Opening Remarks
A warm welcome everyone. It is my pleasure to welcome you all on this important occasion this afternoon.
Today’s signing of the Master Repurchase Agreement marks an important step forward, allowing us to conduct repo and reverse repo transactions, not only between the commercial banks and the Central Bank, but now also directly between the commercial banks - all on a uniformly collateralised basis.
Background and Early Work
Our commercial banks have traditionally lent funds to each other on an outright basis with no underlying collateral.
While this allowed liquidity to circulate, it also exposed those lending and placing funds - to counterparty risk with no security to fall back on.
In contrast, collateralised lending and placement of funds in the interbank market provides for a much stronger framework, with Government Inscribed Stock pledged as collateral.
Interbank transactions can now be asset-backed, removing counterparty risk and building confidence - encouraging you to deal more actively with one another and supporting the development of the interbank market in Papua New Guinea.
The BPNG first began discussions on collateralised facilities as far back as 2014 and those early conversations set us on the path that brings us together here this afternoon.
Introduction of the Bilateral Agreement (2019)
In 2019, these efforts bore fruit with the signing of the Bilateral Repurchase Agreement. For the first time, the overnight borrowing facilities between the BPNG and the commercial banks could be conducted on a collateralised basis.
This was an important step forward - but it had its limits - it only applied to transactions between each commercial bank and the BPNG.
It did not yet extend to lending, and placement of funds between the commercial banks. It was a step forward, but only the first step.
Review and Reform Process
The IMF Program allowed us to conduct a careful review of that arrangement.
Working closely with the IMF Technical Assistance Team, and in consultation with all of you, we designed a framework that was stronger and more aligned with international standards.
The aim was to remove counterparty risk and to lay the foundation for a deeper and more liquid interbank market in PNG.
Introduction of the Master Repurchase Agreement (MRA)
The result of that process is the Master Repurchase Agreement, which we are signing today.
This is a major milestone. It makes borrowing and placing of funds between the banks easier and more transparent; it builds confidence and it strengthens liquidity management between the main providers of credit in our financial system.
And above all, it creates the conditions for a more active, and more liquid, interbank market.
Integration with the Central Depository System (CSD)
The next step will be the integration of these operations into the Central Depository System Portal - which is scheduled to go live in October 2025.
This will allow you to submit repo and reverse repo requests directly online - making the system even more efficient and transparent.
The next phase will see the inclusion of non-bank participants, which will expand available liquidity and encourage more active borrowing and lending throughout the market.
Next Steps – Global Standards Alignment
Beyond that - we aim to annex the MRA to the Global Master Repurchase Agreement, bringing PNG into full alignment with international best practice by December of 2025.
Acknowledgements
Let me close by expressing my gratitude. To the BPNG Team and the BPNG engaged consultants Mr. Colin Jackson and Mr. Steve Nicholls, whose tireless efforts have brought us to this point, and we are equally grateful to the IMF Technical Assistance Team and IMF-engaged consultant Mr. Richard Comotto for their invaluable guidance and expertise
And most of all, to you - the commercial banks - for your cooperation, and your contribution, through your willingness to work with us in building this stronger framework.
Collateralised repos and reverse repos will result in greater confidence in the interbank market and add another strong pillar to the foundations of our financial system - supporting financial system stability - and the strength of our economy for many years to come.
Thank You.