaining provisions were
                                                            financial institutions in Fiji. This was an increase of
brought into force on 1 January 2008, as this required
                                                            78.7 percent from 2007 mainly as a result of better
additional preparatory time for IT system develop-
                                                            understanding of reporting obligations and inclusion
ment. The FTR Regulations, which provide detailed           of new reporting institutions. Some financial instit-
guidelines on the implementation of customer due            utions also began to report STRs electronically to the
diligence and other measures for financial institutions,    FIU.
were also introduced in 2008.
                                                                  Suspicious Transactions Reported to the FIU
In 2008, local financial institutions dedicated subs-
                                                                      Year      2000-2004         2005   2006       2007   2008       Total
tantial resources and efforts in reviewing and develop-               Total
                                                                                   865            280    215        268    479        2,107
ing systems, processes and policies to implement the                  STRs

various requirements of the FTR Act and Regulations.
                                                                   Reporting Financial Institutions 2000-2008
The requirements related to identification of cust-
                                                                    Reporting Financial Entities or Persons                       No. of STRs
omers, monitoring of customer transactions and                                                                                     Received

reporting of certain types of transactions to the FIU.              Commercial Banks                                                1,987
                                                                    Finance Companies and Superannuation                                21
To assist financial institutions in their implementation            Public                                                              22
                                                                    Insurance Companies                                                  4
programs, the FIU provided training, advice and                                                                 1
                                                                    Money Remittance Service Providers                                  63
guidance on policy issues and initiated various                     Accounting Firms                                                     2
meetings with financial institutions and industry                   Real Estate Agency                                                   1
groups to discuss implementation issues and                         Regulatory Authorities                                               4
                                                                    Law Firms                                                            3
challenges.
                                                                    TOTAL                                                           2,107
                                                                  1 Includes foreign exchange dealers.
Receipt and Analysis of Financial Information               Source: Financial Intelligence Unit



A key measure for combating money laundering in             The FIU completed the analysis of 372 STRs in 2008
Fiji is the requirement under the FTR Act for financial     which resulted in the dissemination of 202 case reports

                                                                                                                                                Annual Report 2008   27
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                     to relevant law enforcement agencies such as the Fiji                        with 15 adversely reported individuals and seven bus-
                     Police Force, FIRCA and the Transnational Crime Unit.                        iness entities.
                     Around 65.0 percent of cases were referred to FIRCA
                     for possible tax related offences.                                           In addition, one directive was sent to a local commercial
                                                                                                  bank instructing the financial institution to take certain
                            Case Reports Disseminated to Law Enforcement Agencies                 precautionary measures in conducting transactions in
                                                Number of STR Case Reports Disseminated           a bank account that allegedly held proceeds of crime.
                                             2000-2004     2005   2006    2007     2008   TOTAL   This particular case resulted in FIU issuing its first
                             Inland
                                                                                                  Freezing Order under Section 25(2) of the FTR Act.
                             Revenue
                             Services            125        30     14      60      131     360
                                                                                                  Assistance to Partner Agencies
                             Police                21       17     12      12       25      87

                             Immigration             3      14     15      20        7      59
                                                                                                  The FIU provides assistance to other Government
                             Customs                 3        0     0        0       4       7    agencies in the form of conducting background and
                             Others                  1      13     20      21       35      90    credibility checks on persons of interest. In 2008, there
                             TOTAL               153        74     61     113      202     603    were 41 requests received from Government agencies
                     Source: Financial Intelligence Unit
                                                                                                  for credibility checks on 61 business entities and 120
                                                                                                  individuals (consisting mainly of foreign nationals).
                     The FIU also receives other types of reports from
                     financial institutions, namely:                                              In addition, the FIU attended to 70 requests for inv-
                     1. reports of all cash transactions of $10,000 and                           estigative assistance from domestic and foreign law
                        above; and                                                                enforcement agencies, including FIUs in other juris-
                     2. reports of all international electronic fund transfer                     dictions. The information and assistance provided to
                        transactions.                                                             these agencies were related to investigations of money
                                                                                                  laundering and other serious offences.
                     The FIU received 38,780 cash transaction reports and
                     94,911 international electronic fund transfer
                                                                                                  Fiji FIU Information Management System Online
                     transactions in 2008. These reports were used by the
                     FIU for analysis and gathering intelligence on possible
                                                                                                  A major achievement for the FIU in 2008 was the roll-
                     money laundering activities or other serious offences
                                                                                                  out of its secure online electronic reporting system,
                     and for building profiles on persons of interest to law
                                                                                                  Fiji FIU Information Management System Online
                     enforcement agencies.
                                                                                                  (FFIMSO). This system enables financial institutions
                     Measures for Detecting Currency Smuggling                                    to report their transactions to the FIU electronically
                                                                                                  through the internet. A total of 26 financial institutions
                     at Fiji’s Borders
                                                                                                  have been registered to report their suspicious, cash
                     The FTR Act requires travellers into and out of Fiji to                      and electronic fund transfer transactions to the FIU
                     declare to Customs officials at the borders if they are                      using FFIMSO.
                     carrying currency or negotiable bearer instruments of
                     $10,000 and above. These reports are then submitted                          FFIMSO is also a data management system which
                     to the FIU for analysis for possible smuggling of                            enables the FIU to effectively store and manage the
                     currency or proceeds of crime across Fiji’s borders.                         substantial financial data it receives from financial
                                                                                                  institutions.
                     This provision came into force in January 2008. A
                     total of 198 border currency declaration reports were                        Networking and Information Sharing
                     received by the FIU in 2008.
                                                                                                  In 2008, the FIU signed Memoranda of Agreement
                     FIU Alert Notices, Directives and Freezing Order                             (MOA) with the Ministry of Justice, the Fiji Islands
                                                                                                  Trade and Investment Bureau (FTIB) and the Fiji Police
                     The FIU issued five alert notices to financial instit-                       Force. These MOA allow for networking and inform-
                     utions advising them to undertake enhanced scrutiny                          ation exchange between the FIU and these agencies for
                     and customer due diligence procedures when dealing                           the purpose of combating money laundering.


28   Reserve Bank of Fiji
                                                                                MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                                                                                       1990s
                                                                                                                                                                       20 cents coin dated 1998. This
                                                                                                                                                                       will be replaced by the new
                                                                                                                                                                       coin series with existing design
                                                                                                                                                                       on 16 February 2009.




National and International Initiatives                                                               viding short-term work attachments for FIU officials
                                                                                                     from the Solomon Islands and the Federated States of
In relation to international initiatives in 2008, the FIU                                            Micronesia.
applied for membership to the Egmont Group7 which
is expected to be finalised by mid-2009.                                                             Public Awareness

The FIU and the Reserve Bank are members of the                                                      The FIU was actively involved in providing awareness
National Anti-Money Laundering (AML) Council.8                                                       and educating members of the public and customers
The FIU provided secretarial support for the four                                                    of financial institutions on the requirements under
meetings of the Council in 2008. The main focus of                                                   the FTR Act. The FIU website (www.fijifiu.gov.fj) was
the Council’s activities during 2008 was implementing                                                another awareness and educational tool that enabled
recommendations of the 2006 Fiji Mutual Evaluation                                                   financial institutions to directly access information on
Report by the World Bank.                                                                            the FIU and AML policies.

The FIU also contributed towards regional AML                                                        In 2008, there were featured appearances of FIU on
initiatives by supporting the programs of the Asia                                                   national television, articles in the local print media
Pacific Group (APG) on money laundering and pro-                                                     and Press Releases on Fiji’s AML framework.




7   The Egmont Group is an association of FIU’s from various jurisdictions. This Group aims to enable members to cooperate and exchange information and intelligence related to the investigation
    of money laundering activities.

8   The Council is established under Section 35 of the FTR Act and is responsible for advising Government and formulating national policies on AML matters.




                                                                                                                                                                                             Annual Report 2008   29
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                               CURRENCY




                                                                               Pursuant to Section 4(a) of the Reserve Bank Act (1983),
                                                                              the Bank is charged with regulating the issue of currency
                                                                            in Fiji. The Bank is responsible for maintaining adequate
                                                                          supply of quality banknotes and coins in circulation.

                                                               Reserve Bank issues banknotes and coins that are commensurate with
                                                               demand for payment purposes and redeems any banknotes or coins that
                                                               are mutilated and/or no longer needed and destroys them accordingly. It
                                                               also determines the denomination and design of Fiji’s banknotes and coins
                                                               with the approval of the Minister for Finance.


                     Currency Strategic Review

                                                                                  the Bank facilitated the collection of these coins from

                     W
                                 ork continued on the Fiji Currency
                                 Strategic Review Part II, review of coins.       around the country. A total of 120 tonnes of 1 and 2-
                                 In October 2008, the Reserve Bank                cent coins with a face value of approximately $0.33
                     ceased the issue of the 1 and 2-cent coins and in            million was collected. The Reserve Bank is indebted
                     December 2008 the new coins were unveiled in a               to the cooperation of the public and the commercial
                     ceremony at the Bank by the former Governor, Mr.             banks and looks forward to continuing this goodwill
                     Savenaca Narube.                                             during the more daunting task of collecting the existing
                                                                                  coins after the changeover in February 2009.
                     The new 5, 10, 20, 50 cents and $1 coins have the sa-
                     me design as the existing coins for each denomination.       Note Processing Machine
                     They are, however, noticeably smaller, thinner, lighter
                     and shinier without compromising durability. The             To achieve a greater level of note processing efficiency
                     new coins will be issued to the public in February           for the new design and upgraded security banknotes,
                     2009 and will co-circulate with the existing coins until     the Bank commissioned a new Note Processing Mac-
                     30 April, 2009. After this, with the exception of the        hine in May 2008. The CPS1500 Currency Processing
                     $1, the old 1, 2, 5, 10, 20 and 50 cents coins will be       System was purchased through tender, awarded to De
                     demonetised, or cease to be legal tender. Demonetised        La Rue Cash Systems Pty Limited of Australia, for $1.5
                     currency can only be redeemed at face value, and only        million. The tender was awarded on pricing, state-of-
                     at the Reserve Bank.                                         the-art note detection/authentication features, after
                                                                                  sales service and support. The CPS1500 has the pot-
                     During the course of the review, the Bank held wide          ential throughput of counting 1,500 notes per minute,
                     consultations with stakeholders right across the             five times faster than its predecessor, the CPS300. The
                     country. In a significant change such as this, adj-          new machine also possesses a document imaging feat-
                     ustments need to be made by the general public, the          ure which photographs the obverse and reverse of each
                     banks, the vending machine operators and municipal           note during counting and sorting. At the back-end, the
                     councils. The Reserve Bank has, however, emphasised          CPS1500 is equipped with an on-line shredder which
                     in its awareness campaign that the change to lighter         maintains independent and verifiable processing re-
                     and smaller coins is very much in the interest of the        cords.
                     country as they are significantly cheaper to mint. It is
                     anticipated that organisations like commercial banks         To accommodate the new machine the Note Processing
                     and municipal councils will be able to save money due        Room was refurbished to the specifications of the
                     to lowering of transportation, handling and storage          manufacturers of the CPS1500 and a two week inten-
                     costs.                                                       sive off-site service and technical engineering support
                                                                                  training was completed by the Technical Officer Cur-
                     After the cessation of the 1 and 2-cent coins in October,    rency in January 2008.



30   Reserve Bank of Fiji
                                                           MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                                                      2000s
                                                                                                                                      20 cents coin dated 2003. A
                                                                                                                                      special coin to commemorate
                                                                                                                                      the 2003 South Pacific Games.




The Reserve Bank extends its appreciation to De La                      The issuance of the $100 note experienced the highest
Rue Cash Systems for the supply and installation of                     decrease of 31.8 percent to $49.5 million following
the CPS1500 which included bolting the system, fine-                    its initial release of the new denomination in 2007.
tuning, conducting test runs and site acceptance tests                  There were more $20 and $50 notes issued due to
over a period of six weeks.                                             their predominant use in Automated Teller Machines
                                                                        (ATM).
Currency in Circulation
                                                                              Notes Issued in 2008 (Total Value: $513.6 Million)

Total currency in circulation increased in 2008 by 2.6                             $100
                                                                                                                                     $49.45m
percent to $390.9 million with notes and coins                                     $50
                                                                                                       $225.25m
accounting for $364.9 million and $26.0 million,                                     $20                                             $12.57m
respectively.                                                                      $10
                                                                                                                                     $15.32m
                                                                                   $5                             $77.54m
                                                                                   $2
      Notes & Coins in Circulation ($ Million)                                                         $133.44m
                                 2006            2007    2008

       Notes                      328.0          354.6   364.9
                                                                        Source: Reserve Bank of Fiji
       Coins                       25.2           26.3    26.0
       Currency in Circulation    353.2          380.9   390.9          For coins issued, the 10 cents denomination exper-
Source: Reserve Bank of Fiji
                                                                        ienced the highest increase of 29.9 percent to $0.4
                                                                        million. The issuance of 1 and 2-cent coins was discont-
The $100 note experienced the highest increase of                       inued from 13 October 2008 with the approval of the
43.7 percent to $99.1 million and formed 25.4 percent                   Minister for Finance. The fluctuations in demand ref-
of the value of notes in circulation.                                   lect the pricing structure of goods and services.
                                                                              Coins Issued in 2008 (Total Value: $4.6 Million)
The marginal decrease in the total coins in circulation
over 2007 is attributed to the Coin Recall Program for                          $1                                                 $0.15m
the 1 and 2-cent coins initiated in October 2008 which                          50c

resulted in 13.5 million 1 cent coins and 9.5 million                           20c                    $1.9m                       $0.21m
2-cent coins being withdrawn from circulation.                                  10c
                                                                                5c                                                 $0.20m

Cost of Currency                                                                2c                $0.97m
                                                                                1c
                                                                                                           $0.81m                  $0.4m

The cost of currency issued in 2008 decreased from
$3.5 million to around $2.0 million of which about                      Source: Reserve Bank of Fiji

$1.6 million and $0.4 million were for notes and coins,                 Arising from the cessation of issue of 1 and 2-cent
respectively. The high cost in 2007 was mainly due to                   coins, the Bank issued a guideline on the “rounding-
the introduction and high issuance of new design notes.                 off” principle to facilitate the absence of 1 and 2-cent
                                                                        coins. The Bank worked closely with the Prices and
      Cost of Currency Issued ($ Million)                               Incomes Board, Consumer Council of Fiji, Commerce
                                   2006          2007    2008           Commission and FIRCA (VAT Unit) in ensuring roun-
           Notes                  1.38           3.01     1.64          ding off was correctly applied.
           Coins                  0.32           0.50     0.35
           Total                  1.70           3.51     1.99          Note Processing Operations
Source: Reserve Bank of Fiji

                                                                        Commercial banks redeposited 24.3 million notes
Banking Transactions                                                    valued at $417.8 million with the Reserve Bank. A to-
                                                                        tal of $418.8 million was processed over 2008 of which
Currency issued to commercial banks decreased by                        52.3 percent were reissued to commercial banks for
15.9 percent to $518.2 million, with $513.6 million                     issue into circulation. The balance deemed unfit for
and $4.6 million in notes and coins, respectively.                      circulation was consequently destroyed. The higher




