Governor of Bank of PNG Talking Points at the Savings and Loan Societies Industry Meeting 25th May, 2016
TALKING POINTS FOR GOVERNOR
AT THE SAVINGS AND LOAN SOCIETIES INDUSTRY MEETING
25th May 2016
HOLIDAY INN HOTEL, PORT MORESBY, NCD
1. Greetings and Acknowledgement
- Mr. Jack Namaliu, Chairman of Federation of Savings & Loan Societies (FESALOS),
- Mr. Paulus Laveil, Managing Director for FESALOS;
- Board members for FESALOS
- Mr. Pierre Seguin, Financial Sector Supervision Advisor, Pacific Financial Technical Assistance Centre (PFTAC)
- Directors, Managers and staff of Savings and Loan Societies;
I take this opportunity to thank all representatives of the Societies present this afternoon at this important S&L industry meeting. I would like to see that discussions this afternoon will aim to clarify the implications of the new S&L Societies Act 2015, which has been passed by Parliament and we hope to be gazetted soon. I must stress that there are benefits and advantages that can achieve when Societies gain full compliance with requirements of the new Act. That is why it is crucial for boards and managements of those Societies who are still in the dark or unclear about the upcoming changes and licensing hurdles set out under the new Act, that they need to ask for clarification and guidance now before it’s too late.
2. Continuing Progress and Challenges in the S&L Industry
The continued growth of the industry is noted as shown by the following financial indicators over the past 5 years from 2011 to the end of 2015:
- Total assets increased from K692m to K934m
- Total deposited increased from K411m to K494m
- Number of members increased from 34,987 to 236,173.
On the other end the Bank continues to observe a growing number of Societies practicing poor governance at the boards level, exacerbated by poor and complacent management. A large number of Societies continue to face challenges with inability to afford good Management Information System (MIS) and thus continuously been late in submitting quarterly returns to the Bank, poor lending practices resulting in high rate of default and other compliance issues.
The Bank, in collaboration with some local institutions and development partners, will continue to provide capacity building initiatives to build and promote good governance and proper risk management practices in the Societies with a objective of growing and safeguarding the interest of the members. This objective has been supported by many development partners in region, including our friends from PFTAC, APRA and many others. In PNG, I acknowledge the invitation taken by FESALOS, IBBM and the Microfinance Expansion project (MEP) for partnering with the Bank in facilitating training programs for savings and loan societies.
So the journey has not been smooth and not really pleasing either. There is more we can do and good benefits which we can realized. And this is the reason why this industry is going to move into the newly passed Savings and Loan Societies Act.
In terms of the modernization process, as Societies move towards complying with the requirements of the new Act, let me emphasize a number of areas which I would like to challenge the Societies and the FESALOS to see this industry implementing under the new Act:
3. Benefits and Advantages under the Savings and Loan Societies Act 2015
The new Act aims to bring modernization to the S&L industry. The following are some of the benefits we expect the Societies to realize as they meet the transitional and licensing requirements:
- Improved governance – the societies will bring on to their boards independent directors with professional experience in key areas such as banking & finance, legal, accounting, business management, risk management and governance. One of the key aspects of governance is to ensure enforcement of full disclosure of business connections by members of the board and management of Societies.
- Prudent management by societies – strong boards will ensure effective, efficient and performing managers,
- Lending and other core business activities of the Societies will be market and risk based, deploying appropriate technologies to manage risks through innovation and smart management techniques,
- Opportunity to offer wide range of products & services including to offer interest rates for loans at market basis,
- It also provides the opportunities to expand its member base and grow the business.
- Prudential supervision by the Central Bank will be risk-based.
The overall aim of this modernization process is to have well governed Societies that that are high performing in terms of profitability, growing their assets, member benefits and savings.
4. Opportunities for Innovations & Growth
- National Payments System
PNG has a world class national payments system, called KATS, which provides real time settlements and clearing for direct debits, with the exception of Cheques truncation which takes at most 3 days to clear.
Over the next several months PNG should have in place a national payment switch which will provide interoperability between all deposit-taking institutions, including S&L Societies, and in particular between all users of electronic cards and mobile phones. This is creating an ecosystem which opens up the ability for members of your Societies and other depositors to transact widely, either through cards or smart mobile phones. It is an opportunity for Societies to be part of an ecosystem to enable growth, by exploring new initiatives and products that could be created using this modern system.
- Societies to Develop Banking and Lending Policies to Grow SME
The National Government has now in place a National SME Policy. Societies are encouraged to develop specific policies and strategies to support business related lending for members to grow their small businesses and create wealth (assets) and savings. I encourage FESALOS to look at this opportunity with the Societies to see how the industry can play a key role in operationalizing lending for SMEs.
- Registration of personal movable assets as securities for loans
The National Government has in place a Personal Property Security Act (PPSA) which will enable individuals to pledge their moveable assets in order to access finance to develop business initiatives. Essentially, the PPSA will enable lending institutions such as S&L Societies to secure movable assets such as motor vehicles, chattels in the homes as collaterals to be able to lend to members. I encourage Societies and guidance from FESALOS to tap into this opportunity.
- Strategies for Product Development, Promotion and Awareness
The Societies, as they embark on finalising their Strategic Business Plans (SBP) to start developing specific innovative ideas and strategies for developing member-relevant products and marketing & awareness. It is expected that the SBP will set out the type of membership/clientele each society is expected to serve or tap into, and likewise must aim to develop products which are appropriate to promote relevance and so forth.
- Partnership with Others like NGOs and Telecommunication Companies to complement operations
In addition to Strategic Business Planning, Societies are encouraged to consider establishing strategic business partnership with NGOs or Telecommunication companies to tap into innovative ways of growing and strengthening S&L businesses or other complimentary business activities.
5. Strategic Business Planning Preparedness by Savings and Loan Societies
I have clearly stated above the benefits and advantages which Societies will tap into in their process of modernization under the new legislative framework. I have also highlighted some of the many possibilities which FESALOS and the Societies should seriously consider in building into their Plans.
From the information provided by the Societies through the checklist and their strategic business plans, I advise that some of the societies are not prepared to adapt to the changes brought about by the new Act. I urge those Societies concerned to devote ample time and commitment to put in place what is required from them.
During the two day workshop on analyzing your financial statement, you will be able to understand where you stand as far as your financials are concerned. Take advantage of his training and participate actively.
6. Concluding remarks
In conclusion, I encourage all societies to take this meeting as an important forum to assess where you are and what is expected of you to modernization the respective operations, and be actively involved in the transformation of your society and industry under the new SLSA.
Finally, also I take this opportunity to thank the board of FESALOS for organising the industry meeting as well as the two day workshop. I would like to also thank Mr. Pierre Seguin and PFTAC for the support in strengthening the financial sector in the Pacific, particularly in PNG. I wish you all a fruitful meeting and a successful two day workshop starting tomorrow.
God bless you all.
Mr. Loi M Bakani, CMG
Governor & Registrar
Savings & Loan Societies Industry