                                                                                                                                                       Annual Report 2008   31
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                     percentage of notes reissued into circulation is attr-                                       banknotes. The Reserve Bank continued to assist the
                     ibuted to the new design banknotes with the improved                                         Fiji Police Force in investigations in order to eradicate
                     platinum® substrate. These notes have proved su-                                             counterfeiting in Fiji.
                     ccessful in increasing note circulation life.
                                                                                                                         Counterfeits Summary
                            Notes Processed                                                                                                              2007                       2008
                                                                                                                                                 Value          Number     Value           Number
                                                              2007                             2008
                                                                                                                                                  ($)           of Notes    ($)            of Notes
                                                  Value               Pieces       Value              Pieces
                                                ($ Million)          (Million)   ($ Million)          (Million)
                                                                                                                               $2                    8              4         10               5
                                                                                                                               $5                  115             23         30               6
                             Notes Fit              112.0                3.4        219.1                9.2
                                                                                                                              $10                  390             39         90               9
                             Notes                                                                                            $20                  740             37        660              33
                             Destroyed              302.2              17.5         199.7              11.6                   $50                5,550            111      2,500              50
                                                                                                                             $100                  200              2      2,000              20
                             Total
                             Processed              414.2              20.9         418.8              20.8                  Total               7,003            216      5,290             123

                     Source: Reserve Bank of Fiji                                                                 Source: Reserve Bank of Fiji



                     Mutilated Notes                                                                              Numismatics
                                                                                                                  Numismatic income increased in 2008 by 166.5
                     A total of $211,196 was reimbursed during the year,
                                                                                                                  percent to $349,967 over $131,321 in 2007. The rise
                     to commercial banks and individuals for mutilated
                                                                                                                  in income is attributed to increase in royalty receipts
                     currency including old design note claims.
                                                                                                                  from coin programs internationally.
                     Counterfeit Banknotes                                                                        The Reserve Bank finalised the following coin programs
                                                                                                                  with the New Zealand Mint during 2008:
                     The $50 note continued to be the most counterfeited
                     denomination, followed by the $20 and $100 deno-                                                    Coin Program
                     minations. The $2 note remained the least count-
                     erfeited denomination. The total value of counterfeits                                                                                                    Number of
                                                                                                                                                                              Coins Minted
                     in relation to the value of currency in circulation, how-
                                                                                                                          Game Fish of the Pacific                                 20,000
                     ever, remained negligible at less than 1.0 percent.
                                                                                                                          Famous Airships                                          80,000
                                                                                                                          Last Russian Royal Family                                80,000
                     Training and media awareness campaigns were con-
                     ducted prior to the introduction of the new design                                           Source: Reserve Bank of Fiji




32   Reserve Bank of Fiji
                                                      MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                                      2000s
                                                                                                                      50 cents coin dated 2005. This
                                                                                                                      will be replaced by the new
                                                                                                                      coin series with existing design
                                                                                                                      on 16 February 2009.




Features of the new Fiji coins

The new Fiji coins scheduled for issue on 16 February 2009 are on average nine percent smaller, 43 percent lighter and 21 percent
thinner.

Technical Specifications
The 5 cents will now be the smallest sized coin, while the 10, 20 and 50-cent coins will be progressively larger. The $1 coin will
retain its existing diameter. The existing colour of all denominations will remain the same with the 5, 10, 20 and 50 cents in silver
and $1 in yellow. All coins will now be round, as round coins are easier to handle, are more readily acceptable in vending machines
and more economical to produce.

Designs
The existing designs have been retained on the front (obverse) and back (reverse) of the coins as a public recognition feature to
assist in the smooth transition and acceptance of the new coins.

Multi-ply Technology
The metal composition has changed and coins are manufactured in ‘multi-ply’ layers patented by the Royal Canadian Mint. The
‘multi-ply’ offers greater security, reliability and durability and gives the coins unique electromagnetic signatures (EMS). This
technology enables coins to have different EMS as a vending machine recognition feature to reject foreign coins. The new coins
have been successfully tested in parking meters and vending machines.

Durability
The Royal Canadian Mint’s rigorous tests confirm that the new coins are resistant to corrosion. On average, they have a life span
of approximately 25 years. These tests have been corroborated by independent tests conducted by the Reserve Bank of New Zealand
during their evaluation of similar coins used in New Zealand.

Assistance for the Visually Impaired
The new coins have varied edging designs which serve as an identification and differentiating feature for the visually impaired and
the general public. The 5-cent coin has plain edging, the 10 cents has serrated or rough edging, the 20 cents has intermittent
serrations and the 50 cents and $1 have serrated edgings.

Cost Savings
A cost savings of $5.0 million has been realised by not minting the 1 and 2-cent coins with a further $3.0 million saved by reducing
the size, weight and metallic composition. These savings will also apply during coin reorders.

Savings in Handling, Transportation and Storage
In view of the significant reduction in size and weight of the new coins, individuals and businesses will save substantial costs in
terms of transportation, handling and storage.




                                                                                                                                         Annual Report 2008   33
                     MISSION : DEVELOP AN INTERNATIONALLY REPUTABLE FINANCIAL SYSTEM




                                                                                                        FIJICLEAR




                                                                                                                                     FIJICLEAR, (Fiji’s Real Time Gross Settlement System)
                                                                                                                                    completed one year of its operations on 30 August 2008.

                                                                                                              A general upward trend in usage has been noted. The system
                                                                                                          continued to operate smoothly since going live a year ago.
                                                                                                    FIJICLEAR enables settlement of transactions on a real-time basis, hence
                                                                                                    substantially reducing systematic risk in the financial system.



                                                                                                                                        average gross value of payments rose by 40.8 percent
                            FIJICLEAR Transactions                                                      Gross Payments
                                                                                                        No. of transactions             to $5.2 billion.
                                   7,000                                                                           2,500
                                                                                                                                        The Bank worked very closely with the ABIF to increase
                                   6,000
                                   5,000
                                                                                                                   2,000                customer usage through its awareness programs. These
                       $ Million




                                                                                                                           Number




                                   4,000                                                                           1,500                included presentations to stakeholders and availing
                                   3,000                                                                           1,000
                                                                                                                                        FIJICLEAR brochures to the commercial banks for
                                   2,000                                                                                                distribution to general public. All commercial banks
                                                                                                                   500
                                   1,000                                                                                                recorded growth in the number of transactions made
                                      0
                                           S   O   N   D   J   F   M    A   M    J   J    A     S   O   N   D
                                                                                                                   0
                                                                                                                                        through the system. In addition, given the benefits of
                                               2007                             2008                                                    electronic payments, there was a notable increase in
                     Source: Reserve Bank of Fiji                                                                                       small value customer payments made through FIJI-
                                                                                                                                        CLEAR.


                     T     he number of transactions as well as the value
                           of payments rose in 2008. Average monthly
                           transactions rose by 34.0 percent to 1,741. A
                     record number of 2,325 transactions were made
                                                                                                                                        In order to further promote the usage of FIJICLEAR,
                                                                                                                                        a value-based FIJICLEAR fee structure has also been
                                                                                                                                        outlined. This comes into effect on 1 January 2009
                                                                                                                                        and is lower than the current transaction fees charged
                     through FIJICLEAR in December 2008. Similarly, the
                                                                                                                                        by the commercial banks.

                                   FIJICLEAR Payments and Transactions
                                                                                                                                              New Fee Structure for FIJICLEAR Transactions
                                                                    2007                 2008           % Change
                                                                                                                                                            Value of FIJICLEAR Transactions    Fee
                                    Average Gross
                                    Payments (Monthly)                                                                                                             Up to $100                  $2.00
                                    $ Million                      3,706.0           5,217.9                40.8                                                   $101 - $1,000               $5.00
                                    Average No. of                                                                                                                 $1,001 - $10,000           $10.00
                                    Transactions (Monthly)             1,299             1,741              34.0                                                   $10,000 plus               $15.00

                     Source: Reserve Bank of Fiji                                                                                       Source: Reserve Bank of Fiji




34   Reserve Bank of Fiji
       MISSION : ENHANCE OUR ROLE IN THE
                 DEVELOPMENT OF THE ECONOMY




In addition to its core functions of monetary policy, financial
stability and the issue of currency, the Reserve Bank becomes
involved in various projects, with the objective of developing
the economy.




Assistance to the Export Sector                             made by the Reserve Bank in 2008 and net interest
                                                            income earned from the portfolio rose by $0.9 million


T      he Reserve Bank continues to support the
       country’s export sector through the operation
       of its Export Finance Facility (EFF). In early
2008, the Bank enhanced awareness to commercial
banks and the Fiji Development Bank (FDB) on
                                                            to $8.4 million.

                                                            Equities Market

                                                            Unlike the trend in the global financial market, trading
changes to the Facility implemented in 2007. In             of equities on the SPSE rose during the year. A total
addition, the EFF manual and brochures were updated         of 18.4 million shares were traded valued at $26.1
and copies were distributed to the commercial banks,        million compared with 2.7 million shares traded worth
exporters and other stakeholders. The Bank will carry       $3.6 million in 2007. During the year, R B Patel Group
out further work in 2009 along with finalising a            Limited (RBPGL) recorded the highest number of
proposal on an export credit insurance/guarantee sch-       trades while Amalgamated Telecom Holdings Limited
eme.                                                        shares had the largest percentage price gain from $0.79
                                                            per share in December 2007 to $1.18 per share at the
IMF Staff Visit                                             end of December 2008.

Fiji is a member of the IMF. Under Article IV of the        On 14 April, Fijian Holdings Limited (FHL) ann-
IMF’s Articles of Agreement, the IMF holds bilateral        ounced the partial takeover of RBPGL by its subsidiary
discussions with officials from the Reserve Bank,           FHL Retailing Limited. As a result of this takeover
Government, statutory bodies and private sector from        process, FHL Retailing Limited now holds 50.2 percent
time to time. There was a Staff Visit from 17-23            of the issued shares of RBPGL.
September 2008 to follow up on developments after
the Article IV Mission in 2007.                             At the end of 2008, market capitalisation of the listed
                                                            companies on the SPSE increased by 23.8 percent to
Secondary Bond Market                                       around $1.0 billion over the previous year. The number
                                                            of companies listed on the SPSE for 2008 remained at
The Reserve Bank closely monitors activity in the           16.
secondary bond market and has a domestic bond
portfolio of its own. There was a marked decline in         Remittances
activity in the secondary bond market during the year.
A total of 31 trades valued at $8.9 million were            Personal remittances, Fiji’s second largest foreign
recorded in contrast to 93 trades amounting to $30.9        exchange earner after tourism, fell by approximately
million in 2007. The outturn was underpinned by             26.7 percent in 2008 to $187.9 million when
high liquidity in the banking system as well as low         compared to 2007. The outcome is consistent with
yields.                                                     the trend over the past year. This could be attributed
                                                            to various reasons, including the global financial crisis
The nominal value of the Reserve Bank Domestic Bond         and consequent economic downturn which is affecting
Portfolio at the end of 2008 declined to $125.5             labour market conditions around the globe.
million, from $140.2 million in the previous year, as
$14.7 million in bonds matured. No purchases were           The RBF continued to work with stakeholders to im-




                                                                                                                  Annual Report 2008   35
                     MISSION : ENHANCE OUR ROLE IN THE DEVELOPMENT OF THE ECONOMY




                     prove data collection. During the year, in collaboration
                                                                                    RBF in the Community
                     with the World Bank’s regional office in Australia, a
                     round-table discussion was held in Fiji. This aimed to     The Reserve Bank’s presence in the community facilitates
                     encourage competition in the remittance market with        better relations with the public, Government, businesses
                     a view to reduce transaction costs. By the end of the      and academia.
                     year, a new product was launched in New Zealand to         As part of the Bank’s efforts to keep the public informed of
                     send money to Fiji and other Pacific Island countries.     its assessment of the economy, the Governor and senior staff
                                                                                of the Bank regularly give presentations on the latest economic
                     Small and Micro Enterprises (SME)                          developments to Government, businesses, community groups
                                                                                and education institutions. The Bank also makes available
                                                                                information on its website so that users can easily access
                     The Reserve Bank continuously shows its support for        information.
                     SMEs with the sponsorship of a special award for
                     Agriculture in the FTIB’s Exporter of the Year Awards      Moreover, the Bank funds the chair of the Associate
                     as well as in the FDB’s Small Business of the Year         Professor/Senior Lecturer in Monetary Economics at the
                     Awards.                                                    University of the South Pacific (USP). This agreement has
                                                                                been in place since February 1998. A “ Reserve Bank of Fiji”
                                                                                prize is also awarded to the outstanding Economics graduate
                     In 2008, the Bank conducted a training workshop            at the USP.
                     which was held with the commercial banks, credit
                     institutions and FDB. The workshop was aimed at            In support of SMEs, the Bank sponsors awards in the FDB’s
                     improving the quality of data collected and as a result    Small Business and FTIB’s (Agriculture) Exporter of the Year
                     the institutions have put in place improved measures       Awards program.
                     of data collection.                                        The Bank makes donations to national charitable organ-
                                                                                isations as part of its corporate responsibility to the com-
                                                                                munity. The Bank in 2008, donated computers and printers
                                                                                to the Hilton Special School, St. Christopher’s Home, Police
                                                                                Crime Stoppers Unit and Vatukoula Convent School. Apart
                                                                                from the formal donations, RBF staff also voluntarily contri-
                                                                                bute and use their own time to participate in community
                                                                                projects. Some of the charitable projects undertaken by staff
                                                                                in 2008 include:

                                                                                •    Donation to the Kidney Foundation
                                                                                •    Donation of groceries, toiletries and stationery for Father
                                                                                     Law Home residents
                                                                                •    With assistance of Red Cross, donated food items to less
                                                                                     fortunate families
                                                                                •    Donated food items to Love Kitchen Ministry
                                                                                •    Donated proceeds from walk-a-thon to the Vatukoula
                                                                                     community
                                                                                •    Donation to cancer patient, Josaia Temo
                                                                                •    Christmas presents to Dilkusha Orphanage Home and
                                                                                     St. Christopher’s Home
                                                                                •    Hosted dinner at Gospel School of Destitute
                                                                                •    Provided toiletries to patients of the Christian Comm-
                                                                                     unity Health Fellowship Group and PJ Twommey Hospital
                                                                                     and
                                                                                •    Participated in the Red Cross Blood drive.

                                                                                The Bank’s Sports and Social Club organises social events
                                                                                and cultural activities for staff. The Bank also participated
                                                                                in various Business House sports competitions and staff took
                                                                                part in different corporate quiz competitions as well.




36   Reserve Bank of Fiji
       MISSION : PROVIDE PROACTIVE AND
                 SOUND ADVICE TO GOVERNMENT




The provision of policy advice to Government occurs in many
forms. During 2008, the Governor met with the Minister for
Finance on a number of occasions for discussions on various
issues. Presentations on the economy are made to Cabinet,
Ministries and other Government agencies as and when requested.



Policy Coordination                                        entation in the Debt and Cashflow Policy Committee
                                                           which provides a link to banking and registry services


T
        he Bank also assists Government through            provided by the Reserve Bank to Government. The
        various Policy Committees. The Macroecon-          Committee, which discusses and coordinates Gove-
        omic Policy Committee (MPC) and its Techn-         rnment’s financing needs, met on eight occasions in
ical Sub-Committees prepare projections on Fiji’s GDP,     2008.
trade and balance of payments. These projections are
critical inputs to monetary policy formulation and         As and when requested, the Bank accepts invitations
other national policy decision making. The MPC is          and contributes to many Committees that are of nat-
chaired by the Governor of the Reserve Bank and            ional interest.
comprises officials from the Ministry of Finance and
National Planning, the Ministry of Commerce, Busin-        The Reserve Bank liaised with relevant stakeholders
ess Development & Investment, Fiji Islands Bureau of       including the business community throughout the
Statistics, the Prime Minister’s Office, the Ministry of   year to discuss macroeconomic policy issues, as well
Foreign Affairs, the FIRCA and the Reserve Bank.           as to gather feedback on various socio-economic mat-
There were three forecasting rounds, three MPC meet-       ters. This was conducted through the Bank’s involve-
ings and nine Macroeconomic Technical Committee            ment in several committees and meetings. Information
meetings in 2008.                                          obtained from these consultations is used to supple-
                                                           ment standard sources of information in forming the
In addition to providing forecasts, the Committee also     Bank’s assessment of the economy.
provides policy advice to Government through a
submission to the National Budget.
                                                           Registry and Banking Services
In preparation for the macroeconomic forecasting
rounds, the Reserve Bank conducted several meetings        The Reserve Bank provides registry services for debt
with key industry groups in 2008. At these meetings,       securities issued by Government and statutory cor-
the Bank provided updates on the economy and               porations. Services provided include issue, redemption
received feedback from representatives on the              and transfer of securities and interest payments on
performance and prospects for their industry and the       long-term debt instruments. The Bank also acts as a
economy. Bank staff also met with representatives of       fiscal agent for Government and provides banking serv-
employers and private businesses and conducted on-         ices, such as ways & means to the Government and ov-
site industry visits to various companies in the Western   ernight facilities to the commercial banks.
Division. Information gathered from these meetings
are used as a basis for forecasting national indicators    As at 31 December 2008, the Reserve Bank managed
as well as providing advice to Government through          bonds with a nominal value of $2,826.8 million com-
the MPC reports and input to the National Budget           pared to $2,749.8 million in 2007. Outstanding Go-
submission.                                                vernment bonds rose by 6.8 percent to $2,346.3 mil-
                                                           lion over the year as a result of net issues. In contrast,
Debt and cashflow management is an important fun-          outstanding statutory corporation bonds fell by 13.2
ction of the Ministry of Finance and National Planning.    percent to $480.5 million over the year as redemptions
The Bank provides input to this role through repres-       exceeded issues.




                                                                                                                  Annual Report 2008   37
                     MISSION : PROVIDE PROACTIVE AND SOUND ADVICE TO GOVERNMENT




                               Outstanding Bonds in 2008 ($ Million)                                           bonds was noted in 2008 in comparison to 2007.
                                                                 Issued          Redeemed    Outstanding

                                  Government                     100.5               205.0     2,196.2         In 2008, interest rates in Government bond rose
                                  Fiji Development Bank           110.0               24.5       338.9         sharply when compared with the rates in 2007. The
                                  Fiji Electricity Authority       58.8               10.0       113.2         higher rates in the review period were underpinned
                                  Housing Authority                     -              9.7        98.9         by the tightening of liquidity as well as increased
                                  Fiji Pine Limited                     -              3.0         2.6
                                                                                                               funding requirement by Government. The above chart
                                  Total                          269.3               252.2     2,749.8
                                                                                                               shows the interest rate on Government bonds in the
                     Source: Reserve Bank of Fiji                                                              past two years.
                     Total registry payments made by the Bank fell
                     considerably by 17.4 percent to $1,008.0 million in                                              Treasury Bills ($ Million)

                     2008. Lower payments largely resulted from a decrease                                                                          2006    2007    2008

                     in Treasury Bills redemptions by $227.6 million to                                               Floatations                  577.5   606.0   430.0

                     $468.9 million. The interest and redemption payments                                             Allotments                   537.5   692.5   392.0
                     on Government bonds also fell marginally. On the oth-
                     er hand, a higher redemption of statutory corporation                                            Redemptions                  528.8   696.6   468.9

                                                                                                                      Outstanding                  145.7   141.6    64.7
                                                       Gross on Government Securities
                            Weighted Average Interest Rates Payments
                                                               No. of Transactions                             Source: Reserve Bank of Fiji

                                       10

                                        8
                                                                                                               There was a notable decline in Treasury Bills issuance
                                                                                                  2008
                                                                                                               in 2008, as Government instead turned to longer-term
                             Percent




                                        6                                                                      funding options to meet its financing needs. During
                                                                                                   2007
                                        4                                                                      the year, gross issues of Treasury Bills declined by 43.4
                                                                                                               percent to $392.0 million. This was lower than the
                                        2
                                                                                                               total amount redeemed thus resulting in a decline in
                                                                                                    Maturity
                                        0                                                           (Years)    the outstanding value of Treasury Bills at the end of
                                            1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
                                                                                                               2008. Interest rates on Treasury Bills rose slightly
                     Source: Reserve Bank of Fiji                                                              across the various maturities during the year.




38   Reserve Bank of Fiji
                                      MISSION : DISSEMINATE TIMELY AND
                                                QUALITY INFORMATION




In line with the mission to disseminate timely and quality
information to the public and relevant stakeholders, the
Reserve Bank releases economic and financial information
through its major publications: the monthly Economic Review,
Quarterly Reviews, bi-annual Monetary Policy Statements and the
Annual Reports.


Financial Performance                                                                   Operating Expenses by Type
                                                                                                      12
Income                                                                                                                           Total Administrative Costs
                                                                                                      10
                                                                                                       8
                                                                                          $ Million




D
         uring the 2008 financial year, total income
                                                                                                       6                                  Staff Costs
         earned amounted to $53.0 million. This
                                                                                                       4
         equates to an increase of 7.9 percent from
                                                                                                       2
2007 due to the high interest rates during late 2007
                                                                                                       0




                                                                                                                                                                           2008
                                                                                                                                                                   2007
                                                                                                                   2003


                                                                                                                          2004


                                                                                                                                  2005


                                                                                                                                               2006


                                                                                                                                                         2006
                                                                                                           2002




through to the third quarter of 2008. The average
reserves in 2008 were also at a higher level compared
                                                                                    Source: Reserve Bank of Fiji
with 2007.

   Total Income vs Total Expenses                                                   Operating Profit and Payment to Government
               60
               50                                                                   The operating profit for the year was $30.4 million
                                          Income                                    compared to $20.4 million in 2007. There was no
   $ Million




               40
               30
                                                                                    transfer to the General Reserves Account in 2008.
               20                                    Expenditure
                                                                                    Thus, as required under the RBF Act (1983), the total
               10
                                                                                    operating profit will be transferred to Government in
                0
                                                                                    2009.
                                                               2006
                                              2005




                                                                             2008
                    2002




                                       2004




                                                        2006




                                                                      2007
                               2003




                                                                                    The Act also requires the Reserve Bank to transfer one-
Source: Reserve Bank of Fiji
                                                                                    fifth of the RRA balance to Government. For 2008,
Expenditure                                                                         this amounts to a total of $2.6 million. Thus, the Bank
                                                                                    will pay a total of $33.0 million to Government for its
Total expenditure incurred in 2008 was $22.6 million,                               2008 operations, compared with $22.2 million paid
a decrease of $6.1 million or 21.3 percent from $28.7                               for the previous year. The higher payment for 2008
million in 2007. This is mainly due to a decrease in                                reflects a larger profit for the year. This payment will
monetary policy costs - interest expense associated                                 be made in 2009.
with SRD.
                                                                                            Reserve Bank’s Profit Payable to Government ($ Million)

Administrative expenditure in 2008 increased by 5.4                                                                                  2005             2006      2007      2008

percent over 2007 and was mainly driven by staffing,                                           Operating Profit                      16.4             10.7      20.4      30.4

training and capacity building costs. Other expenses                                           Less

rose by 0.7 percent in 2008, compared with a growth                                            Transfer to General Reserves              1.0           0.0       1.0        0.0
                                                                                               Balance Paid to Government            15.4             10.7      19.4      30.4
of 24.4 percent in 2007. The significant slowdown
                                                                                               One-fifth Portion of RRA                  4.9           4.2       2.8        2.6
in the annual growth of other expenses resulted from
                                                                                               Total Paid to Government              20.3             14.9      22.2      33.0
lower costs of currency released for circulation in 2008
when compared with the previous year.                                               Source: Reserve Bank of Fiji




                                                                                                                                                                                  Annual Report 2008   39
                     MISSION : DISSEMINATE TIMELY AND QUALITY INFORMATION




                     Publications/Press Releases                                Records Management

                     The Reserve Bank continued to release economic and         The Bank continued with its campaign to educate its
                     financial information during the year through its major    members on the importance of good recordkeeping.
                     publications: the monthly Economic Review, Quarterly       Continuing discussions were held with the IT team
                     Reviews and the Annual Report. The Bank also issued        for the upgrade of the Total Records Information Man-
                     its bi-annual Monetary Policy Statements to inform         agement (TRIM) system. The records project team
                     the general public of the stance and rationale of its      completed its task to sort and appraise the Bank records
                     policies. In addition, the Reserve Bank published          in storage. Preliminary preservation work on records
                     newspaper articles and made numerous presentations         identified for permanent retention is well underway.
                     to various groups to explain its policy actions. A total   Records for disposal were either shredded, incinerated
                     of 34 Press Releases were issued during 2008. The          or buried.
                     2007 Insurance Annual Report and the 2007 FIU’s
                     Annual Report were also published during 2008.             Library

                     During 2008, the Bank also disseminated financial          The Bank renewed its subscriptions to ProQuest and
                     market information. Tender results of Treasury Bills       improved its service by processing requests through
                     and Government bonds were posted on the Reserve            intranet and e-mail. A Library Week was also organised
                     Bank website, Reuters and Bloomberg. Commercial            in September with the theme “Libraries: Oasis of
                     banks’ key disclosure statements are also made available   Discoveries”which included the launching of an e-dict-
                     on the Reserve Bank website.                               ionary on the Library Intranet page and library user
                                                                                education for both staff and families.
                     The Reserve Bank continued to disseminate inform-
                     ation available on its policies and activities through     Domestic Relations
                     media interviews, publications, brochures, speeches
                     and its website. The website was continuously updated      Various activities were organised during the year
                     to include the latest information disseminated by the      including educational visits to the Bank by students,
                     Bank.                                                      teachers and parents of various schools.

                     The Bank participated in the 2008 SPSE Annual              During 2008, the Reserve Bank also convened three
                     Report Competition. The 2006 Annual Report was             Economics Association of Fiji meetings, to discuss
                     awarded first prize in the Statutory Authorities, Gove-    issues of concern and current interest to stakeholders
                     rnment Bodies and Unlisted Trusts category.                and members of the public. The topics of discussion
                                                                                were: “Remittances: Amplifying the Voice of Consum-
                     Information Technology                                     ers”; “The Global Effects of Rising Prices: What Can
                                                                                We Do?” and “The Impact of the Global Financial Cri-
                     A bank-wide analysis of data requirements was carried      sis”.
                     out for the central database development project and
                     a pilot was setup for the exchange control functions.      International Relations
                     The EPICOR Financial Accounting System was
                     upgraded while the IMS Payroll and human resource          Throughout 2008, the Bank maintained and fostered
                     Personal Director Systems were integrated. Work            international relations with multinational organisations
                     continued with preparations for the BRS including          and other central banks. Reserve Bank officials also
                     planning infrastructure and replication of critical        participated in a range of international conferences
                     production systems and services to increase reliability    and workshops.
                     and availability. The filtering and monitoring firewall
                     were upgraded together with security software to           The Bank liaised with the IMF, World Bank, Asian
                     enhance security.                                          Development Bank (ADB) and central banks in the
                                                                                Pacific and South East Asia region. During the year,
                     The Windows based software for the Bank’s foreign          the Bank received technical assistance from inter-
                     currency dealings, Hi-Portfolio/3 went live on 3           national institutions such as the IMF and the Australian
                     November replacing the MS-DOS Impart System.               Prudential Regulatory Authority (APRA), in the areas

40   Reserve Bank of Fiji
                                                              MISSION : DISSEMINATE TIMELY AND QUALITY INFORMATION




                                                                                                   1970s
                                                                                                   50 cents coin dated 1979. A special
                                                                                                   coin to commemorate Food and
                                                                                                   Agricultural Organisation’s “Sugar
                                                                                                   for the World” Program and the
                                                                                                   “100th Anniversary of Arrival of the
                                                                                                   Girmits in Fiji”.




of insurance, superannuation and banking supervision.     SEACEN DORT Meeting. The Reserve Bank received
                                                          distinguished visitors from the IMF, World Bank and
Senior Reserve Bank officials attended annual meetings    ADB. The Bank also coordinated the IMF Staff Visit
of the joint IMF/World Bank, South East Asian Central     in September.
Banks (SEACEN) Governors, SEACEN Executive Co-
mmittee, ADB Annual Meeting, Currency Conference,         The Reserve Bank continued its association with the
Bank of International Settlements Annual Meeting,         Pacific Financial Technical Assistance Centre (PFTAC),
SEACEN Directors of Research and Training (DORT)          which continues to provide guidance in the areas of
Meeting, South Pacific Central Banks and the South        financial supervision, statistics and economic processes.
Pacific Governors’ Meeting.                               The Reserve Bank also hosted attachments from the
                                                          Bank of Papua New Guinea and FIU officials from the
The Reserve Bank also hosted the Regional Workshop        Central Bank of Solomon Islands and the Ministry of
on Financial Soundness Indicators as well as the annual   Justice of the Federated States of Micronesia.




                                                                                                                     Annual Report 2008   41
                                                                                        MISSION : RECRUIT, DEVELOP AND
                                                                                                  RETAIN A PROFESSIONAL TEAM




                                                                                                       Human resources are the Bank’s greatest asset in the
                                                                                                      delivery of corporate goals. The Bank ensures that it has
                                                                                                    capable people, systems, structure and culture through Human
                                                                                                 Resources and Corporate Policies. The Governor’s Service
                                                                                            Recognition and Long Service Award acknowledges dedicated long
                                                                                       and meritorious service to the Bank.



                     Staffing                                                                             and the other as the Advisor to the Executive Director,
                                                                                                          IMF, Washington, D.C. One staff successfully compl-


                     A        t the end of 2008, the Bank employed 171
                              staff. The Bank recruited 13 new staff mainly
                              in Economist, Examiner and Analyst posit-
                     ions. Turnover was 8.8 percent (16 staff), with staff
                                                                                                          eted a Masters Degree in Applied Finance from Victoria
                                                                                                          University, Wellington, New Zealand. Three staff succ-
                                                                                                          essfully completed correspondence certification prog-
                                                                                                          rams from the Australian and New Zealand Institute
                     mainly leaving to take up other employment, locally                                  of Insurance and Finance (ANZIIF) and the Financial
                     or emigrating.                                                                       Services Institute of Australasia (FINISIA) while two
                                                                                                          staff completed Diplomas in Financial Services and
                            RBF Staff Statistics (31 December)
                                                                                                          one completed a Certificate (IV) in General Insurance.
                                                                  2004   2005   2006    2007   2008

                            Total Staff                           165    156    169     178    1711       Three staff were granted overseas study leave to pursue
                            Average Years of Service              8.1     8.7    8.0     7.8    9.1
                                                                                                          Masters Degrees in Economics. The Bank continued
                            Annual Staff Turnover %               5.5    12.2   10.1     7.9    8.8
                                                                                                          to sponsor courses for staff through part-time and corr-
                            Resignation                             6     12     13      12     14
                            Emigration                              3      3     10        8     6
                                                                                                          espondence studies, short courses and seminars organ-
                            Further Studies                                                               ised by technical institutions, locally by the Training
                            • Overseas                              0      0      2        0     0        and Productivity Authority of Fiji (TPAF) and overseas
                            • Local                                 0      0      0        0     0        by the IMF at the Singapore Regional Training Instit-
                            New Employment                                                                ute, Bank of Thailand, and the SEACEN Research and
                            • Overseas                              0      1      0        1     1        Training Centre. The Bank also sponsored staff on pro-
                            • Local                                 3      8      1        3     7
                                                                                                          fessional development programs with the Fiji Institute
                            Retirement                              3      5      3        1     1
                                                                                                          of Bankers, Fiji Institute of Accountants, Fiji Institute
                            • Age 55 years                          2      3      2        1     0
                            • Age 45 years                          1      2      1        0     1
                                                                                                          of Internal Auditors and the Fiji Human Resources Ins-
                            Contract Expiry                         0      2      1        0     0
                                                                                                          titute.
                            Terminated                              0      0      0        1     0
                            Deceased                                0      0      0        0     1        Employment Relations Promulgation
                            Total Staff Turnover                    9     19     17      14     16
                            1 Actual staff number includes FIU.                                           Human resources policies and activities were aligned
                     Source: Reserve Bank of Fiji                                                         to the Employment Relations Promulgation that came
                                                                                                          into effect on 1 April 2008. The Bank and the Fiji Bank
                     Staff Development
                                                                                                          and Finance Sector Employees Union agreed to the
                     The Staff Development Policy and Staff Training                                      extension of the Rewards & Recognition System for a
                     Needs Analysis supports a continuous learning culture                                further four years (2008–2011).
                     and the upskilling of Bank staff through on-the-job
                     training, job rotations, part-time studies, correspon-                               Health and Safety in the Workplace
                     dence and short courses at both local and overseas
                     institutions. Staff are also granted study leave to pursue                           The Bank’s Occupational, Health & Safety (OHS) Com-
                     relevant higher degrees.                                                             mittee comprising management and staff represent-
                                                                                                          atives met four times during the year. 15 staff received
                     Two staff continued with secondments, one as the De-                                 certificates after the successful completion of the OHS
                     puty Governor at the National Reserve Bank of Tonga                                  Fundamentals and OHS Risk Management training.


42   Reserve Bank of Fiji
                                                             MISSION : RECRUIT, DEVELOP AND RETAIN A PROFESSIONAL TEAM




                                                                                                            1990s
                                                                                                            $1 coin dated 1998. This will
                                                                                                            be replaced by the new coin
                                                                                                            series with existing design on
                                                                                                            16 February 2009.




A total of 17 Fire Wardens (tenants and staff) comp-              and building effective work relationships. During
leted the Fire Wardens training by the National Fire              2008, teams met on their own while some had cross-
Authority. A Fire Drill exercise and assessment was               functional meetings with other teams to review and
completed in coordination with the National Fire Aut-             strengthen the effectiveness of processes across the
hority. The Bank also upgraded its fire alarm system              Bank.
and purchased safety attire and equipment to ensure
work safety.                                                      General Services

Salary Administration                                             The Bank tendered and renewed its insurance risks
                                                                  during its annual insurance renewal program. Other
The Bank implemented the results of the 2008 Price-               general administration services of providing transport,
waterhouseCoopers Market Survey with a change in                  reception, stationery and supplies, logistics for official
salary structure effective from 1 January in accordance           functions and meetings, were effectively managed thr-
to the Memorandum of Understanding Salary Review                  oughout the year.
Successor Agreement.
                                                                  Plant and Building
Service Recognition
                                                                  The Building Retirement Plan (2007-2010) which
The Governor’s Service Recognition and Long Service               commenced in 2007 to review operating systems, pla-
Loyalty Award acknowledges dedicated long and me-                 nt and equipment that have been in use for more than
ritorious service to the Bank. Four staff achieved 20             10 years, continued in 2008. Improvements were also
years of service in 2008, two were from Financial Ins-            made to the cooling towers, water submersible and bo-
titutions, one from Financial Markets and one from                oster pumps, telephone and building management
Currency & Corporate Services. Chief Managers also                system.
rewarded staff for exceptional service to their respective
Group or the Bank.                                                Acknowledgement

Quality Performance Management                                    The Board wishes to sincerely acknowledge the efforts
                                                                  and contribution of staff during 2008.
The Reserve Bank continued to promote its quality
performance management program in 2008, with the                  The Board’s gratitude is also extended to the Gover-
objective of achieving higher quality performance                 nment of Fiji, the IMF, the World Bank, the ADB, SEA-
through building effective teamwork. This was under               CEN, PFTAC and regional central banks for their cont-
the direction of Chief Managers, who are the major                inued support and assistance during the year.
drivers of this program.
                                                                  Furthermore, the Reserve Bank also wishes to articulate
There are a total of 17 quality teams in the Bank and             its sincere appreciation to the Fiji Bank and Finance
members met regularly during the year. These self-                Sector Employees Union for its support and assistance
driven teams focused on work process improvements                 in industrial matters.




                                                                                                                              Annual Report 2008   43
                                                                   THE YEAR AHEAD




                                                                                   Core responsibilities of the Bank will continue to be fulfilled
                                                                                 in 2009. Listed below are areas where special effort will
                                                                                be focused.




                     Monetary Policy                                                  Association of Financial Supervisors of Pacific Countries
                                                                                      (AFSPC)


                     I
                        n 2009, monetary policy will continue to be a key
                        focus of the Reserve Bank to achieve its twin                 The Annual Meeting and Workshop of the AFSPC
                        objectives of low and stable inflation and an ade-            will be hosted by the Bank in conjuction with PFTAC in
                     quate level of foreign reserves.                                 October 2009. This will be the second time that the
                                                                                      Reserve Bank has hosted the meeting. Members of the
                     In the first half of the year, a review of existing policies     AFSPC include the Cook Islands, Federated States of
                     will be undertaken.                                              Micronesia, Fiji, Palau, Papua New Guinea, Republic of
                                                                                      Marshall Islands, Samoa, Solomon Islands, Tonga and
                     Asset Management Bank (AMB)                                      Vanuatu.

                     The Reserve Bank’s controllership of the AMB will                Currency Review
                     continue in 2009. The Controllership Committee
                     will continue to wind down its operations and prepare            On 16 February 2009, the Bank will issue the new series
                     for the final winding up of the AMB.                             of coins (5, 10, 20, 50 cents and $1). Both the old and
                                                                                      new coins will continue to co-circulate until 30 April
                     Enhanced Supervisory                                             2009. From 1 May 2009, all old coins, except $1, will
                                                                                      no longer be legal tender. Only the Reserve Bank will give
                     The Bank is strengthening its capacity in its super-             value for old coins after 30 April 2009.
                     visory role. A Financial Stability Report will be pro-
                     duced six monthly.                                               Financial Literacy

                     Furthermore, the Bank will enhance its stress testing            The Reserve Bank will engage with relevant stakeholders
                     work. This will commence with IMF Technical Assist-              and work towards implementing a framework for
                     ance in March 2009.                                              promoting financial literacy in Fiji.




44   Reserve Bank of Fiji
FINANCIAL STATEMENTS

CONTENTS

Directors’ report                                                                    46-47
Statement by directors                                                                  48
Independent auditors’ report to the Board of Directors of the Reserve Bank of Fiji      49
Income statement                                                                        50
Statement of changes in equity                                                          51
Balance sheet                                                                           52
Statement of cash flows                                                                 53
Notes to and forming part of the financial statements                                54-70




                                                                                             Annual Report 2008   45
                                                                                                                  RESERVE BANK OF FIJI
                                                                                                           DIRECTORS’ REPORT




                     The directors present their report together with the financial statements of the Reserve Bank of Fiji (“the Bank”)
                     for the year ended 31 December 2008 and the auditors’ report thereon.

                     Directors

                     The directors in office during the course of the financial year and up to the date of this report were:

                     Savenaca Narube (Chairman and Governor)
                     Peceli Vocea
                     Kanti Tappoo, (OBE) (up to 31 December 2008)
                     Ioane Naiveli
                     Robin Yarrow
                     Adish Narayan
                     Chandra Dulare
                     Deo Saran (from 11 February 2009)

                     State of affairs

                     In the opinion of the directors:

                     •      there were no significant changes in the state of affairs of the Bank during the financial year under review
                            not otherwise disclosed in this report or the financial statements;

                     •      the accompanying balance sheet and statement of changes in equity give a true and fair view of the state of
                            affairs of the Bank as at 31 December 2008 and the accompanying income statement and statement of cash
                            flows give a true and fair view of the results of the Bank and its cash flows for the year then ended.

                     Principal activities

                     The Reserve Bank’s role as a central bank, as defined in the Reserve Bank of Fiji Act, is:

                            (a)   to regulate the issue of currency and the supply, availability and international exchange of money;
                            (b)   to promote monetary stability;
                            (c)   to promote a sound financial structure;
                            (d)   to foster credit and exchange conditions conducive to the orderly and balanced economic development
                                  of the country.

                     Trading results

                     The net profit of the Bank for the year ended 31 December 2008 was $30.46m (2007: $20.37m).

                     Reserves

                     There was no transfer (2007: $1.0m) to the General Reserves from net profit at year end as agreed between the
                     Minister and the Board, in accordance with Section 8(1)(c) of the Reserve Bank of Fiji Act.

                     Payable to government

                     In accordance with the Reserve Bank of Fiji Act, the following amounts totalling $33.03m (2007: $22.15m) are
                     payable to the Government of Fiji:

                     Section 8(3): Net profit after transfer to General Reserves - $30.46m (2007: $19.37m)
                     Section 34: One-fifth balance of Revaluation Reserve - $2.57m (2007: $2.78m)




46   Reserve Bank of Fiji
RESERVE BANK OF FIJI
DIRECTORS’ REPORT (continued)




Bad and doubtful debt

The directors took reasonable steps before the financial statements of the Bank were made out to ascertain that
all known bad debts were written off and adequate allowance was made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances which would render the amount writ-
ten off for bad debts, or the amount of the allowance for doubtful debts, inadequate to any substantial extent.

Provisions

There were no material movements in provisions during the year apart from the normal amounts set aside for
such items as doubtful debts, depreciation and employee entitlements.

Assets

The directors took reasonable steps before the Bank’s financial statements were made out to ascertain that the
assets of the Bank were shown in the accounting records at a value equal to or below the value that would be
expected to be realised in the ordinary course of business.

At the date of this report, the directors were not aware of any circumstances which would render the values
attributable to the assets in the financial statements misleading.

Directors’ benefit

No director of the Bank has, since the end of the previous financial year, received or become entitled to receive
a benefit by reason of contract made by the Bank with the director or with a firm of which the director is a
member, or with a company in which the director has substantial financial interest.

Events subsequent to balance date

There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature likely, in the opinion of the directors of the Bank, to affect
significantly the operations of the Bank, the results of those operations, or the state of affairs of the Bank, in future
financial years.

Other circumstances

At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report
or financial statements which render amounts stated in the financial statements misleading.


Dated at Suva this 30th day of March 2009.

Signed in accordance with a resolution of the directors:




Savenaca Narube                                                Ioane Naiveli
Governor                                                       Director




                                                                                                                      Annual Report 2008   47
                                                                                                                   RESERVE BANK OF FIJI
                                                                                                    STATEMENT BY DIRECTORS




                     In the opinion of the directors:

                     (a) the accompanying income statement is drawn up so as to give a true and fair view of the results of the Bank
                         for the year ended 31 December 2008;

                     (b) the accompanying balance sheet is drawn up so as to give a true and fair view of the state of affairs of the Bank
                         as at 31 December 2008;

                     (c) the accompanying statement of changes in equity is drawn up so as to give a true and fair view of the movement
                         in equity for the year ended 31 December 2008;

                     (d) the accompanying cash flow statement is drawn up so as to give a true and fair view of the cash flows of the
                         Bank for the year ended 31 December 2008.

                     (e) the financial statements have been properly prepared in accordance with International Financial Reporting
                         Standards except as noted in note 1(c) to the financial statements. In accordance with the provisions of Sec-
                         tion 34 of the Reserve Bank of Fiji Act, 1983, exchange gains and losses are credited or charged directly to
                         the Revaluation Reserve Account and are not included in the computation of annual profits or losses of
                         the Bank. This is at variance with International Financial Reporting Standard IAS 21 “Effects of Changes in
                         Foreign Exchange Rates” which requires that exchange gains and losses be credited or charged to the Income
                         Statement.

                            In the opinion of the directors, the accounting treatment adopted is appropriate in view of the requirement
                            of Section 34 of the Reserve Bank of Fiji Act, 1983.




                            For and on behalf of the Board of directors by authority of a resolution of the directors this 30th day of
                            March 2009.




                            Savenaca Narube                                              Ioane Naiveli
                            Governor                                                     Director




48   Reserve Bank of Fiji
INDEPENDENT AUDITORS’ REPORT




                                                        Suva Central                      PO Box 32              Telephone   (679) 330 1155
                                                        Renwick Road                      Suva                   Fax         (679) 330 1312
                                                        Suva                              Fiji Islands           Email       suvaoffice@kpmg.com.fj




Independent auditors’ report to the Board of Directors of the Reserve Bank of Fiji


Scope

We have audited the financial statements of Reserve Bank of Fiji for the year ended 31 December 2008, consisting
of the income statement, statement of changes in equity, balance sheet, statement of cash flows and accompanying
notes, set out on pages 50 to 70. The Bank's directors are responsible for the preparation and presentation of the
financial statements and the information they contain. We have conducted an independent audit of these financial
statements in order to express an opinion on them to the directors of the Bank.

Our audit has been conducted in accordance with Fiji Standards on Auditing to provide reasonable assurance as
to whether the financial statements are free of material misstatement. Our procedures included examination,
on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the
evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken
to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance
with International Financial Reporting Standards and statutory requirements so as to present a view which is
consistent with our understanding of the Bank's financial position and the result of its operations and its cash
flows.

Audit opinion

In our opinion the financial statements give a true and fair view of the financial position of the Reserve Bank of
Fiji as at 31 December 2008, and of its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards (“IFRS”) and the Reserve Bank of Fiji Act, 1983.

Emphasis of matter

Without qualification to the opinion expressed above, attention is drawn to Note 1(c) to the financial statements
in respect of the accounting treatment of exchange gains and losses.

Section 34 of the Reserve Bank of Fiji Act, 1983 requires exchange gains and losses to be credited or charged
directly to the Revaluation Reserve Account. This policy is a departure from International Financial Reporting
Standard IAS 21 “The Effects of Changes in Foreign Exchange Rates” which requires exchange gains and losses to be
credited or charged to the Income Statement.

The financial effect of this departure is disclosed in Note 1(c).




Suva, Fiji Islands                                                                                                  KPMG
30th March, 2009                                                                                                    Chartered Accountants




                                  KPMG, a Fiji Islands partnership, is part of the KPMG International network.
                                  KPMG International is a Swiss cooperative.




                                                                                                                                                      Annual Report 2008   49
                                                                                                                                   RESERVE BANK OF FIJI
                                                                                                                          INCOME STATEMENT
                                                                                                                               For the year ended 31 December 2008




                                                                                                                  Note           2008                  2007
                                                                                                                                 $000                  $000
                            Income
                            Interest income                                                                        2(a)       49,001               46,641
                            Net gains on realisation of securities                                                             2,727                1,391
                            Other revenue                                                                         2(b)         1,282                1,077

                            Total income                                                                                      53,010               49,109

                            Expenses
                            Interest expense                                                                       2(c)        3,088                9,757
                            Net losses on currency trading                                                                        84                   52
                            Amortisation of securities                                                                         1,656                1,885
                            Net losses on realisation of securities                                                            1,417                1,387
                            Administration expenses                                                               2(d)        11,811               11,198
                            Other expenses                                                                        2(e)         4,494                4,459

                            Total expenses                                                                                    22,550               28,738

                            Net profit                                                                                8       30,460               20,371



                    The income statement is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70.




50   Reserve Bank of Fiji
RESERVE BANK OF FIJI
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2008




                                                                                         Note              2008              2007
                                                                                                           $000              $000
Paid-up capital

Balance as at the beginning of the year                                                                  2,000             2,000
Movements during the year                                                                                     -                 -
Balance as at the end of the year                                                                        2,000             2,000

General reserves

Balance as at the beginning of the year                                                                39,050             38,050
Movements during the year                                                                 13                 -             1,000
Balance as at the end of the year                                                                      39,050             39,050

Revaluation reserve account - foreign currency

Balance as at the beginning of the year                                                                11,129             16,606
Net gain/(loss) arising during the year from
translation of foreign currencies to Fiji currency                                                       1,726           (2,695)
One-fifth of remaining credit balance payable to the
Government of the Fiji Islands                                                                         (2,571)           (2,782)
Balance as at the end of the year                                                                      10,284            11,129

Available-for-sale reserve

Balance as at the beginning of the year                                                                  8,290           (5,200)
Fair value gains/(losses)                                                                                6,411             6,863
Fair value gain on investments transferred
to held to maturity investments                                                                              -             6,627
Balance as at the end of the year                                                                      14,701              8,290

Asset revaluation reserve

Balance as at the beginning of the year                                                                       -                   -
Movements during the year                                                                 13             7,990                    -
Balance as at the end of the year                                                                        7,990                    -

Total capital and reserves                                                                             74,025             60,469


 The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements set out
 on pages 54 to 70.




                                                                                                                                      Annual Report 2008   51
                                                                                                                                        RESERVE BANK OF FIJI
                                                                                                                                       BALANCE SHEET
                                                                                                                                               As at 31 December 2008




                                                                                                                       Note               2008              2007
                                                                                                                                          $000              $000
                            Foreign currency assets
                            Short-term commercial paper and current accounts                                             3           250,129            467,484
                            Marketable securities                                                                        3           245,685            281,987
                            Gold                                                                                         3             1,279              1,078
                            Accrued interest                                                                                           9,997             14,640
                            International Monetary Fund
                            - Reserve tranche position                                                                   3            42,963             38,430
                            - Special drawing rights                                                                     3            18,638             15,653
                            - Currency subscription                                                                     14           148,043            133,762

                            Total foreign currency assets                                                                            716,734            953,034
                            Local currency assets
                            Cash on hand                                                                                                 603                668
                            Domestic securities                                                                          4           160,421            178,594
                            Other assets                                                                                 5            19,691             22,501
                            Property, plant and equipment                                                                6            23,748             14,753

                            Total local currency assets                                                                              204,463            216,516

                            Total assets                                                                                             921,197        1,169,550
                            Foreign currency liabilities
                            Accrued interest and charges                                                                                   3                 65
                            Demand deposits                                                                              7                 8                 82
                            IMF – Special drawing rights allocation                                                                   18,905             17,043

                            Total foreign currency liabilities                                                                        18,916             17,190
                            Local currency liabilities
                            Demand deposits                                                                              7            66,068            359,453
                            Payable to government                                                                        8            33,031             22,153
                            Currency in circulation                                                                      9           390,913            382,267
                            Statutory reserve deposits                                                                               188,895            194,198
                            IMF – notes currency subscription                                                           14           146,236            131,832
                            Other liabilities                                                                           10             3,113              1,988

                            Total local currency liabilities                                                                         828,256        1,091,891

                            Total liabilities                                                                                        847,172        1,109,081

                            Net assets                                                                                                74,025             60,469
                            Capital and reserves
                            Paid-up capital                                                                             12             2,000              2,000
                            General reserves                                                                            13            39,050             39,050
                            Revaluation reserve account - foreign currency                                              13            10,284             11,129
                            Available-for-sale reserve                                                                  13            14,701              8,290
                            Asset revaluation reserve                                                                   13             7,990                   -
                                                                                                                                      74,025             60,469

                            Signed in accordance with the resolution of the directors:



                                  Savenaca Narube                                                                                            Ioane Naiveli
                                  Governor                                                                                                   Director


                            The balance sheet is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 54 to 70.


52   Reserve Bank of Fiji
RESERVE BANK OF FIJI
STATEMENT OF CASH FLOWS
For the year ended 31 December 2008




                                                                                              Note              2008              2007
                                                                                                                $000              $000
   Operating activities

   Rental lease income                                                                                           348               364
   Numismatic sales                                                                                              350               131
   Currency trading                                                                                             (84)              (52)
   Interest received and securities trading income                                                            54,954           37,018
   Other income                                                                                                  725               564
   Interest paid on RBF notes                                                                                       -            (965)
   Other interest paid                                                                                       (3,149)           (8,846)
   New currency payments                                                                                            -            (862)
   Administration and other expenses                                                                        (10,665)           (9,206)

   Cash flows from operating activities                                                                       42,479           18,146

   Investing activities

   Net movement of domestic securities                                                                       14,739            30,625
   Purchase of property, plant and equipment                                                                 (2,571)          (1,367)
   Purchase/repaymentof bonds                                                                                35,229         (135,530)
   Net movement in gold prices                                                                                 (201)            (202)
   Net movement in short-term commercial papers                                                             124,492          (69,970)
   Net movement in fixed deposit accounts                                                                      9,117          (7,797)
   Net movement in International Monetary Fund accounts                                                      (5,532)          (2,922)
   Net movement in staff loans and advances                                                                    (137)            (211)

   Cash flows from/(used in) investing activities                                                           175,136         (187,374)

   Financing activities

   Net movement in currency in circulation                                                                    8,646            27,724
   Net movement in demand deposits                                                                        (293,459)          238,406
   Net movement in statutory reserve deposits                                                               (5,304)           (4,007)
   Payment to government                                                                                   (22,152)          (14,912)
   Net movement in RBF notes                                                                                       -            (250)

   Cash flows from/(used in) financing activities                                                         (312,269)          246,961

   Net effect of exchange rate                                                                                  1,726          (2,695)

   Net increase/(decrease) in cash                                                                          (92,928)           75,038

   Cash at the beginning of the financial year                                                              258,804          183,766

   Cash at the end of the financial year                                                        11          165,876          258,804



   The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages
   54 to 70.




                                                                                                                                        Annual Report 2008   53
                                                                                                                      RESERVE BANK OF FIJI
                                                                                        NOTES TO AND FORMING PART OF
                                                                                            THE FINANCIAL STATEMENTS
                                                                                                                  For the year ended 31 December 2008




                     1. Statement of significant accounting policies

                            The significant policies, which have been adopted in the preparation of these financial statements, are noted
                            below:

                            (a) Statement of compliance

                                 The financial statements have been drawn up in accordance with the provisions of the Reserve Bank
                                 of Fiji Act, 1983, International Financial Reporting Standards (“IFRS”) and other disclosure requirements
                                 of the Fiji Institute of Accountants except as detailed in note (c) below.

                            (b) Basis of preparation

                                 Reserve Bank of Fiji (“the Bank”) operates under the Reserve Bank of Fiji Act, 1983. The financial state-
                                 ments are prepared on the historical cost basis except for the following:

                                 •    available-for-sale financial assets are measured at fair value.
                                 •    property is measured at fair value.

                                 The accounting policies as set out below have been applied consistently and, except where there is a
                                 change in accounting policy are consistent with those of the previous year.

                            (c) Foreign currency

                                 Foreign currencies have been translated to Fiji currency at rates of exchange ruling at year end.

                                 In accordance with the provisions of Section 34 of the Reserve Bank of Fiji Act, 1983 exchange gains
                                 and losses are credited or charged directly to the Revaluation Reserve Account and are not included in
                                 the computation of annual profits or losses of the Bank.

                                 This is at variance with International Financial Reporting Standard IAS 21 “Effects of Changes in Foreign
                                 Exchange Rates” which requires that exchange gains and losses be credited or charged to the Income
                                 Statement.

                                 In accordance with Section 34, losses arising from such fluctuations are set off against any credit balance
                                 in the Revaluation Reserve Account; if such balance is insufficient to cover such losses, Government
                                 is required to transfer to the ownership of the Bank non-negotiable non-interest bearing securities to
                                 the extent of the deficiency. Any credit balance in the Revaluation Reserve Account at the end of each
                                 year is applied first, on behalf of Government, to the redemption of any non-negotiable non-interest
                                 bearing notes previously transferred to the Bank by Government to cover losses and thereafter one-fifth
                                 of any remaining balance is paid to Government.

                                  In the opinion of the directors, the accounting treatment adopted is appropriate in view of the require-
                                  ment of Section 34 of the Reserve Bank of Fiji Act, 1983. Had the Bank adopted IAS 21 there would
                                  have been a net profit of $32.186m, an increase of $1.726m, being the exchange gains for the year.
                                  The directors consider the effect of the departure from IAS 21 not material.

                            (d) Financial assets and liabilities

                                 Investment securities

                                 The Bank defines its investment securities into the following three categories: held-to-maturity, held-
                                 for-trading and available-for-sale assets.

                                 Investment securities with fixed maturities where the Bank has both the intent and the ability to hold
                                 to maturity are classified as held-to-maturity. Investment securities to be held for an indefinite period
                                 of time, which may be sold in response to needs for liquidity or changes in interest rate, exchange rates
                                 or equity prices, are classified as held-for-trading. Investment securities that are not classified in any of
                                 the other categories are classified as available-for-sale. The Bank determines the appropriate classification
                                 of its investments at the time of the purchase.


54   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




1. Statement of significant accounting policies (continued)

       (d) Financial assets and liabilities (continued)

              Investment securities (continued)

              Investment securities are initially recognised at cost (which includes transactions costs). Held-for-
              trading financial assets are valued at market value. Unrealised gains and losses arising from the valuation
              adjustments of these securities at year end are included in the computation of annual profits or losses
              of the Bank.

              Held-to-maturity investments are carried at amortised cost. Any premium or discount on purchase is
              capitalised and amortised over the term of the maturity on a constant yield to maturity basis.

              Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes
              in the fair value are recognised in a reserve. When available-for-sale financial assets are sold or impaired,
              the accumulated fair value adjustments are included in the income statement as gains and/or losses.

              All purchases and sales of investment securities are recognised at settlement date, which is the date
              that the asset is transferred to/from the Bank.

              Other financial assets and liabilities

              Local and foreign cash, deposits and short-term advances are valued at transaction date value. Reserve
              Bank of Fiji notes are valued at amortised cost.

       (e) Gold

              Gold is valued at the market price ruling at year end.

       (f) Numismatic items

              The Bank sells or receives royalties on notes and coins which are specifically minted or packaged as
              numismatic items. These numismatic items have not been accounted for as currency in circulation as
              they are not issued for monetary purposes. In terms of Section 55(2) of the Reserve Bank of Fiji Act,
              1983 the Minister has specified by notice made under the provisions of paragraph (b) of the provision
              to Section 31 of the Act that the Bank shall not be required to include the face value of these numismatic
              items in circulation in its financial statements. It is considered that no material liability will arise in
              respect of these numismatic items.

       (g) Cash and cash equivalents

              For the purposes of the statement of cash flows, cash and cash equivalents includes cash held at bank,
              short-term commercial paper and current accounts.

       (h) Currency inventory

              Currency inventory relates to notes and coins purchased for circulation and include the new bank note
              design series. The amount expensed in the income statement is based on the cost of notes and coins
              that are issued for circulation. It is estimated that this supply will meet requirements up to the period
              2014.

       (i)    Loans and advances

              Loans are carried at recoverable amount represented by the gross value of the outstanding balance
              adjusted for an allowance for bad and doubtful debts.



                                                                                                                          Annual Report 2008   55
                                                                                                                       RESERVE BANK OF FIJI
                                                                                         NOTES TO AND FORMING PART OF
                                                                                             THE FINANCIAL STATEMENTS
                                                                                                                   For the year ended 31 December 2008




                     1. Statement of significant accounting policies (continued)

                            (i)   Loans and advances (continued)

                                  A specific allowance for bad and doubtful debts is made based on the appraisal carried out at year end.
                                  Movement in the allowance is charged to the income statement.

                                  All known bad debts are written off against the allowances in the year in which they are recognised.
                                  Bad debts, in respect of which no specific allowances have been established, are charged directly to the
                                  income statement.

                            (j)   Demand deposits

                                  Demand deposits representing funds placed with the Bank by financial institutions and central banks
                                  are brought to account on a cost basis. These deposits are at call.

                            (k) Currency in circulation

                                  The exclusive rights of national currency issue are vested with the Bank. Currency in circulation
                                  comprises bank notes and coins issued by the Bank and represent a claim on the Bank in favour of the
                                  holder. The liability for currency in circulation is recorded at face value.

                            (l)   Property, plant and equipment

                                  Recognition and measurement

                                  Items of property, plant and equipment are measured at cost less accumulated depreciation and impair-
                                  ment losses. The cost of property, plant and equipment at 1 January 2006, the date of transition to
                                  IFRSs, was determined by its fair value at that date. Costs include expenditures that are directly attrib-
                                  utable to the acquisition of the asset. Purchased software that is integral to the functionality of the
                                  related equipment is capitalised as part of the equipment.

                                  Depreciation

                                  Items of capital expenditure, with the exception of freehold land, are depreciated on a straight line
                                  basis over the following estimated useful lives (in years):

                                  Improvements                                                                                                 5-15
                                  Freehold buildings                                                                                             50
                                  Motor vehicles                                                                                                  6
                                  Computers and equipment                                                                                       4-5
                                  Plant & machinery, equipment & furniture & fittings                                                          5-10


                                  Assets are depreciated from the date of acquisition. Expenditure on repairs and maintenance of property,
                                  plant and equipment incurred which does not add to future economic benefits expected from the
                                  assets is recognised as an expense when incurred.

                            (m) Statutory reserve deposit

                                  Under Section 40 of the Reserve Bank of Fiji Act, 1983, the Reserve Bank may specify the reserves
                                  required, by each financial institution, to be maintained against deposits and other similar liabilities.
                                  However, under Section 31 of the National Bank of Fiji Restructuring Act, 1996, this section does not
                                  apply to the Asset Management Bank (“AMB”). Interest was payable on this deposit at the rate of 4.25%
                                  per annum. Effective from 27 February 2008, the interest rate paid on this deposit is pegged to the
                                  preceding month’s weighted average 91-day treasury bill rate plus a margin of 50 basis points (2007: 4.25%).



56   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




1. Statement of significant accounting policies (continued)

       (n) Impairment

              The carrying amounts of the Bank’s assets are reviewed at balance sheet date to determine whether
              there is any indication of impairment. If any such indication exists, the assets recoverable amount is
              estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-
              generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

       (o) Employee entitlements

              Short-term benefits

              Short-term employee benefits comprising of annual leave are measured on an undiscounted basis and
              are expensed as the related service is provided.

              Other long-term employee benefits

              The Bank’s net obligation in respect of long-term benefits is the amount of future benefit that employees
              have earned in return for their service in the current and prior period; that benefit is discounted to
              determine its present value. The discount rate is based on the domestic bond portfolio.

       (p) Income tax

              The Bank is exempt from income tax in accordance with Section 57 of the Reserve Bank of Fiji Act, 1983.

       (q) Revenue recognition

              Interest income

              Interest income is brought to account on an accruals basis.

              Income from available-for-sale securities

              Gains and losses realised from the sale of available-for-sale securities are reflected in the income statement.

       (r) Operating leases

              Where the Bank is the lessee, the lease rentals payable on operating leases are recognised in the income
              statement over the term of the lease.

              Where the Bank is the lessor, the assets leased out are retained in property, plant & equipment.

       (s) Comparative figures

              Where necessary, comparative figures have been changed to conform to changes in presentation in the
              current year.

       (t) Rounding

              Amounts in the financial statements are rounded to the nearest thousand dollars unless otherwise stated.




                                                                                                                          Annual Report 2008   57
                                                                                                               RESERVE BANK OF FIJI
                                                                                   NOTES TO AND FORMING PART OF
                                                                                       THE FINANCIAL STATEMENTS
                                                                                                           For the year ended 31 December 2008




                                                                                                               2008              2007
                                                                                                               $000              $000
                     2.(a) Interest income

                                Overseas investments                                                        37,024            33,340
                                Domestic securities                                                         11,909            13,249
                                Loans and advances                                                              68                52

                                                                                                            49,001            46,641

                        (b) Other revenue

                                Rent received                                                                    348              364
                                Numismatic sales                                                                 350              131
                                License and application fees                                                     193              266
                                Other miscellaneous income                                                       391              316

                                                                                                              1,282             1,077
                        (c)   Interest expense

                                Reserve Bank of Fiji notes                                                         -              965
                                Statutory reserve deposits                                                    2,444             8,082
                                International Monetary Fund                                                     556               706
                                Other                                                                            88                 4

                                                                                                              3,088             9,757

                        (d)   Administration expenses

                                Staff costs                                                                  8,411             8,002
                                Other costs                                                                  3,400             3,196
                                                                                                            11,811            11,198

                                Total number of employees at year end                                            171              178

                        (e)   Other expenses

                                Depreciation                                                                  1,567               925
                                Auditors remuneration                                                            20                20
                                Board remuneration                                                               41                39
                                Write down in cost of old coins                                                 490                  -
                                Currency issue                                                                2,363             3,427
                                Numismatic                                                                       13                33
                                Brokerage fees                                                                     -               15

                                                                                                              4,494             4,459


                                Brokerage fees were incurred in respect of the Government of Fiji foreign bonds issue in 2007.




58   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




   3. External Reserves

          Under the provisions of Section 31 of the Reserve Bank of Fiji Act, 1983, the value of the External Reserves
          provided for in Section 30 shall not be less than 50% of the total demand liabilities of the Bank. At 31
          December 2008, the value of the external reserves was 91.01% (2007: 96.4%) of total demand liabilities.


          External Reserves comprise the following:                                Note           2008         2007
                                                                                                  $000         $000

          Short-term commercial paper                                                        140,981       357,887
          Current accounts                                                                   109,148       109,597
                                                                                    11       250,129       467,484
          Marketable securities
          - Fixed term deposits                                                               59,294        68,411
          - Bonds                                                                            186,391       213,576
                                                                                             245,685       281,987
          Gold                                                                                  1,279        1,078

          International Monetary Fund
          - Reserve tranche position                                                           42,963       38,430
          - Special drawing rights                                                             18,638       15,653
                                                                                               61,601       54,083
                                                                                             558,694       804,632

          All fixed term deposits mature within twelve months. The Bonds are classified as “available-for-sale”.

   4. Domestic Securities

          Held to maturity                                                          (a)      135,248       152,401

          Available-for-sale                                                        (b)
               Government of Fiji bonds                                                        25,173       26,132
               Treasury bills                                                                        -          61
                                                                                               25,173       26,193

                                                                                             160,421       178,594


          (a) These securities have varying maturity dates up to 2021. These securities are purchased in the
              secondary market and it is the Bank’s intention to hold these investments to maturity. During the
              year, $1.656m (2007: $1.885m) was amortised in respect of securities held in this category.

          (b) Domestic securities underwritten by the Bank are classified as available-for-sale. These securities
              will mature in 2009.




                                                                                                                   Annual Report 2008   59
                                                                                                                     RESERVE BANK OF FIJI
                                                                                       NOTES TO AND FORMING PART OF
                                                                                           THE FINANCIAL STATEMENTS
                                                                                                                 For the year ended 31 December 2008




                                                                                                                     2008              2007
                                                                                                                     $000              $000
                     4. Domestic Securities (continued)

                            Reconciliation of available-for-sale financial assets

                               Opening balance                                                                   26,193            66,419
                               Investments                                                                             -                 -
                               Redeemed at maturity                                                                    -          (9,119)
                               Sold during the year                                                                    -          (2,000)
                               Transfer to held to maturity financial assets                                           -         (42,384)
                               Fair value gains/(losses)                                                         (1,020)           13,277
                               Total investments                                                                 25,173            26,193


                     5. Other assets

                            Accrued interest                                                                       1,716            1,808
                            Currency inventory                                                                    16,628           19,482
                            Other assets and prepayments                                                              55               56
                                                                                                                  18,399           21,346

                            Staff loans and advances                                                                1,294            1,169
                            Allowance for doubtful debts on staff loans and advances                                   (2)             (14)
                                                                                                                    1,292            1,155

                                                                                                                  19,691           22,501

                     6. Property, plant and equipment
                                                                     Freehold Improvements    Motor     Computers       Plant &         Work in          Total
                                                                     land and                Vehicles         and   machinery,          progress
                                                                     buildings                          equipment equipment &
                                                                                                                    furniture &
                                                                                                                        fittings
                                                                         $000        $000       $000         $000         $000              $000          $000
                     Cost/Valuation
                     Balance at 1 January 2008                        15,664        2,555       264        4,615           3,929            398        27,425
                     Revaluation                                       2,556             -         -            -               -              -        2,556
                     Additions                                              -         102          -         472           1,596            401         2,571
                     Disposals                                              -            -         -        (24)           (860)               -        (884)
                     Balance at 31 December 2008                      18,220        2,657       264        5,063           4,665            799        31,668

                     Accumulated depreciation
                     Balance at 1 January 2008                         5,150        2,188        63        2,379           2,892                 -     12,672
                     Depreciation for the year                           284          101        45          830             307                 -      1,567
                     Depreciation on disposals                              -            -         -        (25)           (860)                 -      (885)
                     Reversal of accumulated
                     depreciation upon revaluation                   (5,434)             -         -            -               -                -     (5,434)
                     Balance at 31 December 2008                           -        2,289       108        3,184           2,339                 -       7,920

                     Carrying amount
                     Balance at 1 January 2008                        10,514        1,227       201        2,236              177           398        14,753

                     Balance at 31 December 2008                      18,220          368       156        1,879           2,326            799        23,748

                     A valuation of the Bank’s freehold land and buildings was undertaken by a registered valuer, S. Navuta (BA – LM&D, Fiji
                     and MBus (Property), Australia) of Rolle Associates. The valuation was carried out on the basis of the market value of the
                     properties. The valuation was effective as at 31 December 2008.


60   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




                                                                                                  2008         2007
                                                                                                  $000         $000
     7.      Demand deposits

             Foreign
                International Monetary Fund                                                          8           82

             Local
                Banks’ exchange settlement balances                                            55,166      331,162
                Fiji government                                                                 5,842        3,544
                State NBF Trust account                                                         1,030        1,490
                International Monetary Fund                                                     1,807        1,930
                Other depositors                                                                2,223       21,327
                                                                                               66,068      359,453

             In accordance with an agreement dated 12 September 1996 between the Sovereign Democratic Republic
             of Fiji and the Reserve Bank of Fiji and NBF Asset Management Bank (AMB), the State established a
             trust account, known as the State NBF Trust Account, with the Reserve Bank of Fiji, on the basis, among
             other things, that all money in the trust account is the property of the State at all times. The purpose
             of the State NBF Trust Account is to meet the obligations of the AMB.

             The National Bank of Fiji Restructuring Act, 1996, provides that the State, the Reserve Bank of Fiji and
             AMB may at any time enter into one or more deeds, agreements, arrangements and understandings
             relating to the performance by the State of its obligations under the guarantees of deposits with AMB.

             From 1 April 2007, under Section 30(2)(c)(i) of the Banking Act 1995, Cabinet agreed that the Bank
             assume controllership and the ultimate winding down process of the AMB. It also permits the Bank
             to use money from the State NBF Trust Account to meet any controllership expenses.


   8.        Payable to government

             Net profit                                                                        30,460       20,371
             Transfer to General Reserves                                                            -      (1,000)
                                                                                               30,460       19,371

             One-fifth balance of Revaluation Reserve                                           2,571        2,782
                                                                                               33,031       22,153

             The amount payable to the Government of Fiji is made in accordance with Section 8(3) of the Reserve
             Bank of Fiji Act.

   9.        Currency in circulation

             Notes                                                                            364,864      355,955
             Coins                                                                             26,049       26,312
                                                                                              390,913      382,267

             The exclusive rights of national currency issue are vested with the Reserve Bank. Currency in circulation
             comprises bank notes and coins issued by the Reserve Bank.

   10.       Other liabilities

             Current
             Employee entitlements                                                                 762          930
             Other liabilities                                                                   2,351        1,058
                                                                                                 3,113        1,988



                                                                                                                   Annual Report 2008   61
                                                                                                                   RESERVE BANK OF FIJI
                                                                                     NOTES TO AND FORMING PART OF
                                                                                         THE FINANCIAL STATEMENTS
                                                                                                               For the year ended 31 December 2008




                     11.    Cash and cash equivalents
                            Cash and cash equivalents included in the statement of cash flows comprise of the following:
                                                                                                    Note           2008              2007
                                                                                                                   $000              $000
                            Cash on hand - local currency                                                          603              668
                            Cash and cash equivalents - foreign currency                              3        165,273          258,136
                                                                                                               165,876          258,804

                            Cash and cash equivalents – foreign currency forms part of short-term commercial paper and current
                            accounts in Note 3.


                     12.    Share capital

                            Authorised capital stock                                                              5,000             5,000

                            Issued and paid-up capital stock                                                      2,000             2,000


                     13.    Reserves

                            Reserves are maintained to cover the broad range of risks to which the Bank is exposed.

                            General reserve

                            The General reserve provides for events which are contingent and which are non-foreseeable.

                            Available- for- sale reserve

                            This reserve records fair value gains and losses on available-for-sale investments of the Bank.

                            Revaluation reserve account – foreign currency

                            Exchange gains and losses arising from revaluation of foreign currencies are transferred to the Revaluation
                            Reserve Account (refer note 1(c)).

                            Asset revaluation reserve

                            This reserve records movements between cost and fair value of property of the Bank.


                     14.    International Monetary Fund

                            The Bank was designated to serve with effect from 17 December 1976 as the Government of the
                            Republic of Fiji Island's fiscal agent for the purposes of the International Monetary Fund, and assumed
                            the Republic of Fiji Island's obligation of membership from that date.

                            As at 31 December 2008, the Republic of Fiji Island's membership subscription to the International
                            Monetary Fund remained at $191m (2007: $172.2m). Of this amount $42.9m (2007: $38.4m) is
                            shown as Reserve Tranche Position and is included as part of the External Reserves of the Reserve Bank
                            (refer note 3) and the balance representing the local currency subscription portion of $148.0m (2007:
                            $133.8m) is held mainly in the form of a non-interest bearing notes payable on demand.




62   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




    15.       Principal activities

              The Reserve Bank’s role as a central bank, as defined in the Reserve Bank of Fiji Act, is:
              (a) to regulate the issue of currency and the supply, availability and international exchange of money;
              (b) to promote monetary stability;
              (c) to promote a sound financial structure;
              (d) to foster credit and exchange conditions conducive to the orderly and balanced economic
                  development of the country.

    16.       Risk management policies

              The Bank identifies risks and implements controls in its operation and management of foreign reserves
              holdings. The main financial risks that the Bank faces are liquidity risk, exchange rate risk, interest rate
              risk, credit risk and operational risk.

              Policies for managing the above risks are outlined below. Like most central banks, the nature of the
              Bank’s operations creates exposures to a range of operational and reputational risks.

              Bank management seeks to ensure that strong and effective risk management and controls systems are
              in place for assessing, monitoring and managing risk exposures. Internal audit forms part of the Bank’s
              risk management framework. This function reports to the Governor and the Board Audit Committee
              on internal audit and related issues. All Bank groups are subject to periodic internal audit review.

              The Bank is subject to an annual external audit. Both external and internal audit arrangements are
              overseen by the Board Audit Committee comprising three of the Board’s directors. The Committee
              meets regularly and reports to the Board of directors on its activities.

              Liquidity risk management

              Liquidity risk relates to the difficulty in raising funds at short notice to meet commitments associated
              with financial instruments.

              To limit the liquidity risk, the Bank maintains an adequate level of reserves and taking into consideration
              the transaction demand on foreign exchange, ensures that an acceptable amount is maintained in
              current accounts at all times. The Bank invests in high quality instruments, including commercial
              paper and debt issued by Governments and Supranationals, all of which are easily converted to cash
              (refer note 18 for maturity analysis on liquidity).

              Exchange rate risk management

              Exchange rate risk relates to the risk of loss of foreign reserves arising from changes in the exchange
              rates against the Fiji dollar. The Bank has adopted a currency risk management policy, which maintains
              the Fiji dollar value of the foreign reserves and manage the fluctuations in the revaluation reserve
              account.

              Interest rate risk management

              Interest rate risk refers to the risk of loss arising from changes in interest rates.

              The Bank limits interest rate risk by modified duration targets. The benchmark modified duration for
              the total portfolio is twelve months. The duration of the portfolio is re-balanced regularly to maintain
              the targeted duration.

              Credit risk management

              Credit risk relates to the risk of loss from the failure of a counter-party to a transaction to perform
              according to the terms and conditions of the contract.



                                                                                                                       Annual Report 2008   63
                                                                                                                   RESERVE BANK OF FIJI
                                                                                      NOTES TO AND FORMING PART OF
                                                                                          THE FINANCIAL STATEMENTS
                                                                                                               For the year ended 31 December 2008




                     16.    Risk management policies (continued)

                            Credit risk management (continued)

                            To limit this credit risk, the Bank prescribes minimum credit ratings acceptable for investment and
                            specifies the maximum permissible credit exposure to individual banks and countries. In addition,
                            the number of commercial banks, with whom the Reserve Bank may deal with in foreign exchange, is
                            limited to six at any point in time and these banks must have minimum credit ratings of P1 for short-
                            term debt and Aa3 for long-term debt.

                            The Bank uses Standard and Poor’s, Moody’s and Fitch credit ratings for assessing the credit risk of
                            foreign counterparties. The credit ratings of counterparties are on “watch” all the time and are updated
                            as new market information is available. Foreign exchange limits per bank are imposed for all currency
                            dealings.

                            The total exposure of credit risk in the Bank’s portfolio is as follows:
                                                                                                                  2008              2007
                                                                                                                  $000              $000
                            Foreign currency assets
                               Short-term commercial paper and current accounts                                250,129          467,484
                               Marketable securities                                                           245,685          281,987
                               International Monetary Fund                                                     209,644          187,845

                            Local currency assets
                               Domestic securities                                                             160,421          178,594
                               Staff loans and advances                                                          1,294            1,169

                                                                                                               867,173 1,117,079

                            The Bank monitors credit risk by currency and sector. An analysis of concentrations of credit risk is
                            shown below:

                                                                                         2008           2008       2007             2007
                                                                                         $000              %       $000                %
                            Concentration by currency
                            United States                                           157,796             18%    213,943              19%
                            Japan                                                    31,260              4%     34,074               3%
                            European countries                                       40,716              5%     69,562               6%
                            Australia                                               159,042             18%    255,480              23%
                            New Zealand                                             107,000             12%    176,412              16%
                            Special Drawing Rights                                  209,644             24%    187,845              17%
                            Fiji                                                    161,715             19%    179,763              16%

                            Total financial assets                                   867,173           100% 1,117,079              100%

                            Concentration by sector
                            Foreign currency assets
                            Central banks                                           106,821             15%    101,082             11%
                            Commercial banks                                        202,603             29%    440,032             47%
                            Government                                               22,755              3%     35,291              4%
                            Municipal                                                15,666              2%     13,527              1%
                            Semi Government                                          51,486              7%     31,492              3%
                            Supranational                                            75,589             11%     98,769             11%
                            International Monetary Fund                             209,644             30%    187,844             20%
                            Others                                                   20,894              3%     29,279              3%
                                                                                    705,458            100%    937,316            100%



64   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




   16.        Risk management policies (continued)

              Credit risk management (continued)
                                                                         2008          2008          2007       2007
                                                                         $000             %          $000          %
              Local currency assets
              Government and statutory bodies                        160,421          99%         178,594       99%
              Staff loans and advances                                 1,294           1%           1,169        1%
                                                                     161,715         100%         179,763      100%
              Total financial assets                                  867,173                 1,117,079


              Operational Risk Management

              Operational risk refers to the activities that may expose the Bank to loss through error, lack of control
              or failure of internal processes and systems.

              Managing operational risk in the Bank is an integral part of day-to-day operations and oversight. This
              includes adherence to Bank wide corporate policies. There is also an active internal audit function
              carried out on a quarterly basis.

              To reduce operational risks in foreign reserves operations there is a clear separation of duties between
              the front office (dealing) and the back office (settlements function). The front office comprises
              authorised team of officers (dealers) who are duly authorised to transact on behalf of the Bank. The
              back office comprises officers who independently process and settle all the deals undertaken by the
              front office.

    17.       Fair values of financial assets and liabilities

              The fair value of an instrument is the amount for which an asset could be exchanged, or a liability
              settled, between knowledgeable, willing parties in an arms length transaction. Quoted market values
              represent fair value when a financial instrument is traded in an organised and liquid market that is able
              to absorb a significant transaction without moving the price against the trader.

              Financial assets and liabilities

              The valuation of the Bank’s financial assets and liabilities are discussed below:

              External reserves

              The reported value of external reserves is considered to be its fair value due to the short-term nature
              of the financial assets. Bonds are valued at mark to market.




                                                                                                                    Annual Report 2008   65
                                                                                                                     RESERVE BANK OF FIJI
                                                                                      NOTES TO AND FORMING PART OF
                                                                                          THE FINANCIAL STATEMENTS
                                                                                                                 For the year ended 31 December 2008




                     17.    Fair values of financial assets and liabilities (continued)

                            Financial assets and liabilities (continued)


                            Domestic securities

                            The fair value of the Bank’s domestic securities is $166.8m (2007: $186.1m), based on quoted market
                            prices.

                            Statutory reserve deposits

                            The carrying value of statutory reserve deposits are considered to approximate their fair value as they
                            are denominated in cash.

                            Demand deposits

                            The carrying value of deposits are considered to approximate their fair value as they are payable on
                            demand.

                            Reserve Bank of Fiji notes

                            The carrying value of the Reserve Bank of Fiji notes are considered to approximate their fair value as
                            they are redeemable on demand in accordance with the Bank’s policy.

                            Currency in circulation

                            The carrying value of currency in circulation is considered to be its fair value as reported in the accounts.

                            Other Financial Assets and Liabilities

                            The reported values of other financial assets and liabilities are considered to be its fair value.




66   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




18.       Maturity analysis
          Maturity analysis as at 31 December 2008
                                          0-3         3 - 12       1-5     Over 5   No Specific      Total
         Maturity analysis              Months       Months       Years     Years    Maturity
                                           $000        $000        $000     $000         $000        $000

        Foreign currency assets
        Short-term commercial
        paper and current accounts     165,273       84,856           -         -             -   250,129
        Fixed term deposits             28,993       30,301           -         -             -    59,294
        Bonds                           14,436        6,175    165,780          -             -   186,391
        Gold                             1,279             -          -         -             -     1,279
        Accrued interest                 9,997             -          -         -             -     9,997
        IMF: - Reserve tranche
                  position              42,963             -          -         -             -    42,963
                - Special drawing
                  rights                18,638             -          -         -             -    18,638
                - Currency
                  subscription         148,043             -          -         -             -   148,043
                                       429,622    121,332      165,780          -             -   716,734
        Local currency assets
        Cash on hand                       603             -          -         -           -         603
        Domestic securities             18,069        9,831     92,588    39,933            -     160,421
        Other assets                     2,237        1,328     10,147     5,979            -      19,691
        Property, plant & equipment           -            -          -         -     23,748       23,748

                                        20,909    11,159       102,735    45,912      23,748      204,463

        Total assets                   450,531    132,491      268,515    45,912       23,748     921,197

        Foreign currency liabilities

        Accrued interest & charges           3             -          -         -             -         3
        Demand deposits                      8             -          -         -             -         8
        IMF - Special drawing
                 rights allocation            -            -          -         -     18,905       18,905
                                            11             -          -         -     18,905       18,916
        Local currency liabilities
        Demand deposits                 66,068             -          -         -           -      66,068
        Payable to government           33,031             -          -         -           -      33,031
        Currency in circulation               -            -          -         -    390,913      390,913
        Statutory reserve deposit             -            -          -         -    188,895      188,895
        IMF - Notes currency
                  subscription                -            -          -         -    146,236      146,236
        Other liabilities                2,319            6        788          -           -       3,113

                                       101,418            6        788          -    726,044      828,256

        Total liabilities              101,429            6        788          -    744,949      847,172

        Net assets                                                                                 74,025




                                                                                                         Annual Report 2008   67
                                                                                                           RESERVE BANK OF FIJI
                                                                                  NOTES TO AND FORMING PART OF
                                                                                      THE FINANCIAL STATEMENTS
                                                                                                       For the year ended 31 December 2008




                     18.     Maturity analysis (continued)
                             Maturity analysis as at 31 December 2007
                                                               0-3       3 - 12       1-5     Over 5   No Specific               Total
                            Maturity analysis                Months     Months       Years     Years    Maturity
                                                               $000       $000       $000      $000            $000             $000

                            Foreign currency assets
                            Short-term commercial
                            paper and current accounts 258,136        209,348            -         -               -      467,484
                            Fixed term deposits         41,481         26,930            -         -               -       68,411
                            Bonds                             -         4,936     208,640          -               -      213,576
                            Gold                         1,078               -           -         -               -        1,078
                            Accrued interest            14,640               -           -         -               -       14,640
                            IMF: - Reserve tranche
                                      position          38,430                -          -         -               -        38,430
                                    - Special drawing
                                      rights            15,653                -          -         -               -        15,653
                                    - Currency
                                      subscription     133,762                -          -         -               -      133,762
                                                           503,180    241,214     208,640          -               -      953,034
                            Local currency assets
                            Cash on hand                       668           -           -         -            -             668
                            Domestic securities                 61     11,956      93,453    73,124             -         178,594
                            Other assets                     2,634      2,726      14,312     2,829             -          22,501
                            Property, plant & equipment           -          -           -         -      14,753           14,753

                                                             3,363     14,682     107,765    75,953       14,753          216,516

                            Total assets                   506,543    255,896     316,405    75,953       14,753        1,169,550

                            Foreign currency liabilities
                            Accrued interest & charges          65            -          -         -               -              65
                            Demand deposits                     82            -          -         -               -              82
                            IMF - Special drawing
                                     rights allocation            -           -          -         -      17,043            17,043
                                                               147            -          -         -      17,043            17,190
                            Local currency liabilities
                            Demand deposits                359,453            -          -         -           -          359,453
                            Reserve Bank of Fiji notes            -           -          -         -           -                 -
                            Payable to government           22,153            -          -         -           -           22,153
                            Currency in circulation               -           -          -         -    382,267           382,267
                            Statutory reserve deposit             -           -          -         -    194,198           194,198
                            IMF - Notes currency
                                     subscription                 -          -           -         -    131,832           131,832
                            Other liabilities                1,178        119         341       350            -            1,988

                                                           382,784        119         341       350     708,297 1,091,891

                            Total liabilities              382,931         119        341       350     725,340         1,109,081

                            Net assets                                                                                      60,469




68   Reserve Bank of Fiji
RESERVE BANK OF FIJI
NOTES TO AND FORMING PART OF
THE FINANCIAL STATEMENTS
For the year ended 31 December 2008




   19.        Related parties

              Identity of related parties

              The Bank has related party relationships with the board of directors, the executive management and
              the Government of the Republic of Fiji Islands.

              The board of directors during the financial year ended 31 December 2008 were Savenaca Narube
              (Chairman and Governor), Peceli Vocea, Kanti Tappoo (OBE), Ioane Naiveli, Robin Yarrow, Adish
              Narayan, Chandra Dulare and Deo Saran (from 11 February 2009).

              During the year the following persons were the executives identified as key management personnel,
              with the greatest authority and responsibility for planning and controlling the activities of the Bank:
              Savenaca Narube (Governor), Sada Reddy (Deputy Governor), Barry Whiteside (Chief Manager Financial
              Institutions), Lorraine Seeto (Chief Manager Corporate Planning and Assurance), Shajehan Hussein
              (Chief Manager Financial Markets), Esala Masitabua (Chief Manager Currency and Corporate Services),
              Annie Rogers (Advisor to Governors – up to 17 October 2008), Jitendra Singh (Acting Chief Manager
              Economics), Ariff Ali (Acting Chief Manager Financial Markets – from 3 November 2008), Razim
              Buksh (Director Financial Intelligence Unit), Uday Singh (Secretary to the Bank/Advisor Corporate
              Affairs).

              Transactions with related parties

              In the normal course of its operations, the Bank enters into transactions with related parties identified
              above. The transactions with the Board of directors and executive management include the payment
              of board remuneration and salaries, respectively.

              The transactions with the Government of the Republic of Fiji Islands include banking services, foreign
              exchange transactions, registry transactions and purchase of Government securities. During the year
              the Bank received $10.492m (2007: $9.650m) of interest income relating to their investments in
              Government securities. The Bank also paid $22.153m (2007: $14.912m) to the Government in
              accordance with Section 8(3) of the Reserve Bank of Fiji Act, 1983. The balance of the Bank’s investment
              in Government securities at year end amounted to $168.759m (2007: $181.391m).

              The Bank also provides an overnight standby facility to the Government of the Republic of Fiji Islands.
              At year end, the approved facility of $20m (2007: $20m) was not utilised.

              The transactions with the respective related parties are carried out on normal trading terms.

              During the year the following transactions were incurred with the related parties:

                                                                                                   2008         2007
                                                                                                   $000         $000
              Board remuneration expenses                                                             41          39
              Short-term employee benefits                                                         1,177       1,217
                                                                                                   1,218       1,256




                                                                                                                    Annual Report 2008   69
                                                                                                                  RESERVE BANK OF FIJI
                                                                                     NOTES TO AND FORMING PART OF
                                                                                         THE FINANCIAL STATEMENTS
                                                                                                              For the year ended 31 December 2008




                     20.    Commitments

                            Commitments not otherwise provided for in the financial statements and which existed at 31 December
                            2008 comprise:
                                                                                                                  2008              2007
                                                                                                                  $000              $000
                            Foreign exchange transactions:
                            Commitments
                            - Sales                                                                              5,702             2,854
                            - Purchases                                                                          6,715                  -
                            Capital commitments                                                                     27                16


                     21.    Lease receivable

                            The Bank leases out several floors of the Reserve Bank building. The operating lease rental receivable
                            are as follows:

                            Receivable not later than one year                                                      278              195
                            Receivable later than one year but not later than five years                             12               12
                            Receivable later than five years                                                           -                -

                                                                                                                    290              207

                     22.    Events subsequent to balance date

                            Since the end of the financial year, the directors are not aware of any matter or circumstance not
                            otherwise dealt with in the report or financial statements that will significantly or may significantly
                            affect the operations of the Bank, the results of those operations or state of affairs of the Bank in sub-
                            sequent financial years.




70   Reserve Bank of Fiji
                                                                                  SELECTED EVENTS IN 2008


14-18 Jan.   AUSTRAC Technical Assistance on FFIMSO prov-             27 Aug.      Press Release on the Release of 2007 RBF Annual
             ided by Mr. Mathew Hannigan and Mr. Mark Schloss.                     Report.
23 Jan. -                                                             29 Aug.      Ordinary Board Meeting.
13 Feb.      IMF Standard Reporting Format Technical Assistance       1 Sep.       Press Release on Unchanged Monetary Policy Stance.
             provided by Mr. Ron Pearson.                             4 Sep.       Governor addressed the 2008 Prime Minister’s Mini
14 Feb.      Special Board Meeting.                                                Economic Summit, Tradewinds.
15 Feb.      December 2007 Quarterly Review published.                8 Sep.       Press Release on Relaxation of Policy on Prepayment
19 Feb.      Governor opened Bank South Pacific, Nadi Branch.                      of Imports.
             AML Compliance Officers Forum.                                        Governor addressed the Australia-Fiji Business
28 Feb.      Ordinary Board Meeting.                                               Council, Sydney, Australia.
             Press Release on Unchanged Monetary Policy Stance.       8-11 Sep.    IMF/ADB/PFTAC/RBF Regional Workshop on
14 Mar.      Press Release on Clarification of Foreign Exchange                    Financial Soundness Indicators.
             Holdings.                                                10 Sep.      Governor spoke on radio-talk show, Australia.
27 Mar.      Ordinary Board Meeting.                                               RBF/ABIF Joint Meeting.
             Press Release on RBF Board Maintains Monetary            11 Sep.      Press Release on Public Awareness on New Coinage
             Policy Stance.                                                        Structure.
31 Mar.      The Operations Report and Financial Statements for       17-23 Sep.   IMF Staff Visit.
             31 December 2007 were submitted to Minister for          22 Sep. -
             Finance, National Planning, Sugar Industry and           3 Oct.     APRA assisted on-site supervision with participants
             Public Utilities.
                                                                                 from Papua New Guinea and Vanuatu.
7 Apr.       Governor’s presentation at the Australia-Fiji Business
                                                                      25 Sep.    Ordinary Board Meeting.
             Council “Business Briefing and Workshop”.
                                                                      26 Sep.    Press Release on Unchanged Monetary Policy Stance.
15 Apr.      Press Release on the Bank’s Transfer Profits to
                                                                      29 Sep.    Press Release on Relaxation of Exchange Control
             Government.
                                                                                 Policies.
21 Apr.      Press Release on Revised Economic Projections.
                                                                      29-30 Sep. Governor was keynote speaker at Pacific Credit
24 Apr.      Ordinary Board Meeting.
                                                                                 Unions Technical Congress, Nadi.
25 Apr.      Press Release on Relaxation of Control Policy by the
                                                                      3 Oct.     Deputy Governor addressed the Fiji-NZ Business
             Bank.
                                                                                 Council, Holiday Inn, Suva.
29 Apr. -
                                                                      7 Oct.     Press Release on Global Financial Market Turmoil.
9 May      IMF Technical Assistance on Superannuation
                                                                      17 Oct.    Press Release on Clarification of Issues on 1 cent and
           provided by Mr. Ron Bergeron.
13 May     Economics Association of Fiji and PEGASES seminar                     2-cent Coins.
           on “Remittances: Amplifying the Voices of Consum-          22-24 Oct. RBF hosted the SEACEN DORT Meeting in Fiji.
           ers” by Mr. Tomas Ernst.                                   29 Oct.    Economics Association of Fiji panel discussion on
14 May     Press Release on Policy Changes.                                      “The Impact of the Global Financial Crisis” by Dr. T
15 May     March 2008 Quarterly Review published.                                K Jayaraman, Mr. Laurie Mellsop and Mr. Bruce
16 May     Press Release on Border Currency Reporting.                           Sutton.
22 May     Governor opened Micro, Small Medium Enterprises            30 Oct.    Ordinary Board Meeting.
           Forum, Tradewinds, Suva.                                   31 Oct.    Press Release on Unchanged Monetary Policy Stance.
29 May     Commissioning of New Note Processing Machine.              5-6 Nov.   Governor was Chief Guest at the Fiji Indigenous
           Ordinary Board Meeting.                                               Business Council/Fiji Holdings Limited Annual
           Press Release on Unchanged Monetary Policy Stance.                    Symposium 2008.
4 Jun.     Governor launched “Yehdo”, a product of TransTel           12 Nov.    Deputy Governor addressed the Fiji Employers’
           at USP’s Oceanic Centre.                                              Federation on the “Impact of the Global Crises on
5 Jun.     Governor addressed TPAF Productivity                                  Fiji’s Economy”.
           Symposium on “The Economic Challenges and                  15 Nov.    The Bank sponsored an award for Agriculture at the
           Lessons to Raise Fiji’s Competitiveness”, Holiday Inn,                FTIB Exporter of the Year Awards.
           Suva.                                                      21 Nov.    Governor addressed 2nd SEACEN Advanced
13 Jun.    Press Release on MOA signed between FIU and FTIB.                     Leadership Course on Managing Talent in Central
20 Jun.    Governor opened Westpac MHCC Branch, Suva.                            Banks, Kuala Lumpur, Malaysia.
23 Jun.    Press Release on Policy Changes.                           26 Nov.    Governor was Chief Guest at Dudley High School
24 Jun.    Press Release on the Release of 2007 FIU Annual                       Prize Giving Ceremony.
           Report.                                                    27 Nov.    Ordinary Board Meeting.
26 Jun.    Ordinary Board Meeting.                                    28 Nov.    Press Release on Unchanged Monetary Policy Stance.
27 Jun.    Press Release on Unchanged Monetary Policy Stance.                    Governor opened Dai-ichi Auto Home Limited’s new
30 Jun.    Submission of 2007 Insurance Annual Report to                         Complex.
           Minister for Finance, National Planning, Sugar             2 Dec.     2007 Insurance Annual Report was tabled in Cabinet.
           Industry and Public Utilities.                                        Governor addressed Fiji-Australia Business Council
2 Jul.     Press Release on Monetary Policy Statement.                           Forum 2008 “Business Tomorrow in the Economy”,
           May 2008 Monetary Policy Statement Released.                          Nadi.
3 Jul.     Press Release on MOA signed between FIU and the            3 Dec.     September 2008 Quarterly Review published.
           Ministry of Justice.                                                  Press Release on 2007 Insurance Annual Report.
28 Jul.    Economics Association of Fiji panel discussion on          5 Dec.     Governor addressed South Pacific Governor’s
           “The Global Effects of Rising Prices: What Can We                     Conference on FIJICLEAR, Australia.
           Do?” by Dr. Mahendra Reddy, Mrs. Premila Kumar,            9 Dec.     The Bank’s 2006 Annual Report won 1st prize at the
           Mr. Narasimhan Krishnan and Mr. Semiti Qalowasa.                      SPSE 2008 Annual Report Competition (Category
5 Aug.     Deputy Governor opened Australia and New Zealand                      A: Statutory Bodies, Government Bodies and Unlisted
           Banking Group Limited’s (ANZ) ATM No. 70, Nasese.                     Trusts).
6 Aug.     June 2008 Quarterly Review published.                      10 Dec.    Ground Breaking Ceremony – Bank’s BRS, Tamavua.
8 Aug.     Press Release on High Court’s Dismissal of Claims          11 Dec.    Ordinary Board Meeting.
           by the Auditor General against RBF.                                   The Bank launched the new Fiji Coins.
14 Aug.    Press Release on Policy Changes.                                      Press Release on the Launching of Fiji’s New Coins
18-29 Aug. APRA assistance provided for on-site examination with                 Series.
           participants from Papua New Guinea and Cook Islands.       15 Dec.    The Bank released its Monetary Policy Statement.
22 Aug.    Deputy Governor spoke at ANZ Fiji’s Tourism Forum                     The Bank sponsored the Agriculture award at the
           2008 “Meeting Change Together”.                                       FDB Small Business Awards.
25 Aug.    Press Release on Revised Economic Projections.                        Press Release on Monetary Policy Statement.
26 Aug.    The 2007 Reserve Bank of Fiji Annual Report was            30 Dec.    Press Release on Foreign Currency Accounts Scheme
           tabled in Cabinet.                                                    in Fiji.


                                                                                                                                    Annual Report 2008   71
                            FIJI: KEY ECONOMIC AND FINANCIAL INDICATORS




                                                                                                             2004                 2005                  2006            2007           2008

                     I.      GROSS DOMESTIC PRODUCT
                              GDP at Market Price ($ Million)                                                 4,726.8               5,010.0            5,483.3(r)      5,435.9(p)     5,895.9(e)
                              Per Capita GDP at Current Factor Cost ($)                                       4,777.6               5,030.2            5,471.0(r)      5,462.7(p)     5,898.3(e)
                              Constant Price GDP Growth Rate (%)                                                 5.5(r)                0.6(r)              3.4(r)         - 6.6(p)        0.2(e)


                     II.     LABOUR MARKET
                               Labour Force                                                                 318,628(r)           321,336(r)            324,607(r)      326,988(r)     329,755(e)
                               Wage and Salary Earners (mid-year)                                             121,900            123,900(r)            126,000(r)      128,800(r)     130,200(e)

                     III. INFLATION (year-on-year % change)
                            All Items                                                                                3.3                  2.7                   3.1            4.3             6.6

                     IV.     GOVERNMENT FINANCE ($ Million)
                              Total Revenue and Grants                                                         1,176.2               1,221.9             1,401.3          1,288.2       1,435.9(r)
                                 Total Expenditure (excluding loan repayments)                                 1,322.5               1,391.0             1,558.5          1,384.4       1,527.9(r)

                     V.      EXTERNAL TRADE ($ Million)
                               Current Account Balance                                                          - 641.9              - 670.3             - 1238.1       - 941.3(e)    - 1,253.6(e)
                               Capital & Financial Account Balance                                                242.7                402.9                941.3         237.6(e)        373.9(e)
                                 Current Account Balance as a percentage of GDP                                   - 13.6               - 13.4               - 22.6        - 17.3(e)       - 21.0(e)

                     VI. FOREIGN EXCHANGE RESERVES ($ Million)
                           Foreign Reserves                                                                      786.2                 549.1                  515.4         804.6           558.7

                     VII. MONEY AND CREDIT (year-on-year % change)
                           Narrow Money                                                                          13.11                 17.59                  - 4.57        43.47          - 19.67
                           Currency in Circulation                                                               11.57                 11.01                    5.04        - 1.32            8.40
                           Quasi-Money                                                                            8.07                 12.76                  42.01         - 9.79            5.58
                           Domestic Credit1                                                                      12.53                 26.59                  23.59           3.16            4.85

                     VIII. INTEREST RATES (% p.a.)
                             Lending Rate                                                                          7.03                 6.63                   7.90          8.46             7.72
                             Savings Deposit Rate                                                                  0.36                 0.40                   0.84          0.64             0.64
                             Time Deposit Rate                                                                     1.77                 2.03                   9.05          4.45             3.00
                             91-Day RBF Note Rate2                                                                 1.75                 2.25                   4.25          4.25              n.i.
                             Minimum Lending Rate                                                                  2.25                 2.75                   5.25          9.25             6.32

                     IX. EXCHANGE RATES (mid-rates, F$1 equals: end of period)
                           United States dollar                                                                 0.6079               0.5731               0.6009           0.6447          0.5669
                           Real Effective Exchange Rate (January 1999 = 100)                                    100.43               100.31               102.29           104.34          107.45

                    Sources: Fiji Islands Bureau of Statistics, Reserve Bank of Fiji, Ministry of Finance and National Planning and Commercial Banks

                    Notes:
                    1 Credit to the private sector is adjusted for NBF Asset Management Bank’s non-performing loans and advances.
                    2 In 2006, the rate is for October. In 2007, the rate is for June. There were no issues of 91-day RBF notes in December for both years.




                    Key:
                    (e): estimate
                    n.i: no issue
                    (p): provisional
                    (r): revised




72   Reserve Bank of Fiji
                                                                       GLOSSARY




ABIF     - Association of Banks in Fiji
ADB      - Asian Development Bank
AFSPC    - Association of Financial Supervisors of Pacific Countries
AMB      - National Bank of Fiji Asset Management Bank
AML      - Anti-Money Laundering
ANZ      - Australia and New Zealand Banking Group Limited
APG      - Asia Pacific Group
APRA     - Australian Prudential Regulation Authority
ATM      - Automated Teller Machines
BCP      - Business Continuity Plan
BRS      - Business Resumption Site
CNB      - Colonial National Bank
COC      - Constitutional Offices Commission
DORT     - Directors of Research and Training
EFF      - Export Finance Facility
EMS      - Electromagnetic Signatures
FDB      - Fiji Development Bank
FFIMSO   - Fiji FIU Information Management System Online
FIRCA    - Fiji Islands Revenue and Customs Authority
FIU      - Financial Intelligence Unit
FNPF     - Fiji National Provident Fund
FTIB     - Fiji Islands Trade and Investment Bureau
FTR      - Financial Transactions Reporting
GDP      - Gross Domestic Product
IMF      - International Monetary Fund
IT       - Information Technology
KPIs     - Key Performance Indicators
MPC      - Macroeconomic Policy Committee
NBFIs    - Non-Bank Financial Institutions
NEER     - Nominal Effective Exchange Rate
OHS      - Occupational Health and Safety
OMO      - Open Market Operations
PFTAC    - Pacific Financial Technical Assistance Centre
RBF      - Reserve Bank of Fiji
REER     - Real Effective Exchange Rate
RRA      - Revaluation Reserve Account
SDR      - Special Drawing Rights
SEACEN   - South East Asian Central Banks
SME      - Small and Micro Enterprises
SPSE     - South Pacific Stock Exchange
SRD      - Statutory Reserves Deposit
STRs     - Suspicious Transactions Reports
TPAF     - Training and Productivity Authority of Fiji
TRIM     - Total Records Information Management System
US       - United States of America
USP      - University of the South Pacific
VAT      - Value Added Tax




                                                                                  Annual Report 2008   73
               Reserve Bank of Fiji

The great double-hulled, ocean-going canoes (drua) of
the ancient Fijians were remarkable crafts, capable of
long voyages. The tagaga (pronounced “tanganga”) or
masthead, was crucial for holding in place the sails,
woven from the leaves of the pandanus tree. It was the
tagaga which enabled the navigators to keep their drua
sailing towards their destinations.

For the Reserve Bank of Fiji, a logo based on the tagaga
masthead, symbolises the Bank’s role in contributing
towards a sure and steady course for Fiji’s economy.
     Reserve Bank of Fiji

              Postal:
Private Mail Bag, Suva, Fiji Islands.

           Telephone:
         (679) 331 3611

            Facsimile:
         (679) 330 1688

              Email:
          info@rbf.gov.fj

            Website:
          www.rbf.gov.fj

				
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